Advisers should avoid market narratives and focus more on reflexivity when providing advice to clients, investment research house van Eyk has claimed.
According to van Eyk, while it might be easier to speak to clients about broad market themes, advisers should remember these themes do not always translate into performance - particularly when those themes are already priced into markets.
"Part of it is that in investment advice there is always a narrative involved and that's why people latch onto these market themes," van Eyk's head of strategic research, Jonathan Ramsay, told InvestorDaily.
"But advisers have to look not just at the probability of something happening or not happening but what is priced into markets."
Mr Ramsay said it is important for advisers to assess market predictions in terms of the portfolio result if they prove to be incorrect.
Market reflexivity is a concept that is undervalued by advisers, he said, but one that often accounts for strong returns that come from acting contrary to popular themes.
"It will often be that doing the opposite of what is intuitive is the right investment decision and maybe that's the challenge for advisers," Mr Ramsay said.
"Maybe the safety net is to talk about those big themes but to be very aware that there is a high probability that if you're talking about it, lots of other people are talking about it too - and it's difficult to make money from that."
While "crystal ball gazing" is popular with experts and commentators around the early stages of the year, clients should be wary of acting on predictions, he said.
While equity investments are gaining momentum in the market, it is important to consider how much of this optimism has already been priced in.
"On the balance of probability, unless you've got a much more positive view than the rest of the market, you probably want to stay neutral and if you're a bit of a contrarian, you're going to opt on a slightly bearish portfolio," Mr Ramsay said.
