US Investment Advisors Maintain Bullish Outlook
Wednesday, March 09, 2011

Optimism among independent registered investment advisors (RIAs) has risen significantly since July 2010 according to Charles Schwab’s latest survey of more than 1,300 RIAs representing USD284bn in assets under management.

More than three-quarters of advisors surveyed (77%) by Charles Schwab a leading provider of custodial, operational and trading support for more than 6,000 independent RIAs, expect the S&P 500 to rise in the next six months, up from 63% in the previous survey in July. Reflecting this growing optimism, more than half of advisors (56%) classify themselves as “bulls,” while only 10% see themselves as “bears” when it comes to stock market performance over the next six months.

Independent advisors also display optimism across a number of economic indicators and consumer behavior metrics. Sixty-eight percent of advisors think consumer spending will increase in the next six months, compared to only 42% in July 2010. Only 17% believe unemployment will increase, compared to 32% in July 2010. Only 38% of advisors say the housing market will continue to soften, down from 53% last July.

“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.

When asked about various economic issues currently making headlines, advisors have the following to say:

• US Treasury yields: 64% think US Treasury yields will increase in the next six months, while only 8% think they will go down.
• Bush tax cuts: An overwhelming majority (85%) believe the extension of the Bush tax cuts will have a favorable impact on the stock market and economy overall.
• Quantitative easing: 55% say the quantitative easing activities being conducted by the Federal Reserve will have a favorable impact on the stock market and economy overall.
• Inflation: 64% of advisors think inflation will increase over the next six months, up significantly from just 28% six months ago.
• Cost basis reporting changes: Nearly half of RIAs’ clients (48%) are unaware of the impact the recent changes to cost basis reporting will have on their tax situation.

The increasing optimism is also reflected in independent advisors’ move to invest more in equities over the next six months. Thirty-nine percent of advisors are likely to invest more in domestic large cap compared to 27% in July 2010. 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% of advisors plan to increase their investment in cash and six % in fixed income.

More than half (56%) of advisors plan to maintain their current investment exposure in China, and one in 10 (11%) plan to increase exposure to China. Only 13% of advisors have no investments in China. As the European debt crisis continues to make headlines, 47% of advisors say they will maintain their current investment exposure to Europe, and just 3% will increase exposure. Twenty-nine percent of advisors have no investment exposure in Europe.

Advisors expect the energy sector to perform best over the next six months with information technology and financials rounding out the top three. Also of note, 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 2010 and 9% saying utilities are 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% of advisors indicating they use each of these investment vehicles for their clients today.

According to the advisors surveyed, their 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%, down from 30% in July 2010 and down from a high of 49% in January 2009.

Specifically, more than half of advisors’ clients (53%) 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 July 2010. 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 2010, and 22% are spending more money on discretionary items, up from just 8% last summer.