ESG, active management poised to gain amid uncertainty

About 45% of advisers expect ESG funds to go up in third quarter.

A survey of advisers’ expectations for the next 12 months shows the only consensus is that there’s a rocky road ahead.

InvestmentNews surveyed the industry on its outlook as it heads into the second half of a year that has already sent markets, the economy and the day-to-day operations of financial advisory firms into uncharted territory. Advisers shared sentiments on their business environment as well as their broad investing plans for the next quarter.

A majority (60%) of advisers expect the overall stock market to improve over the next year, though they were less confident about the underlying economy.

On median, bulls projected a 7% rise in the S&P 500 over the next 12 months, while bears projected a 12% decline.

Although advisers were generally optimistic that markets and economic activity will be higher a year from today, few predicted an entirely smooth interim. About half believe the S&P is highly likely to experience another pandemic-driven decline of 10% or more in the next year.

Most advisers were also at least moderately concerned that political and regulatory developments over the next 12 months could negatively impact their book of business.

ESG funds are poised to make gains over the third quarter, with the caveat that those figures exclude the 45% of advisers who do not use the products. Other products that are expected to gain in popularity reflected an environment of uncertainty and an increased emphasis on finding alpha, with actively managed funds and individual stocks leading the way.

Zooming out to underlying asset classes, real estate assets were poised for net selling as pandemic lockdowns cast doubt on the future of commercial real estate.

U.S. equities’ leadership among asset classes may reflect advisers’ collective expectation that the recession that began in February will be relatively short-lived. A plurality believe that it has either already ended or will have by the end of the year. Among the rest, few expect the recession to drag past the first half of 2021.

This survey, conducted via email between July 6 and July 16, includes responses from 159 financial advisers and closely related professionals. All respondents worked at industry firms, and more than 90% personally managed client assets. For questions about IN Research offerings, contact