Individuals are far more confident in their investments than professionals and are predicting almost 15% long-term returns, Natixis survey shows

Traders and investors are focused on US inflation.

  • Individual investors expect to make more money from markets than professionals, according to a survey from Natixis.
  • The survey found that on average, they expected 14.5% returns in the long run, compared to 5.3% projected by financial professionals.
  • Topping the list of investor concerns was market volatility, followed by a lagging recovery and inflation.
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Individual investors around the world expect to make substantially more money from markets over the long term than professionals do, according to an annual survey from Natixis.

The survey – which gathered responses from 8,550 individual investors globally with at least $100,000 in assets – found that on average, they expected 14.5% returns in the long run, after adjusting for inflation. That compares to the 5.3% long-term returns financial professionals surveyed by Natixis say is viable.

In the shorter term, individual investors in the US expect 17.5% real returns in 2021, two-and-a-half times higher than the 6.7% real return professionals are anticipating. In the UK, the gap was even bigger – an expected 14.1% real return for individuals versus 4.6% for professionals.

The survey also looked at overriding anxieties for investors. Topping the list globally was market volatility, followed by a lagging recovery and inflation. Volatility was also the top US concern, with potential tax increases coming in second.

Political dysfunction was a top five worry in America and Hong Kong but not globally.

Compared to the average US investor, millennial investors in America were more likely to invest more, trade online, and open up margin accounts. By contrast, the majority of baby boomers made no change to their investments.

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Hedge funds are poaching top volatility traders from Wall Street banks

hedge funds versus bankers in pandemic 4x3
From left to right: Millennium founder Izzy Englander, Citadel founder Ken Griffin, Balyasny founder Dmitry Balyasny, Citigroup CEO Jane Fraser, Goldman Sachs CEO David Solomon, and Bank of America CEO Brian Moynihan.

  • Buy-side trading firms have poached a slew of star derivatives traders from investment banks.
  • The defections, which follow blowout volatility trading hauls in 2020, leave some banks shorthanded.
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The derivatives traders that thrived during 2020’s once-in-a-decade market shock are now some of the hottest commodities on the street.

But unlike recent years, where Wall Street banks snatched senior talent from each other, marquee hedge funds like Balyasny, Citadel, and Millennium are plundering the rosters at Bank of America, Citigroup, and Goldman Sachs as they deploy their massive hordes of capital and chase riches with expanding volatility strategies of their own.

“Usually it’s just sell-side musical chairs,” one veteran volatility trader told Insider. “This is making things more interesting as the buy-side is scooping up so many people,” leaving fewer senior traders at the banks.

Here’s a look at just some of the recent hires:

Subscribe now for the full rundown on which top traders have made moves and to get all the details from execs and recruiters on what’s driving the poaching frenzy

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Nearly half of Americans are too nervous to invest in stocks right now, new survey shows

investing app phone
  • An Allianz survey found that 48% of Americans do not want to take action in the equity market right now.
  • The survey showed nearly 75% of Americans foresee stock-market volatility picking up again in 2021.
  • Analysts say more volatility is likely in store as more strong economic data challenges the Fed’s signaling on interest rates.
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Many Americans want to stay on the sidelines of the stock market this year as worries mount that volatility will accelerate and hurt their investments, according to a new survey from Allianz.

48% of the 1,005 respondents told the firm they want to stay neutral and not invest in the market right now, a rise from 43% over the final quarter of last year. That statistic runs parallel with findings that 74% of the group believes equity markets will continue to be very volatile this year.

The cautious tone comes as the US economy shows further signs of recovery from the coronavirus pandemic, with data this week showing a nearly 10% jump in March retail sales and new unemployment filings at a pandemic-era low.

“Investors seem to be in limbo right now, wavering between nervousness about the potential for volatility and hope for a better year, resulting in a lot of inaction that can be costly in the future,” said Kelly LaVigne, vice president of consumer insights at Allianz Life.

