The Markets April 11, 2007

Advisers Have Faith in International Equities

Nearly half (43%) of advisers believe that international investing continues to offer the best opportunities for portfolio diversification, although they say that correlations are increasing across the globe.
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When selecting an international mutual fund, advisers equally use broader based strategies and more finely segmented asset classes according to Financial Research Corporation’s (FRC) “Adviser Views on International Investing’ survey. FRC’s research shows that manager tenure is an adviser’s single most important consideration in selecting an international product. However, advisers employed by an independent firm or an RIA tend to screen all products on the platform against their own criteria before making a fund selection, FRC said.
When it comes to allocation, advisers say that 21%-30% of the assets of a typical 40 year-old 401(k) investor should be invested in international products, according to one of many cuts of adviser survey data, FRC reported in a news release about the survey, which examines the international fund space and details types of products, services, and support advisers value when assessing international products.
“The largest percentage of advisers wish manufacturers would focus on structures that reduce the cost of international investing, such as developing core & satellite products with a passive portfolio at the core,’ according to Owen Concannon, FRC’s senior research analyst and subject matter expert.
In addition to examining advisers’ opinions of international mutual funds, FRC reviewed what it considered “the most reputable international fund managers’ against the changes in product usage noted by advisers in its FRC’s World of Opportunity in International Funds study that tracks changes in adviser usage of international products. The largest allocators, those with more than 20% invested in international products, FRC reported, were fee-based and were on average, the highest revenue producers. Aside from American Funds, the most mentioned fund managers that were unique to this group included Thornburg and DFA.
Data & Research April 11, 2007

Cheat Sheet

Cheating on your taxes is bad - almost as bad as cheating on your spouse.
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More than three-quarters (79%) of respondents to a survey by the Pew Research Center said it was morally wrong to cheat on your taxes. On the other hand, 5% consider it morally acceptable to not report all your income to Uncle Sam – and 14% say it’s not a moral issue. The survey asked respondents for their take on 10 behaviors as either “morally acceptable, morally wrong, or not a moral issue.”
However survey respondents felt about the morality of the approach, the IRS has reported that, in 2001 (the last year for which it had conducted such research), there was a gross “tax gap” of $345 billion, resulting from an overall “non-compliance’ rate of about 16%. Of that gap, the biggest missing slice, some $197 billion, was from underreporting of income on individual income tax returns – though most of that resulted from underreporting of business income on those individual returns.
Moral Dilemmas?
The activity that drew the most widespread moral disapproval, 88%, was “married people having an affair,” while the one that drew the least was “overeating” – although nearly a third (32%) went so far as to describe that as morally wrong.
There were some slight gender differences in the Pew survey: 90% of women, compared with 85% of men, say adultery is morally wrong – and 10% of men say extra-marital sex is “not a moral issue,” compared with just 5% of women who feel that way. Men were more morally disapproving than women of homosexuality, but both genders have similar views about abortion. On the question of homosexuality, the old are more disapproving than the young – but that gap dissipates on the subject of abortion; there is no clear difference between the old and the young, according to the researchers.
About half of those surveyed say abortion (52%) and homosexual behavior (50%) are morally wrong, while an identical 12% say that each of these activities is morally acceptable. Another one in three (33%) say homosexuality is “not a moral issue.” Some 23% also say that about abortion, with an additional 11% volunteering an answer to the effect that “it depends on the situation.” (Of all 10 behaviors tested, abortion drew the most volunteered responses of that nature.)
Blunt “Instrument”
Of course, the way the questions were posed, there is no true way to capture a relative comparison. The survey’s authors caution that “Judgments about right-and-wrong are by nature profound, and – in real life – often nuanced and situational. By contrast, this survey questionnaire is a blunt instrument.’ Nonetheless, here’s a ranking based on those who thought the following behaviors were morally wrong:
  • 88% – married people having an affair
  • 79% – not reporting all income on your taxes
  • 61% – drinking alcohol excessively
  • 52% – having an abortion (23% said it wasn’t a moral issue)
  • 50% – smoking marijuana (35% said it wasn’t a moral issue)
  • 50% – homosexual behavior (33% said it wasn’t a moral issue)
  • 43% – telling a lie to spare someone’s feelings (though 23% said it was morally acceptable, and 26% said it wasn’t a moral issue)
  • 35% – sex between unmarried adults (22% said this was morally acceptable, and 37% said it wasn’t a moral issue)
  • 35% – gambling (42% said it wasn’t a moral issue)
  • 32% – overeating (though 58% said it wasn’t a moral issue)

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