Independent registered investment advisor optimism has increased significantly since July 2010, according to Charles Schwab’s latest survey, which was released Monday.
Seventy-seven percent of the more than 1,3000 advisors surveyed, who collectively represent $284 billion in assets, expect the Standar & Poor’s 500 Composite Index to rise in the next six months, up from 63% in the previous survey in July. Reflecting this optimism, 56% of those surveyed say they are bullish while only 10% are bearish when it comes to stock market performance over the next six months.
Independent advisors are also optimistic about other economic indicators and consumer behavior metrics. Sixty-eight percent think consumer spending will increase in the next six months, compared to only 42% in July. Only 17% believe unemployment will increase, compared to 32% in July 2010. Thirty-eight percent say the housing market will continue to soften, down from 53%.
“While there is still uncertainty in the markets and in various parts of the world, independent investment advisors clearly think we are turning the corner economically,” said Bernie Clark, executive vice president and head of Schwab Advisor Services.
Sixty-four percent think U.S. Treasury yields will increase in the next six months, while only eight percent think they will go down; 85% think the Bush tax cut extension will have a favorable impact on the stock market and economy overall; 55% say the quantitative easing activities being conducted by the Federal Reserve will have a favorable impact on the stock market and economy overall; 64% think inflation will increase over the next six months, up from 28% six months ago; and 48% are unaware of the impact that recent changes to cost basis reporting will have on their tax situation.
Over the next six month, independent RIAs plan to invest more in equity. Thirty-nine percent of advisors said they are likely to invest more in domestic large cap compared to 27% in July. Twenty-eight percent plan to invest more of their portfolio in international large cap in emerging markets, while 22% plan to increase investment in international small cap in emerging markets.
Only 9% plan to increase their investment in cash and 6% in fixed income.
More than half (56%) of advisors plan to maintain their current investment exposure in China, and 11% plan to increase exposure to China. Only 13% have no investments in China. As the European debt crisis continues to make headlines, 47% said they will maintain their current investment exposure to Europe, and just 3% will increase exposure.
Advisors expect the energy sector to perform best over the next six months with information technology and financials rounding out the top three. Enthusiasm for the consumer staples and utilities sectors has diminished significantly with only 15% ranking consumer staples among the top three sectors compared to 29% in July and 9% put utilities in their top three, down from 19% six months ago.
Municipal bonds and actively managed mutual funds also rank high among the majority of independent advisors surveyed, with roughly 80% indicating they use each of these investment vehicles for their clients.
Exchange traded funds continue to be the investment vehicle of choice, with 84% of RIAs surveyed saying they currently use these products. Over the next six months, 31% said they plan to invest more in ETFs, the most of any investment vehicle.
Alternative investments ranked second, followed by actively managed mutual funds.
Among ETF products, 78% currently invest in equity ETFs and 28% plan to invest more in them over the next six months. Seventy percent are currently investing in international ETFs, with 23% planning to invest more. More than 60% said they are currently using fixed income ETFs.
More than 80% said they invest in ETFs for diversification in client portfolios, and nearly half use these products to maintain market exposure while making portfolio adjustments. Forty percent of advisors use ETFs as a way to manage risk for clients. Lower cost (75%), trading flexibility (66%), and access to specialized markets (55%) are the top three reasons that advisors say they started using ETFs.
According to the survey, RIAs said that clients are more upbeat entering 2011 as well. Over the past six months, the number of advisors’ clients that needed reassurance that they will achieve their investment goals declined, falling to 23% from 30% six months ago and down from a high of 49% in January 2009.
RIAs said that 53% of their clients feel more optimistic about the economy than they did in July 2010, and 56% of clients feel more positive about their investment performance than they did six months ago, up from just 14% in Jul. However, clients remain cautious about retirement with only 23% more optimistic that they will be able to retire on time. According to advisors, 34% of their clients are reducing expenses, down from 47% in July, and 22% are spending more money on discretionary items, up from just 8% in July.
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