The Financial Professional Outlook (FPO) quarterly survey of advisers showed that many of them mirror their clients’ nervousness about global markets.
Forty-percent of advisers said they have altered their approach to investing in global markets in the past five years. Of those, more than one-third (34%) have decreased global exposure. Many of those pointed to a relative preference for U.S. equities, general uncertainty about the global markets and client demands to avoid exposure to Europe as reasons for changing their strategies. Just 18% of those who changed their strategies admitted increasing global exposure.
Sixty-eight percent of advisers said they are optimistic about the capital markets over the next three years. However, only 39% indicated optimism about the developed international markets – likely a result of concerns about Europe – and only 5% believe clients are optimistic about this. Advisers continue to report that global events and market volatility are among the top subjects of client-initiated conversations, representing 38% and 49%, respectively.
“The issues in Europe may seem like a reason to focus solely on U.S. investments, but global opportunities and growth are inherently tied to today’s economy,” said Mike Smith, consulting director for Russell’s U.S. adviser-sold business. “For example, nine of the 10 largest U.S. companies in the Russell 1000 Index derive significant revenue from outside the U.S., and the percentage of revenue generated by European companies outside their home countries is even greater.”
Many survey respondents said they are keeping global allocations at policy levels or are only making minor adjustments. Yet, 48% said that they are making decreases from portfolio policies around global equity investing for their clients with fairly short time horizons. Almost one-third (30%) of advisers indicated they are doing so for clients with longer time horizons.
There also exist differences among advisers in defining global investing. Thirty-nine percent of survey respondents said they believe an investment strategy with global equity exposure is “one that is not constrained by geography in its stock selection.” An additional 34% defined the term as “a strategy that invests in companies whose revenues are generated both inside and outside the United States,” while 25% defined it as “a strategy that invests in companies domiciled both inside and outside the United States.”
Despite their concerns, advisers are not giving up on global investing, the survey found. To gain global equity exposure in portfolios, advisers are using global equity active mutual funds (66%), global equity allocations within a diversified fund (48%) and global equity exchange-traded funds (32%). Global equity index-tracking mutual funds (12%) and country-specific mutual funds (11%) were among the least popular.
The FPO survey includes responses from more than 300 financial advisers working in 105 national, regional and independent advisory firms nationwide. The survey was conducted between July 31 and August 14, 2012.