Clients of financial advisers are nervous about investing in equities and are seeking to reduce risk within the next twelve months, according to data from investment firm Time.
The data, published last week, showed 49 per cent of clients want to reduce risk within the next year.
Many advisers also expect market volatility to increase within the next twelve months, with the research indicating that 45 per cent of advisers expect higher volatility, with most (55 per cent) expecting European equities to be the most volatile, and 47 per cent expecting UK equities to be the most volatile.
Cash is favoured by 42 per cent of advisers seeking to reduce risk, followed by property, which is favoured by 26 per cent, and alternative investments, including absolute return funds, which is favoured by 25 per cent.
James Burns, who jointly runs the model portfolio service at Smith and Williamson, said he is likely to increase his exposure to absolute return funds in the event of a market downturn, despite the recent underperformance of funds in that sector.
His funds are already invested in the BH Macro fund, which he said "has historically performed well when market conditions are turbulent".
Henry Dovland, senior business development manager at Time Investments, said: "It is likely that market volatility is here to stay for some time.
"This is having an impact on investor sentiment and attitudes to risk. As a result, advisers are recommending investments with features such as defensive investment strategies and secure income streams, which are less volatile and aim to provide greater certainty of income than equities."
Tom Sparke, investment director at GDIM, a discretionary fund management firm in Cambridge, said: "In the short-term there are many factors that could cause a jump up in volatility, including the effects of previous monetary tightening, lower trading volumes and the high proportion in passive investments that will move vast sums of money swiftly and indiscriminately.
"In these environments it is important to hold significant amounts of low, inverse or non-correlating assets, traditionally bonds but also potentially including property, absolute return or multi-asset investments to combat equity volatility."
He added: "Despite their recent impressive run we still favour sovereign bonds as these are a potent mitigation tool in tougher times as they provide valuable inverse correlation to equity markets.
"However, with potentially lower rates and further stimulus coming we may experience further periods like 2017 when assets enjoyed good returns with low levels of volatility."
david.thorpe@ft.com
