In Practice July 13, 2010

Some Say Financial Planners More Important Since Financial Crisis

A new national opinion poll conducted for Certified Financial Planner Board of Standards finds nearly two out of three Americans (65%) are more concerned about their finances today than they were at the beginning of the financial crisis two years ago. 

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More than two out of five Americans (43%) say financial planners are now “more important in the last two years since the start of the financial crisis,” compared to about a third (36%) who see no change, and 14% who now see planners as being “less important.” Overall use of financial planners by Americans has remained almost unchanged during the first two years of the U.S. financial crisis – starting at 29% compared to 28% today, according to a press release.   

Of those who have started using a financial planner since the start of the financial crisis, nearly a third (31%) say they have done so because “I felt like I needed more financial guidance during these difficult times for investors.” However, a bigger percentage of those in this group (44%) said they have started using a financial planner during the last two years for reasons “unrelated to the financial crisis.”   

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The survey also found almost two thirds of Americans (64%) say they are “very” or “somewhat” financially prepared for the future.  The top three financial planning issues for Americans are retirement goals and planning (30%), education funding (25%), and savings goals and planning (23%).  

Other survey findings, according to the press release, include: 

  • More than a third of Americans (37%) expect to see their personal finances improve in the next six months, versus less than half (46%) who expect to hold onto what they currently have, and 16% who expect to lose money.  
  • 80% of Americans say that Congress and regulators have not done enough “to deal with the financial market problems and their impact on American investors.”  
  • 44% of Americans expect the U.S. economy to improve in the next six months, while only 28% expect things to get worse. A smaller group (22%) anticipates no change in the economy.  
  • When asked to describe how they feel about their personal finances, the numbe one response from Americans was “cautious” (33%), followed by “calm” (26%), “concerned” (25%) and “hopeful” (25%). (Multiple responses were permitted to this question.)  
  • 38% of whites expect the economy to improve, compared to 51% of Hispanics and 74% of African Americans.  

Full survey findings are at http://www.CFP.net. 

Products July 13, 2010

PIMCO Introduces Two Sovereign Bond Benchmarks

PIMCO has unveiled the PIMCO Global Advantage Government Bond Index (GLADI Government) and European Advantage Government Bond Index, two sovereign bond benchmarks designed to capture fixed income investment opportunities. 

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According to a press release, the key differentiating feature of the new indexes is a gross domestic product (GDP)-weighting methodology that contrasts with the debt-weighted, market capitalization methodology of traditional indexes. GLADI Government covers the full set of investment-grade global government bond markets. European Advantage covers investment-grade government bonds issued by European countries, where problems in Greece and other peripheral economies underscore the need to reassess existing benchmarks.  

Instead of giving the highest weights to the countries with the most debt, which is a characteristic of market capitalization-weighted indexes, GLADI Government and European Advantage Government indexes give the highest weights to countries with the highest income based on gross domestic product (GDP).   

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PIMCO said the advantages of this approach include: 

  • Higher Allocation to Low-Debt Countries: GDP weighting favors countries with higher income and therefore better capacity to service their debt, in contrast with market capitalization-weighted indexes that can overweight highly indebted countries with the largest stocks of outstanding liabilities.  
  • Forward-Looking: GDP weighting helps structurally position portfolios in countries with stronger growth dynamics, including emerging markets, which are likely to attract increasing global capital flows in the coming years and have traditionally been underrepresented in market capitalization-weighted indexes. 
  • Counter-Cyclical Rebalancing: GDP weighting avoids the problem of market capitalization weighting that increases the weight of securities as they go up in price. In fact, it has the potential to benefit from counter-cyclical rebalancing, as bond prices tend to move inversely to GDP growth over the business cycle.  

 

Markit LLC, an unaffiliated leading financial information services company and global index provider, will administer and calculate these newest members of the family of Global Advantage indexes first launched in January 2009, according to the press release.  

More information on the index, including detailed information on construction methodology, can be found at http://www.pimcoindex.com/. 

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