As the S&P 500 recently has climbed to all-time highs, Wall Street’s so-called fear gauge – the Cboe Volatility Index (VIX) – has slid back to its lowest level since before the start of the COVID-19 crisis. But volatility accelerated in the tech sector earlier this year as rising interest rates spurred concerns about the effect of higher borrowing costs on businesses. That prompted a sharp pullback in numerous high-flying tech stocks and knocked more speculative areas of the market like SPACs and green energy.

Another possible source of volatility involves the Federal Reserve, which has historically moved markets with rate-hike guidance. Inflation – which the central bank monitors closely when making decisions – is rising as the economy recovers, and although the Fed has said it will keep rates near zero until at least 2024, any deviation from that could jolt markets.

Talks over tax policy and infrastructure spending in Washington may also be a source of volatility for stocks moving forward this year.

Read more: Buy these 16 stocks with more than 10% upside that are set to increase dividend payments for years to come, UBS says

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3 reasons why volatility could come roaring back to a stock market that’s drifting along near record highs, according to UBS

NYSE Trader
Traders at the New York Stock Exchange.

  • A key tracker of stock-market volatility at its lowest since early 2020 at the same time that US stocks are at record highs.
  • Investors should anticipate Wall Street’s so-called “fear gauge”, or VIX, to come off those lows in the coming months, said UBS.
  • Volatility may pick up pace as investors wrestle with inflation worries and COVID-19 variants.
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Wall Street’s key measure of stock-market volatility is at its lowest since the COVID-19 crisis took off in the US last year, but that calmness will likely break over the next few months, according to UBS.

The US stock market has soared to record highs in 2021 on the back of accelerating coronavirus vaccinations worldwide and roughly $5 trillion in financial aid deployed by the US government to mitigate the pandemic’s economic damage. The vaccinations and stimulus packages have been laying the groundwork for a further reopening of the world’s largest economy as people begin to rebuild work and school routines and spend the money sent to them by Uncle Sam.

The S&P 500 index has shot above the 4,100 level and the Dow Jones Industrial Average tracking blue-chips is at its strongest levels, driven by cyclical sectors such as energy and industrials that stand to benefit from increased economic activity.

Wall Street’s so-called “fear gauge,” at the same time, has dropped below the 17 level, the lowest since early February 2020, before the World Health Organization declared the coronavirus outbreak a pandemic. But don’t expect the Cboe volatility index to continue to stay that low, said the world’s largest wealth manager in a note published Friday.

UBS noted a news report that at least one investor bought about $40 million in VIX call options that indicate the buyer expects market volatility to pick up pace over the next three months. One or more investors anticipated the VIX to reach above the 25 level and rise towards 40 by mid-July, Reuters reported, citing trading data.

“We see reasons to expect periodic bouts of higher volatility in the near term,” said Mark Haefele, chief investment officer at UBS Global Wealth Management, in the note.

Growth vs inflation

Firstly, investors may be torn between optimism over accelerating economic growth and worries over higher inflation. Among the signs that recovery is taking further hold was the recent and strongest reading in services-sector activity since 1997 from the Institute for Supply Management. European growth should also strengthen as vaccinations increase.

“Still, as pent-up demand meets supply constraints, a pickup in inflation could well unsettle investors,” said the investment bank. This week, Dallas Federal Reserve President Robert Kaplan said inflation could rise “well in excess of 2.5%,” over the summer, which would be well above the Fed’s 2% target.

COVID-19 strains

Investors have so far looked through news about variant strains of COVID-19. “This optimism could be put to the test by the spread of new variants of the virus, especially in areas where the vaccination effort has been progressing well, such as in the US.”

UBS noted “pockets” of rising infections in Ohio and Wisconsin.

Trading activity

Volatility has been “sporadically heightened” by a rise in institutional and retail activity in the options market, along with the increased share of growth stocks in major equity indexes, said UBS.

“In the first quarter we saw retail activity driving volatility in individual stocks, such as GameStop, which spilled over into broader market swings,” said Haefele.

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‘Volatility is your friend’: A former Goldman Sachs hedge-fund boss says crypto investors should embrace bitcoin’s wild price swings – and explains why it’s one of the asset’s key features

Raoul Pal
Raoul Pal, co-founder and CEO, Real Vision Group.

