Advisers are still committed to global portfolio diversification — and have a wider variety of financial products from which to choose — but they have to contend with reluctance among clients spooked by headlines about turmoil overseas, according to the latest research from Russell Investments.
Still, the quarterly Financial Professional Outlook survey, full results of which will be released Wednesday, showed that 60% of the advisers surveyed said they had not changed their approach to global investing over the past five years, with most saying they “have always been global.” Only a small proportion said they had never used global investments.
The survey of 300 financial advisers, conducted during the first two weeks of August, further showed that of the 40% of respondents who had changed their use of global investments, only about a third had decreased exposure to non-U.S. investments.
Many of the respondents who adjusted their portfolios cited a relative preference for U.S. equities, general uncertainty about the global markets and clients' demands to avoid exposure to Europe.
“There's a challenge because most advisers tend to take a longer-term perspective, but most of their clients are sitting at home and watching television and seeing that a lot of the news is bad,” said Mike Smith, a consulting director for Russell's U.S. adviser-sold business. “That leads a lot of investors to start questioning the role of non-U.S. investment exposure.”
Only 18% of those advisers who changed their global investment strategies indicated that they had increased global exposure.
Interestingly, it appears that, based on the number of conversations that they initiate with their adviser, investors are more worried about government policy (cited by 50% of advisers) and market ups-and-downs (49%) than they are about global events. Only 38% of the investor-initiated conversations were about global events, according to the survey.
“This is a good example of why many individual investors can benefit from working with financial professionals. Individuals can get wrapped up in today's headlines and want to react, but financial advisers can help keep the focus on the longer-term goals of building financial wealth,” Mr. Smith said. “Advisers also have the perspective to be thoughtful about the market environment and global exposure and the role each should play in building portfolios.”
On a more general basis, 68% of the respondents said they feel optimistic about the capital markets over the coming three years.
— additional reporting by Nancy Tappan