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May 15, 2013 at 10:00 AM
Russell Investments Managing Director Timothy Noonan say this is a critical moment for both investors and advisors.
The concerns of Russell’s global strategists earlier this year–Eurozone instability, the fiscal cliff and sequestration–have proven less significant than expected, they explained in a report released on Tuesday.
Instead, the key themes of today’s markets are stable economic growth in the U.S., continued growth in China, and Japan’s successful stimulus program–which have all helped the U.S. equity market achieve its best first quarter since 1997, they point out.
Noonan and his colleagues say that many U.S. investors have shifted from a “glass half-empty” to “glass half-full” mentality when it comes to stock markets.
That begs the question: How should they position their portfolios for the rest of 2013?
Overall, the Russell investment team has these three strategies:
- For clients who bailed out of the markets: Cash is a “lesser opportunity;” advisors should discuss the fact that waiting for a future “correction” can be a riskier stance than holding a diversified, multi-asset portfolio.
- For clients in the market: Advisors may want to encourage them to stay in and not “flinch” at concerns over a correction; corrections have historically been paired with strong returns for the year overall, Noonan says.
- For clients making large contributions to savings: Some may want to try timing equity investments after a market pullback; Russell experts, though, suggest advisors speak with such investors about taking the steadier approach of dollar cost averaging through short-term ups and downs.
Just how well have the markets done?
U.S. equity values rose by more than 10% in the first quarter, the Russell team says. The Russell 3000 Index, for instance, was up 11% in Q1’13, while the Russell Japan Index was up 12%.
“Moderate—but stable—economic growth, buoyed in the U.S. by resurgence in the housing and energy sectors, proved more influential than short-term consternation over political stalemates, potential long-term costs of government stimulus and lingering questions about the longer-range remedy for “federalizing” Europe. Equivalently, Asia proved the skeptics wrong,” the Russell strategist team wrote in its Q1 analysis.
