Taken together, it’s a real mixed bag of results.
The first evidence that comes to mind is the Fed’s quantitative easing plan. Only a couple weeks old, the plan is already being widely derided as a flop. As just one indication of that sentiment, there was an open letter to Fed chief Ben Bernanke on The Wall Street Journal’s website from 23 economists, strategists and investors calling for him to discontinue the plan. That seems a bit rash for a program designed to turn around an economy as big as the U.S., but it is true that stocks have been mostly losing ground since the Fed announced the plan earlier this month. And since a big part of the goal was to get investors to take on more risk by putting more cash into stocks and less into bonds or CDs, it would appear that investors are indeed very skittish about risk. Instead of going into stocks, they seem to be willing to earn increasingly less on their investments in order to feel safe.
On the other hand, one of the hedge fund data compilers, HFN Hedge Fund, shows recent increases in the interest of this category. Its data is only through October, so it misses the QE2 period but it’s still in the thick of the gloom and doom that presaged the Fed’s easing strategy. And it shows a hedge fund industry that’s positively buzzing along at its highest level of the year. October saw $18.4 billion in new inflows from investors, the fourth consecutive month of inflows. And its HFN Hedge Fund Aggregate index was up 2.2% in October alone, and 7.4% for the year.
For other investor confidence surveys, consider the Rasmussen Consumer Index. It reported just today that confidence had ticked up by a point-and-a-half in the past week, and six points in the past month.
On the pessimistic side of the fence, the State Street Investor Confidence Index, from State Street Global Markets, showed a slight decline in its latest survey. Globally, investor confidence fell 1.9 points in October to 86.2 from 88.1. And in North America, it fell by 3.2 points to 84.9.
And finally, for a middle-of-the road perspective, consider the American Association of Individual Investors. Its sentiment survey shows that 40% of investors were bullish for the week ending November 17, according to a poll on its website. (This stacks up pretty even to a long-term average of 39% of investors being feeling bullish.) Although there are slightly more bearish respondents: 32.5% for the week ending November 17, compared to 30% historically.
If you tried to chart all these results on a scatter diagram, it would look like a random blob of dots with no discernable pattern. So what to make of all this?
Two things. First, all your clients are different and more than ever, they need investment programs tailored to them. And second, not only are they different from each other, any one client may be confused as to how he feels about risk. Every marketing professional says this, but advisors really need to dig deeper than ever to determine clients’ true feelings, and their real perceptions toward risk and reward.
Maybe hedge funds are right for a particular client. Maybe the next client should be in ETFs. Just be sure they fully understand your thinking as well on why you’re giving them that advise that you are.