US advisers cut exposure to Europe as worries weigh
* Playing safe with 2008 losses in mind
* Heading to cash, U.S. Treasuries
* Some keep exposure through multinational companies
By Ashley Lau
NEW YORK, June 1 (Reuters) - Atlanta-based adviser Jason Lina has staunchly defended his firm's 10 percent position in European equities this year, citing attractive valuations to clients, even as the region's debt woes escalated in recent weeks.
Finally on Friday, his firm - Resource Planning Group, a registered investment adviser with $300 million in assets under management - sold the position it held for five months, replacing its last remaining allocation to European stocks with a long-duration U.S. Treasury bond fund. Europe's dismal stock performance over the past three months had finally triggered a turning point.
As worries about Europe's deepening credit problems roil the financial markets and chip away at investor confidence, many wealth advisers say they are dialing back on exposure to the region, with some like Lina slashing allocations entirely.
"People are concerned that what's going on in Europe is going to cross the pond," said King Lip, chief investment officer at San Francisco-based Baker Avenue Asset Management, which manages about $800 million in client assets.
Lip decreased his position in international equities to 10 to 15 percent, roughly half the 20 to 25 percent typically held by wealth mangers, he said. Of those he has held onto, Lip has kept mainly large company stocks, such as German automaker BMW , which are more immune to Europe's financial turmoil.
"We believe the risk of the market is extremely high right now," said Lip, who has been advising clients to seek international exposure indirectly through U.S. companies and multi-national firms.
New concerns about Spain's state finances this week became the latest entanglement for the bloc, already fraught with debt contagion and a political stalemate in Greece.
The iShares MSCI index fund tracking securities in the European Monetary Union hit a year-to-date low on Friday, dropping more than 23 percent from its year-to-date high in March. The Vanguard MSCI European Growth ETF, which Lina owned, had declined more than 16 percent by Friday from its year-to-date high.
Even in Germany, a stronghold in the European economy, company earnings momentum has started to recede again after turning slightly positive in mid-April, based on a May reading of analyst forecast data from Thomson Reuters Datastream. France and Italy's earnings momentum remained negative, according to the data.
"I don't expect to markedly increase exposure or have a full allocation based on what I know today for probably another two to three years," said Noah Berryman, a Salem, Oregon-based financial adviser with Wells Fargo & Co who said he started cutting positions in Western Europe about nine months ago.
CASH IS KING
Beyond scaling back on European exposure, some wealth managers are moving away from equities as a whole, urging clients to boost cash holdings as they see Europe's woes filtering through to the broader financial markets.
Those fears were exacerbated after major U.S. indices posted their largest monthly declines in two years on Thursday. The Dow Jones Industrial Average fell 6.2 percent in May, while the Nasdaq dropped 7.2 percent for the month.
Bulking up allocations to cash is one way to buffer against escalated market uncertainties, said Lip, whose firm has increased average client cash holdings to 50 percent.
Lip's firm, which works with high-net-worth individuals, primarily small business owners in the United States, started raising cash mid-April.
"Our whole philosophy is basically, the best way to build wealth is not to lose money," he said. "If you can minimize the downside, you'll have long-term success."
For financial advisers and money managers catering to retail investors, the onus has been on them to find ways to preserve their clients' wealth amid a faltering market environment. Many still have enduring memories of 2008 when the financial world suffered major losses.
This time around, they are playing it safe.
"I'd rather apologize for not making them as much than apologize for losing their irreplaceable capital," said Ryan Wibberley, president of Maryland-based CIC Wealth Management Group.
Wibberley's firm increased the cash position of its $250 million in client assets under management to 20 percent, up from 5 percent at the beginning of the year.
He also has significantly reduced his clients' direct exposure to Europe, cutting it to about 2 percent of his firm's total assets under management from about 15 percent over the last year. More than half of his clients have no direct exposure to Europe, he said.
For now he's holding on to investments in multinational companies that operate in Europe, like Apple Inc and BMC Software Inc But he said he is prepared to give those positions up if conditions in the region worsen, for example, through any major bank failures.
Part of the reason some wealth managers are keen on boosting cash holdings, rather than investing in stocks, which are perceived to be riskier, is because more of their clients are aging baby boomers who are concerned with safeguarding their accumulated wealth.
The majority of Wibberley's 550 households, for example, are made up of retirees.
On the list of client concerns, "number one is preservation of wealth, number two is yield," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama. "Investors are demanding more active management and being more attuned to what's going on in the markets."
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