Inflation

In a new survey of financial advisors released Monday by SS&C Technologies Holdings, a financial services provider, three-quarters of respondents said they were at least somewhat concerned about inflation. One-fifth purported not to be at all concerned.

The survey focused on fixed income investing, economic confidence and market performance.

Forty-four percent of advisors said their confidence in the economy was at about the same level as it was at the same time in 2017, while 38% said they were less confident.

"The survey's results show an interesting dichotomy in that the vast majority of financial advisors expressed concern about the specter of inflation dogging 2019, yet those same respondents' confidence in the broad economy remains on par with where it was at this time last year," Gibson Smith, founder and chief investment officer of Smith Capital Investors, said in a statement.

"If fixed income allocations can be considered a bellwether for overall portfolio reallocations, then our consensus is advisors are taking a wait-and-see approach to the coming year before making any meaningful modifications to how they think about their clients' overall market exposure."

ALPS Advisors, a division of SS&C Technologies, and Smith Capital Investors conducted the online survey in late October and early November of 313 financial advisors at independent broker-dealers, banks, wirehouses and in sole practice as RIAs.

Asked whether the U.S. Federal Reserve had moved too quickly or aggressively on interest rate hikes, 64% of advisors said it had not, while 31% said it had — indicating support of the pace of the Fed's rate hikes, according to the statement.

Sixty percent of advisors said they were not changing their clients' fixed-income allocations for 2019. Fifteen percent said they planned to increase their fixed-income exposure, and 12% said they would ratchet it down as the new year approaches.

As to the rationale for their clients' fixed-income allocations, 18% cited capital preservation, 17% risk reduction, 9% yield, 7% risk-adjusted returns, 7% portfolio insurance and 40% all the above.

Fifty-one percent of financial advisors said they currently favored short-duration fixed income investments, 21% investment grade, 14% emerging markets debt and 14% high-yield.

The survey also asked advisors to rank the factors that help guide their fixed income allocations:

Interest rate hikes 60%
Monetary policy 55%
Economic growth 39%
Geopolitical and macroeconomic developments 38%
Trade tensions 24%

Only 12% of respondents said they focused on beating a traditional benchmark when asked to name their preferred benchmarking strategy. Fifty-two percent cited desired or purpose-driven outcomes, and 28% said absolute return and away from traditional benchmarking.

"I think 2019 is going to be a very different year from 2018 in a lot of respects," Ned Burke, chief executive of ALPS Advisors, said in the statement. "Volatility has re-entered the market, and it looks like it's here to stay. The pendulum is swinging back to active management, and advisors are hunkering down, waiting to see how the markets respond to the coming year."

Burke acknowledged that this uncertainty can be daunting, but noted that every market brings opportunities. "It will be interesting to see how advisors adapt their portfolio to these changing conditions."

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