Financial advisers seek growth post February volatility

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Financial advisers have refocused their recommendations and research on growth strategies following market volatility in February with property, infrastructure and multi-asset strategies particularly in favour. The renewed focus on growth options follows a dash for cash in the first weeks of February after global markets dropped.

These are just some of the findings from analysis of the recommendation and research strategies of Australia’s financial advisers from the recently launched Lonsec Connect platform. Lonsec Connect combines traditional market data with financial adviser engagement analytics to provide insight for fund managers into the interests, needs and behaviours of financial advisers on behalf of their clients. The platform reveals which financial strategies are of particular interest to advisers and how and when that interest translates into recommendations and fund flows.

The analysis for the first two months of 2018 provides insight into how Australia’s financial advisers responded to the market volatility of early February and subsequent return to relative normalcy. The volatility in the first half of the month resulted in an immediate burst of research into defensive products such as cash and property with a lag of around one week between that research and recommendations for the asset class. In the last two weeks of February as the market volatility eased financial advisers began to show more confidence in growth assets with recommendations picking up for global equities and multi-asset classes.

Financial adviser searches and recommendations for cash products
(% change on previous week)

Source: Lonsec Connect

 

However, the data also reveals that while research and recommendations for cash spiked during the volatility the interest in that asset class had been building for some time suggesting advisors were looking for ways to hedge their client portfolios against the risk that the market had reached unsustainable levels.

Financial adviser recommendations for cash products
(% change on previous week)

Source: Lonsec Connect

 

Research from the Lonsec Connect platform also shows that financial advisers have paid particular attention to the impact of recent events on their clients’ superannuation accounts with ‘super’ and ‘income’ two of the most highly searched terms by financial advisers over the last thirty days. Other terms of interest include ‘global’, ‘fixed’ and ‘property’ suggesting the hunt for safety and yield may be heading offshore.

Financial adviser searches during February

Source: Lonsec Connect

 

The platform also reveals differences in strategies by region. For example, financial advisers in Victoria have higher engagement with Global Large Cap funds than their peers in New South Wales, while in Western Australia, South Australia and the Northern Territory there are higher levels of engagement with Alternative asset classes. However, all regions and cities have a heavy focus on Australian Large Cap funds.

Data also reveals that actively managed funds are making some inroads into Exchange Traded Products, although off a low base. Funds under management (FUM) for actively managed Exchanged Traded Funds (ETFs) invested in Australian Equities grew to over 9 percent of total FUM in 2017 off a base of 2.27 percent in 2013. ETFs focused on Global Equities experienced similar growth for actively managed funds over the same time period. However, for Managed Funds active managers remain dominant with over 87 percent of FUM in 2017.

Growth in passive and active ETF funds under management

Source: Lonsec Connect

 

Across all asset classes for the 12 months ending 31 January 2018 it is Emerging Market Debt that has had the greatest net inflows followed by Fixed Interest products. Australian Smaller Companies have experienced the largest net outflows.

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