SOURCE: Russell Investments

Russell Investments

March 30, 2010 14:41 ET

Russell Survey: Advisors Increasing Equity Allocations; Clients Regaining Confidence in Equity Exposure Risk

Near-Retirement Clients Aim to Invest 'Slightly Less' Aggressively Despite Market Rebound

TACOMA, WA--(Marketwire - March 30, 2010) - The results of the first Financial Professional Outlook (FPO), a quarterly survey of U.S. financial advisors by Russell Investments (http://www.russell.com), reveal a trend toward increasing equity allocations particularly in the areas of emerging markets and non-U.S. equities. Based on input from 900 advisors around the nation, 53% report increasing allocation to emerging market equities and 49% say the same about non-U.S. (developed market) equities.

The survey also shows movement from the sidelines as U.S. Treasuries (47%), high yield bonds (33%) and cash (33%) top the list of asset classes that advisors plan to decrease allocations to over the next 12 months.

"I think in the short term, my clients are looking to move more cash into the market, in particular into the large growth and international sectors," said Todd Anderson, NFP Securities, Inc.

"There's a palpable sense that advisors have, for the most part, weathered the storm and are now refocused on charting a more deliberate course for their clients," said Sandra Cavanaugh, managing director, Private Client Services, Russell's business serving financial intermediaries in North America. "While this could equate to huge growth opportunities for advisors' businesses, investors need more than just a map right now. They need someone to navigate it with them."

"As the markets start to rebound and continue to increase, [clients] express a vote of gratitude for keeping them on the right path; they appreciated my advice," said Dana Morton, LPL Financial Corporation.

Though the survey indicates a tilt toward emerging markets, it doesn't show a consensus on what advisors aim to do next. When asked which of 13 asset classes would see a shift in asset allocation over the next 12 months, only four registered above 33 percent of advisors with plans to increase. Emerging market equities and non-U.S. (developed market) equities were followed by U.S. large-cap value (39%) and U.S. large-cap growth (37%).

"Some of this could be attributed to following recent returns," said Steve Wood, chief market strategist for North America at Russell. "The Russell Emerging Markets Index, for example, reflected a one-year gain of 109.6% through March 9 and the Russell BRIC Index surged 120% for the same period, while the U.S. broad-market Russell 3000Ò Index reflected an increase of 55%, or about half as much."

Cavanaugh added that advisors recognize the need for their clients' portfolios to reflect the changing dynamics of a more global economy. "The way we define and implement a 'balanced portfolio' is more complex and nuanced than even a few years ago," she said.

Steven Dubin, Capital Analysts, Inc., said, "We have tilted our international equity portfolios toward emerging markets as a defensive strategy."

Clients near retirement feel 'slightly less' but not 'significantly less' aggressive

The survey shows end investors are looking anew at long-term financial security goals within the bounds of redefined notions of risk tolerance. Asked about clients who are five years from intended retirement, half of the respondents said these clients desire to be 'slightly less' aggressive. Only 14% said they see no change in their clients' risk appetite, while less than 10% said their clients showed a desire to be 'significantly' or even 'slightly more' aggressive.

"We have come through a generational and structural game changer," said Wood. "But investors are seeing evidence now that the 'Crisis of 2008' has not proven terminal, and that the recent global improvement (financial, credit, capital and real economy) has been substantial and measurable."

"I have noticed, in the last 12 to 13 months, a definite move in the mindset of my clients to a more moderate posture," said Roy Hare, Stifel, Nicolaus & Company, Inc. "They still want to be in the market but in a more cautious manner."

"There seems to be optimistic caution with my clients," said David Brenneis, Stifel, Nicolaus & Company, Inc.

"The only thing that has changed is the clients' realization that their tolerance for risk is not as high as they thought," said Ruth Delaney, Greenleaf Financial Strategies, Inc.

Investors seeking more time with advisors

The survey also indicates that advisors recognize the need to spend more time with clients. When asked how client demand for their time has changed compared to a year prior to the market low point of March 2009, about 60% said it had increased either significantly (18%) or slightly (43%). Fewer than 20% said it had decreased slightly (12%) or significantly (8%). The remainder reported no change.

"Clients need and are requesting more personal attention," said Jeff White, IFG/Russell Advisors, Inc.

"The ability and desire to be nimble in the coming years will give my clients the best chance of negotiating the events and trends to come," said Valerie Duncan, Morgan Stanley Smith Barney LLC.

"Productive discussions take more time and center on the plan, not the returns," said Cavanaugh. "Advisors are spending more time re-assessing the plan and determining the amount of risk that the investor should accept in order to meet their long-term goals. This all takes more time."

More on the FPO can be found here: http://www.Russell.com/Helping-Advisors/yourbusiness/FinancialProfessionalOutlook.asp.

Investment managers more bullish on U.S. equities

Russell's Financial Professional Outlook is intended to generate a meaningful snapshot of advisor sentiment each quarter. Russell also conducts a quarterly Investment Manager Outlook, http://www.russell.com/Helping-Advisors/Markets/InvestmentManagerOutlook.asp, which surveys senior-level investment decision-makers at U.S. large and small cap equity investment managers, as well as U.S. fixed-income investment managers. More than 180 managers participated in that survey, and results were distributed last week. Those results showed 64% of investment managers are bullish on U.S. large cap, nearly as much as emerging market equities (66%), and their bullishness for U.S. small cap equities (55%) is nearly double what the FPO shows in terms of advisors' expectation to increase asset allocation to the same asset class.

"Money managers have expertise and access to information that allows them to take a forward-looking view on asset classes, but most of us don't have these insights readily available to us," Cavanaugh said. "Rather than make changes based on past performance of an asset class, it often pays to stay the course."

About Russell Investments

Founded in 1936, Russell Investments is a global financial services firm that serves institutional investors, financial advisers and individuals in more than 40 countries. Over the course of its history, Russell's innovations have come to define many of the practices that are standard in the investment world today, and have earned the company a reputation for excellence and leadership. 

Through a unique combination of wide-ranging and interlinked businesses, Russell delivers financial products, services and advice. A pioneer, Russell began its strategic pension fund consulting business in 1969 and today is trusted by many well-known worldwide institutions for investment advice. The firm has $176 billion in assets under management (as of 12/31/09) in its mutual funds, retirement products, and institutional funds, and is well recognized for its depth of research and quality of manager selection. Russell offers a comprehensive range of implementation services that helps institutional clients maximize their assets. The Russell Indexes calculate over 50,000 benchmarks daily covering 65 countries and more than 10,000 securities.

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