Money Managers Push International Funds Ahead Of U.S. Rate Hike
When stocks sell off, nervous investors jam the phone lines of financial advisors. But with a U.S. interest rate hike on the horizon, money managers are reaching out to clients and encouraging them to lighten up on bonds and other rate-sensitive assets.
The Federal Reserve is expected to raise rates within the next several months, the first such move in nearly nine years. Mutual funds focused on dividend-paying stocks and bonds -- popular safe havens for retirees and near-retirees -- stand to lose value in the rising rate environment.
In contrast to the anticipated U.S. monetary tightening, central banks in Japan and Western Europe are stimulating their respective economies. That should lead to higher prices and better returns for European and Japanese stocks, money managers said.
"We are talking to retirement-aged clients and telling them that traditional investing won't work anymore," said Mike Sorrentino, chief investment strategist at Global Financial Private Capital, a Florida-based firm that manages more than $6 billion in assets.
Investors who habitually bought bonds and bank certificates of deposit have to look elsewhere for yield, said Sorrentino, who is advising clients to move money into the WisdomTree Japan Hedged Equity Fund and the WisdomTree Europe Hedged Equity Fund.
Income-minded investors have poured $65.4 billion into U.S. stock dividend funds and $887.4 billion into U.S. bond funds since 2009, according to Lipper.
Accredited Investors, an advisory firm in Minneapolis with $1.5 billion under management, has been moving clients out of fixed-income investments and into foreign stocks for a little more than a year, said Jacob Wolkowitz, an investment manager at the firm.
Wolkowitz has encouraged clients to have 35 percent of their portfolios invested abroad. He has moved about 5 percent of client assets into the Matthews Asian Growth and Income Fund and between 2 percent and 3 percent to the iShares MSCI Eurozone ETF.
Scott Barkow, a Florida-based advisor with Raymond James & Associates who has $295 million in assets under management, said he has increased his clients' exposure to international stocks by 5 percent to 7 percent in the past several months.
"We expect that Europe will keep interest rates low for some time, so we are looking toward international dividend-bearing companies," Barkow said.