Mutual funds roundup: That bear's still there
The third quarter left investors grumbling. Brace yourself for more turbulence ahead.
(Page 2 of 3)
"The honeymoon may well be over for foreign funds," he says. "The turmoil in global markets now has many investors ducking for cover."Skip to next paragraph
Subscribe Today to the Monitor
Going forward, investors should be braced for more turbulence, at least until early next year, analysts say. Rising joblessness and cutbacks in credit availability for households will continue to weigh heavily on investor psychology.
The banking system needs to raise huge sums of capital to replenish its coffers, says Charles Lieberman, president of Advisors Capital Management in Paramus, N.J., and the task won't be easy. "At a minimum, the healthy functioning of the credit markets must be restored if the stock market is to stage a significant recovery," he says.
Prudent investors shouldn't dump stocks indiscriminately, but should be "playing defense at least until after the election," says Nicholes Michas, chief strategist for Alexandros Partners LLC. "Maintain ample cash reserves and stick with high-quality fixed income securities with shorter maturities."
With a drop in oil and commodity prices, inflationary risks have eased and bonds look more attractive, Mr. Michas says. He believes that high quality growth stocks in such sectors as healthcare, consumer staples, and technology can weather a recession better than retailers or other consumer discretionary stocks.
Roller-coaster markets often dissuade investors from sticking with a disciplined asset allocation plan. Yet a large body of academic studies shows that investors who maintain their asset allocations and investment strategies fare better over the longer term than those who pull back in times of trouble.
Often that may require having a cool-headed adviser at your side. "Investors who have access to registered investment advisers are apt to fare better during volatile markets than self-directed investors," says Robert Huebscher, president of Advisor Perspectives in Lexington, Mass. "They help clients avoid acting on emotional impulses or making short-sighted decisions."
His firm tracks how financial advisers allocate the assets of high-net-worth individuals. Its latest data shows that they have 61 percent of their portfolios in equities, 12 percent in cash, and 27 percent in bonds. About one-fifth of the equity portion is devoted to non-US markets. Although cash holdings have risen over the past year, Mr. Huebscher says, "we've seen no dramatic shifts by advisers onto the sidelines in recent weeks."