Summary
After building up cash and rebalancing portfolios over the past 5 weeks, advisors activity moderated last week. Advisors are still working hard to help clients update their risk tolerances. Overall trade volume by dollar amounts is down roughly 50% but still 200% of the year to date weekly average. We still believe the majority of trading is related to advisors helping clients be more tax efficient by harvesting capital losses and changes to client risk tolerances. We see no pervasive signs of irrational buying or selling and think advisors are managing client’s expectations in a very consistent way.
Key Insights
- A pattern has emerged over the past four weeks with risk attitudes of advisors. In early March, we saw net redemptions from equities, but bonds were net flow flat. In mid-March, net equity flows came back to zero and bonds saw net redemptions. By the last week of March, both equities and bond net flows are around zero – no major shift in risk attitude. So initially, advisors and clients redeemed equities, then they saw that bonds were not the safe haven and redeemed bonds, and now have taken a risk neutral position while the market gyrates.
- We look at the number of client risk tolerance changes as a proxy for how advisor and clients engage around risk conversations. The number of changes this week is down 50% from last week but still 2 times the average number of changes. Advisors are actively modifying client expectations around risk and return, although the rate of changes is moderating from the high two weeks ago.
- Cash in advised portfolios is running at about 6.5% over the last three weeks. It has remained at this level now for three weeks. This is roughly double the 18-month average of 3.4% but shows that advisors are being slightly defensive while staying invested in general.
- Transaction volume was down 50% week over week but is still running at 200% above weekly average since January. Selling transaction counts outpace buying 2 to 1, which suggests what is being sold is going into a consolidated holding. This is largely due to selling of individual securities and buying of mutual funds and ETFs. This fits tax-loss selling scenarios.
- In terms of style usage, we see a small shift from short and intermediate bonds to long term bonds, a moderate uptick into international equities, and continued buying of Inverse equity funds.
- Clients seem unfazed by the market downturn. Client contributions and withdrawals in their investment accounts are running about average when compared to the past 18 months. We see no change in the hiring and firing of advisors, suggesting clients are satisfied with the way their advisors are working through the crisis.
