| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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The Next Big Trend: Investors Flock to International Stocks |
Financial Planning - Dec. 17, 2009 - By Ruthie Ackerman
Investors faced whopping losses as a result of the economic recession and the deep scars left by the financial insecurity of the past 18 months had most individuals investing in relatively safe bonds in 2009.
But “investors now appear to be easing up on the fixed income peddle," according to David Falkof, a fund analyst at Morningstar. He said although money flowing into bond funds soared to over $40 billion in August, September and October, by November inflows for taxable and municipal bond funds dropped to $33 billion.
Yes, investors are still putting money into bond funds, but now that the stock market is regaining lost ground, the new trend may be for investors — hungry for the next big thing— to move from bond funds into emerging market stocks, skipping past domestic stocks along the way. (For more on this read: "China Inc.") Other international stocks, such as Japan, England and Germany, could offer big returns too, but with a lot less risk than the emerging markets.
“While investors are still risk averse, you have them trying to make up for lost ground in the last year or so jumping into international stock funds,” Falkof said.
International equities have the potential for significantly higher returns for investors and substantially higher fees for financial advisors, which is a win-win.
After a year and a half of sitting on the sidelines, investors are beginning to move their money and advisors are reaping revenue as investors rake in high returns. With stock market losses of up to 50% from 2007 through 2009, the promise of 69% returns year-to-date in emerging market stocks has proven too good to pass up.
Yet not all advisors profit equally. If an advisor is operating on a fee basis, he most likely does not charge transaction fees to move money from one product to another. He will just charge a flat fee based on total assets under management, said Burt Greenwald of B. J. Greenwald Associates of Philadelphia, but if the advisor is working on a commission basis, the management fee is generally higher on international funds than domestic funds.
Whereas the typical fee on a bond fund, Greenwald said, is 30 basis points, the typical fee on an international stock is 75. At least part of the substantially higher fees go to pay for the increased research costs involved with investing internationally.
There could also be higher fees for moving from one fund family to another. By and large, if an investor moves from a bond fund in one family to an international equity fund that is managed by another fund family, they will be charged extra. If an investor stays within the same fund family, they may not.
Not only are fees incurred when an investor switches fund families, but when they change advisors as well. An investor may hear from a friend at his country club that international stocks are the hot new trend, said Christopher Maxwell, president of Maxwell Associates, and be prompted to make a change. If the investor switches firms, he will face additional management fees, he said.
There are also investors who have been waiting out the financial crisis for the right moment to jump back into the market. Analysts said that this is an opportunity for financial advisors to attract additional business. Once one advisor says international is the hot new arena, investors and advisors sprint for the sector.
“For some reason people have knee jerk reactions to the world,” said Rus Prince, president of Prince & Associates of Shelton, Conn. “Is it the best thing for clients? Maybe. Not often, but maybe.”
Financial cycles are all about greed and fear, Prince added. When investors were worried about losing money they jumped into bonds, “the fear is now starting to be replaced by greed again.”
With the declining dollar, a lot of international investments look good, especially when compared to money market funds, which have delivered very small gains in the past 18 months.
Even Fidelity Investments is jumping on the bandwagon. In September, Fidelity announced that over several months its portfolios within its Freedom Funds would begin to increase their exposure to international stock funds to 30%, up from 20%, to take advantage of the progressively global economy. (For more information also read: "Fidelity Planning China Consumer Fund with Bolton at the Helm")
The risk is that if the dollar improves, then the upside associated with international stocks will be short lived, Maxwell said: “You can change risk but you can’t get rid of it."
After getting slammed with losses over the last several years, it would seem that investors would have learned a lesson about taking risks, Greenwald said, but “emerging market funds are sexy and attractive. They are the only sector of the entire equity market that has attracted net new money this year."
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Income Security Recommendation January 2013 Issue.
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