Schroders UK Financial Adviser Pulse Survey 2021: client sentiment rallies as investors turn to value

The pandemic has given financial advisers and their clients pause for thought in light of ongoing uncertainty and the acceleration of new trends. New research from Schroders 2021 UK Financial Adviser Pulse Survey reveals that UK clients are feeling increasingly positive when it comes to their investments, with many turning their attention to value stocks.

According to Schroders UK survey of 161 UK financial advisers, the number of clients who reported feeling bearish in 2020 has fallen dramatically from 50% to 8% 2021. In fact, more than half (52%) of clients reported feeling either ‘slightly bullish’ or ‘bullish,’ compared to less than a fifth (19%) of clients last year.[1]

Today, three quarters (75%) of advisers also expect to see higher global growth over the next five years and the majority (81%) also believe that there will be boosted UK growth over the same period.

Sentiment

As client confidence shows signs of strengthening, the majority (62%) of equity investors are setting their sights  on value stocks which have typically outperformed during turning points in the growth cycle. Advisers are also seeing opportunities in quality companies, that demonstrate strong balance sheets and robust fundamentals.

[1] November 2020

Top factors financial advisers expect to be favoured by equity investors in the next 12 months

This comes with little surprise given nearly half (46%) of advisers also expect market volatility to increase over the next five years – setting the stage for a cyclical rotation away from growth stocks in favour of value.

Inflation

However, concerns regarding market volatility are outweighed by expectations around inflation. The number of advisers who expect inflation to increase over the next year has almost doubled, from 47% in November to 80% in 2021.

As the consensus that inflation is likely to rise over the next five years continues to grow, Schroders research shows that favourability towards equity markets is simultaneously improving. In November, over one third (39%) of advisers expected equities to deliver lower returns than historical averages over the next five years. However, this has reduced to 17% less than one year later.

Alex Funk, CIO, Schroders Investment Solutions commented:

“The results of Schroders 2021 UK Financial Adviser Pulse Survey, fills me with optimism for UK investors and their financial advisers. Following the impact of the pandemic on investor confidence, we are now starting to see  confidence being restored and advisers are starting to seek new investment opportunities for their clients.

“Although, ongoing uncertainty and market volatility is expected to continue, over the short-term it’s encouraging to see that advisers who have reported that the number of clients who were delaying retirement due to concerns about reduced capital or income, has reduced from 49% in April 2020 to 34% in May 2021

“As we look ahead, UK financial advisers will be looking for solutions that harness the unforeseen opportunities that are arising from the coronavirus crisis. From the acceleration of new trends, market rotations and disruption to the traditional growth sectors, this is a potentially exciting time for the UK’s investment landscape.”

Outsourcing

A fifth (20%) of advisers reported that their use of outsourced portfolio management has  increased over the year.

Access to investment expertise and resources[1] was the most important reason in influencing UK financial advisers’ decision to outsource portfolio management. Freeing up more time to spend with clients  was another key reason for outsourcing portfolio management  cited by 58% of advisers.

ESG

The coronavirus crisis has changed our lives for better and for worse. A growing emphasis on sustainable and impact investing is one positive outcome that is emerging from the pandemic. Schroders pulse survey reveals that 69% of advisers said that the crisis will increase the attention they pay to environmental, social and governance (ESG) risks associated with investments.

Over the past year we have also seen an increasing amount of public pressure on companies to adhere to good corporate governance and become more sustainable. The vast majority (84%) of financial advisers agree that the Covid-19 crisis has reinforced the importance of stewardship and using an asset manager who actively engages with the companies in which it invests.

Gillian Hepburn, Intermediary Solutions Director, Schroders commented:

“Financial advisers are becoming increasingly cognisant of environmental, social and governance factors when considering  investments for their clients. However, a key point  is how the discussions with clients around sustainable investing are framed.

“Investing responsibly and sustainably does not mean compromising financial returns. At Schroders, we believe that profit and planet are interlinked and in the investment world of tomorrow, investors will assess the value of their investments based on risk, return and impact.

“Although UK financial advisers are already recognising the benefits of outsourcing their portfolio management, we expect that this will in turn, mean that clients have greater opportunities to access  products which take account of ESG risks and that good quality reporting will enable them to gain a deeper understanding of the impact that their investments have on people and planet.”

 

[1] 65% of advisers said that ‘access to investment expertise and resources’ is an ‘important/very important’ factor in reaching a decision to outsource portfolio management.