Individual investors are often guilty of flocking to whatever investment has performed well, growing optimistic while markets are strong, turning pessimistic they weaken. Mutual fund inflows are almost always highest into those fund categories that have performed the best, almost always negative in ares of bad performance. Guess what? Professional money managers are no better.
As noted on Marketwatch.com, the latest Schwab survey of financial advisers reveals some startling examples of the correlation between good performance and optimism for the future:
Investment advisers are increasingly pessimistic about U.S. stocks, with many expecting further losses as higher inflation, rising unemployment and a weak housing sector take their toll, according to a survey released Wednesday.
The survey of 1,006 financial advisers by brokerage firm Charles Schwab & Co. Inc., taken in late January, showed investment professionals are much gloomier about the U.S. market's near-term prospects than they were in a similar poll in July....About 46% of respondents say the Standard & Poor's 500 Index will be higher in six months, down from 67% who felt that way in July. Forty-one percent predict the benchmark will be lower versus 18% who said so in July....
About 80% of respondents see housing prices continuing to soften and the same number forecast higher unemployment in six months, compared to just 35% who did in the survey in July....
...Accordingly, many advisers are taking a defensive stance with clients' investment portfolios...About one-third of advisers say they'll invest more in large-cap U.S. and international stocks. Raising cash is part of the strategy for 28% of respondents, up from 16% in the previous survey, and 27% will boost bond positions, up from 18% last July.
...Utilities, many of which offer a cushion in the form of quarterly cash dividends, was the fourth most-favored sector, with 30% of advisers choosing the category compared with 11% in July....
Advisers are less sanguine about technology...
... Enthusiasm for Japanese shares has deteriorated since the July survey, when 40% of advisers thought Japan would be the best-performing developed market....Among emerging markets, advisers expect the best results from China and India (tied at 36%), followed by Brazil (33%) and Russia (23%)....Meanwhile, advisers anticipate investing less in U.S. small-cap stocks and their international counterparts in both developed countries and emerging markets."
In summary, if it stunk, investment professionals now hate it. If it has been pretty hot, they want in.
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