  • Cryptocurrency investors like bitcoin’s volatility, according to Real Vision founder Raoul Pal.
  • Volatility is a key feature that has helped bitcoin see an explosion in value since its inception, according to Pal.
  • “I think you can’t avoid the fact that it’s the best performing asset class in all recorded history already,” he said.
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Raoul Pal – a former Goldman Sachs hedge fund manager and current founder/CEO of Real Vision TV – suggested at a virtual event this week that bitcoin’s volatility shouldn’t scare investors. He instead argued that it should be looked at positively.

“It’s a feature that drives the risk-reward,” Pal said at an “Investing in Crypto” conference hosted by MarketWatch. “So without that volatility, you can’t have compounded annual returns of 230%. Volatility is your friend in this occasion.”

Bitcoin hit an all-time high of almost $62,000 in mid-March, and was last trading just above the $58,000 threshold on Friday. It is up 101% year-to-date, and about 700% over the last 12 months. By comparison, the S&P 500 is up 9% year-to-date and 47% in the last 12 months.

Pal has previously predicted bitcoin will be worth $1 million in five years.

“The volatility is highly skewed to the upside, doesn’t mean you don’t get sharp downside shocks and you can’t see big moves,” Pal said, adding that bitcoin has seen a massive appreciation since its inception and that’s what investors want in risk-seeking assets.

The digital asset’s volatility fell nearly 40% on a monthly basis to a three-month low in March, with a knock-on effect on trading volumes, which fell 5% to a year-to-date low of about $255 billion, according to data from Kraken.

Earlier this month, JPMorgan said a decline in bitcoin’s volatility has made it more attractive to institutions and that could boost its adoption.

But according to Pal, institutional investors, sovereign wealth funds, and pension funds are more taken by bitcoin’s ability to generate top returns within a portfolio, rather than being put off by its volatility.

“Everybody is getting involved, is involved, or is in the due diligence process of doing it,” he said. “I think you can’t avoid the fact that it’s the best performing asset class in all recorded history already, and it is the best performing asset over any period of time.”

The former hedge fund manager said most people in the crypto world don’t like regulation, but he is in favor of it as long as it is a “light-touch” oversight that allows people to build on innovation. He doesn’t expect crypto regulation to hurt prices, but to instead attract more capital in the space and provide confidence to people in the industry.

Read more: A 29-year-old self-made billionaire breaks down how he achieved daily returns of 10% on million-dollar crypto trades, and shares how to find the best opportunities

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Fears of inflation are overblown, but it could still trigger near-term stock market volatility, UBS says

trader point

UBS’s chief investment officer of global wealth management says investors should brace for a near-term spike in inflation, but concerns about a long-term rise are overblown.

“…While we think inflation may spike in the near term as pent-up demand meets constrained supply, we believe fears about a persistent rise are likely to prove overdone. However, such concerns could still trigger bouts of market volatility-S&P 500 futures were down 0.7% on Monday-and may test investors’ resolve,” said Mark Haefele in a Monday note to clients. 

The CIO recommends to investors to “keep going cyclical for the recovery,” against this volatile backdrop. Cyclical stocks are those that react positively when the broader economy improves. UBS favors small-and mid-cap stocks globally and US large-cap stocks in financials, energy, industrials, consumer discretionary, and healthcare.

With COVID-19 cases and hospitalizations declining in the US and vaccinations on pace for roughly 2 million shots a day, Haefele expects a wider opening of the US economy in the second quarter of 2021. Congress will likely pass a relief package north of $1.5 trillion before the end of March and the Fed will remain accommodative. Additionally, S&P 500 companies’  fourth quarter earnings exceeded expectations by almost 20%. This should be a positive environment for the cyclical rotation to continue, Haefele said. 

Investors concerned about an uptick in US inflation will be watching the Personal Consumption Expenditures (PCE) price index for January that will be released Friday. 

Meanwhile, UBS economists forecast that while the stimulus out of Washington may be larger than necessary, the package’s effect on inflation “likely will be small.”

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