Advisers moving into cash

Desperate to hang on to the gains in their clients’ portfolios over the past several months, financial advisers are selling positions and moving into cash.
A survey conducted this week by InvestmentNews found that 28.8% of advisers have moved assets into cash due to the recent market volatility. More than one-third of them have increased their cash allocation by more than 15%, while 61% have boosted cash holdings by more than 10%.
The past few weeks of market volatility are reminiscent of the severe swings of 2008, and advisers don’t want to get caught out again.
“We all remember that churning in your stomach every day watching things going down and trying to decide if we should take the losses, and we kept saying, ‘Let’s wait and see,’” said Michael Greco, an adviser with GCI Financial Group Inc., which has $50 million in assets under management. “It just behooves you to maintain a dynamic cash position and not be reactionary.”
GCI Financial, which largely uses hedging strategies with exchange-traded funds and stocks, has increased its cash allocation to 25% over the past few weeks, up from 10%-15%. The firm has reduced its equity exposure from 70% at the beginning of the year to 55%.
Advisers, however, don’t appear to be panic-selling. Of the advisers moving into a cash, slightly less than one-third of them are maintaining a cash portfolio of less than 5% About half have cash allocations of 6%-15%. Only about one in five have more than 15% in cash.
“They are moving small percentages into cash, but the implications for the industry is that this money is less sticky than it used to be,” said Don Phillips, managing director for corporate strategy, research and communications at Morningstar Inc.
Most advisers moving into cash are doing so on their own, and not as a result of client demand. Only about 15% of advisers who are moving into cash said they are doing so in response to requests from clients, according to the InvestmentNews survey.
Advisers at Badgley Phelps & Bell, a registered investment adviser with $1.5 billion in assets, decided that they would reduce their equity exposure by 5% if clients requested it, said Clare M. Hansen, an adviser with the firm. The advisers have received only five calls from clients wanting to reduce their equity exposure.
“We don’t try to talk them out of it, because while staying in might be the right thing, if it’s wrong, it’s definitely wrong, and this way, they sleep better at night,” Ms. Hansen said.