Financial advisers head to cash as stocks move up

Bigger cash weightings reveal a preference for safety over returns as the bull market ages

Feb 14, 2019 @ 3:38 pm

By Jeff Benjamin

Never mind that the stock market is up more than 8% from the start of the year. For a lot of professional investors and financial advisers, the risk-off mood that was triggered late last year has been hard to shake.

"We're tactical investors and our monthly indicators are all negative," said James Reardon, chief investment officer at ProActive Capital Management, where clients are being advised to hold cash positions in the 35% range.

Mr. Reardon is not alone in expressing outlooks on the markets and the economy that might appear more focused on the last three months of 2018 than the first six weeks of 2019.

A Bank of America Merrill Lynch survey of fund managers found that global equity allocations in February fell to the lowest level since September 2016, and cash allocations relative to benchmarks reached the highest level since the 2008 financial crisis.

The survey of 173 money managers with $515 billion under management, conducted last week, showed that 34% of respondents believed the S&P 500 Index had peaked in September. That's up from the 11% who thought at the time that the index had peaked.

The S&P is currently down 6% from that mid-September peak, but it is up 14% from its mid-December low point.

All that volatility has pushed 44% of fund managers to overweight cash positions relative to their benchmarks, according to the Merrill survey.

Dennis Nolte, vice president at Seacoast Investment Services, said for his clients nearing retirement, cash weightings are now in the 40% to 50% range.

"We're still in the process of reducing risk for soon-to-be retirees who have their number made and don't need 6% or 8% returns," he said.

The risk-off mood is moving large blocks of cash into the safety of certificates of deposit.

"If I'm wrong, we get a 2.5% risk-free return, and I'm okay with that, and my clients are, too," Mr. Nolte said. "This year we've seen a nice retracement, but I've heard zero complaints about missing out on that 8%."

Eric Walters, president of SilverCrest Wealth Planning, isn't anywhere near 40% cash, but he is bumping cash allocations up to the 5% to 10% range, which is well above his usual policy of staying fully invested.

"We're seeing the 12-month rate of change for economic indicators starting to roll over, and it's time to be more careful," he said.

In terms of the drag on overall portfolio performance, Mr. Walters said cash has hurt returns this year, "but not like it would have a few years ago when we were getting zero from cash."

One thing making it easier to justify the move to cash is the recent tightening by the Federal Reserve, which has pushed money market yields up to around 2.3%.

"We put some cash to work in October and again in December," Mr. Walters said, "There's a chance we'll have a shallow recession by the end of this year or into 2020, so we're preparing for that."

Of course, not everyone is on board with the risk-off mentality.

"Those people who went to cash are now sitting with egg on their face, and more than likely the market will force them back in," said Paul Schatz, president of Heritage Capital.

"The selling wave of December has been more than erased, the economy is not teetering on the brink of recession, and corporate earnings are not falling off a cliff," he added. "I think there will be a very mild pullback before stocks move another leg higher."


What do you think?

View comments

Most watched


Finding innovation in your firm

Adam Holt of AssetMap explains how advisers understand they need to grow, but great innovation may be lurking right under your nose.


Finding your edge from Tony Robbins

Guru Tony Robbins has helped a lot of people, but armed with his psychology Financial Advisor Josh Nelson has helped his practice soar.

Latest news & opinion

How to battle sequence-of-returns risk

Retiring during the longest-running bull market in history can be scary, as some begin to wonder when the good times will end.

Tony Robbins loses role with RIA amid charges of sexual misconduct

String of allegations costs the self-help guru his gig as chief of investor psychology at Creative Planning.

SEC sets June 5 date for vote on Regulation Best Interest

Commission adds new item to agenda: Interpretation of broker guidance that qualifies as advice

House passes SECURE retirement bill with massive bipartisan support

The measure allows small employers to band together to offer plans and raises the RMD age. Another provision eases use of annuities in 401(k)s, which critics say goes too far

10 IBDs with the most annuity revenue

Here are the independent broker-dealers that brought in the most annuity revenue last year.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print