Our latest sentiment survey was open from 10/7/11 to 10/14/11. The Dorsey, Wright Polo Shirt Raffle continues to drive advisor participation, and we greatly appreciate your support! This round, we had 91 advisors participate in the survey. If you believe, as we do, that markets are driven by supply and demand, client behavior is important. We’re not asking what you think of the market—since most of our blog readers are financial advisors, we’re asking instead about the behavior of your clients. Then we’re aggregating responses exclusively for our readership. Your privacy will not be compromised in any way.
After the first 30 or so responses, the established pattern was simply magnified, so we are comfortable about the statistical validity of our sample. Most of the responses were from the U.S., but we also had multiple advisors respond from at least two other countries. Let’s get down to an analysis of the data! Note: You can click on any of the charts to enlarge them.
Question 1. Based on their behavior, are your clients currently more afraid of: a) getting caught in a stock market downdraft, or b) missing a stock market upturn?
Chart 1: Greatest Fear. From survey to survey, the S&P rose around +1.7%, and client fear levels responded as expected. Client fear levels dropped from 92% to 87%, while the opportunity camp rose from 8% to 13%. Despite the minor bounce, client sentiment remains poor overall.
Chart 2. Greatest Fear Spread. Another way to look at this data is to examine the spread between the two groups. The spread fell from 84% to 74% this round.
Question 2. Based on their behavior, how would you rate your clients’ current appetite for risk?
Chart 3: Average Risk Appetite. Overall risk appetite numbers rose this round, as they should in a rising market. This survey the overall risk appetite average was 2.32, up from 2.10 from last time. The overall numbers are still hovering around all-time survey lows.
Chart 4: Risk Appetite Bell Curve. This chart uses a bell curve to break out the percentage of respondents at each risk appetite level. Once again, over half the respondents answered 2, and nearly a third answered 3.
Chart 5: Risk Appetite Bell Curve by Group. The next three charts use cross-sectional data. This chart plots the reported client risk appetite separately for the fear of downdraft and for the fear of missing upturn groups. This bar chart sorts out as we expect, with the fear group looking for low risk and the opportunity group looking for more risk.
Chart 6: Average Risk Appetite by Group. Both camps’ risk appetite rose this round with the market. Nothing much to see here.
Chart 7: Risk Appetite Spread. This is a spread chart constructed from the data in Chart 6, where the average risk appetite of the downdraft group is subtracted from the average risk appetite of the missing upturn group. The spread nudged lower this round.
This survey, we saw a moderate rally in the market over two weeks, and all of our client sentiment indicators responded as they “should have.” The overall fear levels fell, and the overal risk appetite numbers rose. Everything performed as expected, which is nice to see.
No one can predict the future, as we all know, so instead of prognosticating, we will sit back and enjoy the ride. A rigorously tested, systematic investment process provides a great deal of comfort for clients during these types of fearful, highly uncertain market environments. Until next time, good trading and thank you for participating.
