Outlook: Financial Advisors Forecast Market Rally in Second Half of 2022, Finds Natixis Investment Managers' Survey

Financial advisors in Canada expect the markets to remain volatile in the second half of 2022, but they predict the S&P/TSX Composite Index to return 5.4% for the year and for the S&P 500² to gain 4.2%, according to new survey findings published today by Natixis Investment Managers (Natixis IM). Their outlook for the U.S. stock market is decidedly bullish considering the steep losses year to date and triple dose of reality for investors ? a simultaneous double-digit correction in stock and bond prices and the biggest rise in inflation in four decades.

Natixis IM surveyed 150 financial advisors in Canada as part of a global survey of 2,700 advisors across Asia, Europe, Latin America, North America, and the UK. The survey was conducted in March and April as Canadian stock prices were sliding and, in the U.S., the S&P 500 already was down 10% from its 52-week high.

The survey found:

• Advisors' top portfolio risk concerns are inflation (67%) and market volatility (59%), followed closely by rising interest rates (57%) and geopolitical conflicts (52%), including the ongoing war in Ukraine.
• Relatively few (27%) are concerned about valuations.
• Fewer still (4%) are worried about the risk of new Covid-19 variants.

Most (89%) advisors say the question they are hearing most often from clients is "Should I be afraid of rising interest rates?" Seven in ten (71%) also say clients are asking if they should get out of the market now. Yet advisors are generally optimistic about the resilience of stock market and their ability to adapt to shifting market drivers. They are confident their clients can still realistically achieve 6.5% average annual growth above inflation over the long term; however, their return assumptions are 170 basis points lower than the 8.2% annual returns they believe their clients are expecting. For now, advisors are focused on resetting investment strategies and helping clients understand new market realities.

"Many investors are frightened as they see the value of their financial assets plummeting, yet rash investment decisions, such as liquidating assets, can further compound losses," said Dave Goodsell, Executive Director of the Natixis Center for Investor Insight. "Financial advisors play a critical role in helping clients understand what broad market movements mean for their personal finances. They need investment strategies that can help clients still get to where they want to be financially, but they need to work to keep clients on track and not let their emotions get the best of them."

When asked if and how rising rates and inflation have changed advisors' asset class views, the survey found:

• 53% of advisors agree that commodities³ are more appealing now, their most bullish call followed by private assets (49%).
• They are more likely to say that stocks are more attractive now (31%) than less attractive (25%).
• 65% consider alternative investments more attractive in the current environment.
• 68% of advisors think fixed income is less appealing now, an obvious reflection of their concern about central bank policy.
• 44% of advisors think rising rates and inflation have made residential real estate less appealing, but it's had little detrimental impact on their views for commercial real estate. Whereas 30% think commercial real estate investments are less appealing, 21% say it's become more attractive, and 49% say their outlook hasn't changed.

"The investment assumptions that have driven market performance over the past ten years ? low rates, low inflation and synchronous global growth ? have shifted. While the transition has been turbulent, the extreme economic bearishness permeating consensus views is probably overdone," said Jack Janasiewicz, Lead Portfolio Strategist at Natixis Investment Managers Solutions. "As rate increases are priced in and the inflation outlook improves, which we think it is, the market is likely to be more supportive of stocks and bonds as essential drivers of long-term growth."

Whether or not the bond market has already priced in expected rate hikes, financial advisors may need to work at convincing clients to add fixed income back into their portfolios. When asked about the top challenges to increasing fixed-income allocations, 38% of advisors say that the benefits of bonds in portfolio construction just are not obvious to most clients.

Advisors see cryptocurrency as kryptonite for clients

Four in ten (40%) advisors say their clients are asking if they are missing out on investing in cryptocurrencies such as Bitcoin and Ethereum. The cryptocurrency sector's total market capitalization grew by 187.5% in 2021,⁴ but the run ended abruptly in the new year, and the sector is down more than 60%⁵ since January. Most (56%) advisors are telling their clients to avoid investing in cryptocurrencies for now. Nearly as many (46%) are telling clients to stay away from non-fungible tokens (NFTs) as well.

While 54% of advisors don't think is appropriate for investors to have exposure to cryptocurrency, at least some advisors appear to be warming up to them. One in four (25%) advisors think cryptocurrencies can provide some diversification benefits to clients' portfolios.

The full global report on the findings of the Natixis Investment Managers 2022 survey of Financial Professionals can be found here.

Methodology

Natixis Investment Managers surveyed 150 financial advisors across Canada, as part of a larger global survey of 2,700 financial professionals in 16 countries. Data were gathered in March and April 2022 by the research firm CoreData with additional analysis conducted by the Natixis Center for Investor Insights.

About Natixis Investment Managers

Natixis Investment Managers' multi-affiliate approach connects clients to the independent thinking and focused expertise of more than 20 active managers. Ranked among the world's largest asset managers¹ with more than $1.3 trillion assets under management² (?1.2 trillion), Natixis Investment Managers delivers a diverse range of solutions across asset classes, styles, and vehicles, including innovative environmental, social, and governance (ESG) strategies and products dedicated to advancing sustainable finance. The firm partners with clients in order to understand their unique needs and provide insights and investment solutions tailored to their long-term goals.

Headquartered in Paris and Boston, Natixis Investment Managers is part of the Global Financial Services division of Groupe BPCE, the second-largest banking group in France through the Banque Populaire and Caisse d'Epargne retail networks. Natixis Investment Managers' affiliated investment management firms include AEW; AlphaSimplex Group; DNCA Investments;³ Dorval Asset Management; Flexstone Partners; Gateway Investment Advisers; Harris Associates; Investors Mutual Limited; Loomis, Sayles & Company; Mirova; MV Credit; Naxicap Partners; Ossiam; Ostrum Asset Management; Seeyond; Seventure Partners; Thematics Asset Management; Vauban Infrastructure Partners; Vaughan Nelson Investment Management; and WCM Investment Management. Additionally, investment solutions are offered through Natixis Investment Managers Solutions and Natixis Advisors, LLC. Not all offerings are available in all jurisdictions. For additional information, please visit Natixis Investment Managers' website at im.natixis.com | LinkedIn: linkedin.com/company/natixis-investment-managers.

Natixis Investment Managers' distribution and service groups include Natixis Distribution, LLC, a limited purpose broker-dealer and the distributor of various U.S. registered investment companies for which advisory services are provided by affiliated firms of Natixis Investment Managers, Natixis Investment Managers S.A. (Luxembourg), Natixis Investment Managers International (France), and their affiliated distribution and service entities in Europe and Asia.

This material is provided for informational purposes only and should not be construed as investment advice. There can be no assurance that developments will transpire as forecasted.

The data shown represents the opinion of those surveyed, and may change based on market and other conditions. It should not be construed as investment advice.

All investing involves risk, including the risk of loss. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

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