Market

volatility

makes a

difference

2016 Market Sentiment Report

When we kicked off our market sentiment survey earlier this year, we decided to shine a light not just on what investors are thinking, but on what they’ve actually been doing.

We were looking for clues as to whether recent stock market volatility had an impact on investors’ views and behaviour – and it did.

Even with some anxiety and a trend toward pessimism, we found some comforting alignment between investors’ and advisors’ opinions on the best course of action when markets go topsy-turvy.

So whether you’re an investor in search of education or an advisor looking for client insight, we hope you discover a nugget or three to help you find the bright side in today’s volatile markets.

Note: In this study, investors are defined as Canadians who are 18-80 years of age with a minimum of $25,000 in investable assets.

Now, on with the report...

In thinking about the economy five years down the road, pessimists outnumbered optimists by a slim margin.

This modestly downbeat view carried over to the stock market, where those expecting a decline in the S&P/TSX Composite Index edged out those expecting a gain.

The data further revealed that among age groups, Millennials were the most negative on Canadian stocks (with Gen X a very close second). They were also more likely than any other age group to predict a recession.

Some investors appeared to feel a little heat from the recent volatility, but Millennials more than most.

Millennials were most likely to have sold investments to raise cash. The reason? For half of them, it was fear of losing money.

A key reason for selling investments to raise cash was "fear of losing money."

But what happens when playing it safe becomes a risky business?

About this chart

While this chart makes a strong case for staying invested in stocks, we learned in our survey that only 54% of investors are confident that markets will rebound enough for them to reach their long-term goals – a number we thought was surprisingly low.

If the chart above teaches us anything, it’s that historically, stock markets do indeed bounce back – and then some.

Here’s what else we found surprising:
The youngest generation we surveyed was the most likely to settle for lower rates of return to experience less volatility.

In theory, those with a longer time horizon are in the best position to withstand more volatility. It’s the natural trade-off for achieving higher returns over the long term.

It may seem counterintuitive to think that stocks with lower volatility could outperform their high-volatility peers over the long term. But market history offers plenty of evidence to back up this "low-volatility anomaly."

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“Volatility is my middle name.
Tell me something I don't know.”

“Less vola-what?”

When stocks move up and down in relation to a long-term historic price level, that’s known as market volatility. The more dramatic and frequent those swings are, the more extreme the volatility.

To take advantage of the growth potential of stocks while easing the worry of market volatility, speak to your financial advisor about our two low volatility mutual funds.

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But we weren’t just looking at the data from an age perspective. On the question of why 20% of respondents sold some of their investments to raise cash, we discovered a dramatic difference between men and women centred around two emotionally charged words:

OPPORTUNITY


FEAR

Reasons for selling investments to raise cash:


"Opportunity to invest elsewhere"

"Fear of losing
money"

These results suggest that when markets get rocky and emotions weigh more heavily in our decisions, investment education and advice that’s tailored differently for men and women could be especially important.

As we’ve found in past surveys, Canadians tend to be heavily invested at home. The average portfolio allocation to Canadian stocks and stock mutual funds was 28%, one percentage point higher than cash. The only investors with a higher cash allocation than Millennials were those aged 67 and older.

With foreign stocks and bonds (and foreign stock and bond mutual funds) making up just 11% of investors’ portfolios, there may be some benefit to looking further afield for investment opportunities. Doing so not only opens up different avenues for potential return, it may also help reduce risk.

There is no way to predict when markets are going to fall. But it is possible to play defence for when they do. By investing in a number of different asset classes, you may offset the risk that comes from being heavily invested in one or just a few of them.

17 % 1 % 16 % 15 % 3 % 21 % 10 % 3 % 3 % 4 % 4 % 3 %

“That's a lot of colours
to keep track of.
Got something simpler?”

Looking for diversification within a single investment? Sun Life Granite Managed Solutions provide global diversification and exposure to non-traditional asset classes such as real estate and infrastructure.

It’s not as if investors have been making portfolio decisions in a vacuum. Many told us they’ve been leaning on their financial advisor more heavily specifically because of recent market volatility – much as we’d expect.

The desire to connect with an advisor during turbulent markets was most prevalent among Millennials.

“I’ve been having more frequent conversations with my advisor because of recent market volatility.”

Financial advisors may want to take note. Perhaps because it’s one of their first experiences with choppy markets, younger investors could be expecting more frequent touchpoints. Consider a communication strategy that’s tailored to a client’s age and experience in the markets.

At the same time as we were finding out what investors have been doing with their money in recent months, we were also taking the pulse of financial advisors.

We asked them what topics their clients have been asking about most often.

Want to know what they said?

That’s a lot of noise investors
are asking their advisors to filter.

Is it working?
The answer is a qualified “yes.”

When advisors were asked to identify the single most valuable piece of advice they’d given in the 12 months leading up to March, by far the most frequent response was “stay the course.”

When we asked investors the same question, the answer was a match.

But… it appears that some advice is open to interpretation.

It was the older generations that were more likely to identify “stay the course” as the most valuable piece of advice they received.

Millennials were the only group to call out different pieces of advice as even more valuable to them – notably “invest more conservatively.”

Now here’s the eye-opener: Only 8% of advisors felt the most valuable piece of advice they’d offered was to invest more conservatively.

At Sun Life Global Investments we believe in the value of advice. Getting sound advice is critical to making informed financial decisions – whether it’s to help buy a new car or take a dream vacation.

And when those decisions involve building your net worth, protecting your savings, taking care of loved ones and retiring with confidence, the advice you want is from a trusted advisor. See how financial advice makes a difference.

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You made it! Now explore our latest videos illustrating simple strategies to help you find the bright side in today’s volatile markets.

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METHODOLOGY:

INVESTOR SURVEY

The online survey was conducted between March 14 and April 1, 2016. Sample of 521 Canadians from 18 to 80 years of age with a minimum of $25,000 in investable assets was drawn from the Ipsos I-Say online panel. Ipsos employed weighting to balance demographics and ensure that the sample’s composition reflects that of the adult population according to Census data and to provide results intended to approximate the sample universe. The precision of Ipsos online surveys is measured using a credibility interval. In this case, the survey is accurate to within +/-4.3% at 95% confidence level had all Canadian adults been polled. All sample surveys and polls may be subject to other sources of error, including, but not limited to methodological change, coverage error and measurement error.

ADVISOR SURVEY

The telephone survey was conducted between March 14 and April 1, 2016. Sample of 500 financial advisors was drawn from the PMG Intelligence list of 27,000 financial advisors who have agreed to receive third-party communication. The precision of telephone surveys is measured using a credibility interval. In this case, the survey is accurate to within +/-4.3% at 95% confidence level had all Canadian financial advisors been polled. All sample surveys and polls may be subject to other sources of error, including, but not limited to methodological change, coverage error and measurement error.

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Asset class returns in C$, represented by the following indices: Stocks MSCI World Index TR Bonds Barclays Multiverse Index Cash FTSE TMX Cdn Trsy Bill 91 Day. You cannot invest directly in an index. Past performance is no guarantee of future returns. Data from January 1, 2007 to December 31, 2015. Source: Morningstar.