The Investment Industry’s Response to Dementia

Posted on October 2, 2014 | Investor Update

Investor-Update

I had the opportunity to attend SIFMA’s Senior Investment Forum this week. It was an industry seminar focused on cognitive impairment (dementia, Alzheimer’s disease and related ailments). The timing was somewhat ironic given that on the same day of the conference, the family of Malcom Young—the founding member of Australian rock band AC/DC—confirmed the reason for the guitarist’s retirement: dementia. (I’m listening to some of his work as I write this.)

A positive takeaway from the conference is the investment industry’s awareness of the problem. Some firms have set up protocols, implemented training programs, or are otherwise are educating employees about identifying and working with clients showing signs of cognitive impairment. Wells Fargo Advisors distributes a pamphlet entitled “A Quick Reference Guide for Elder Financial Abuse.” Ameriprise Financial gives its financial advisers a “compliance snapshot,” which has guidance for working with clients believed to be “experiencing diminished mental capacity.” Bank of America Merrill Lynch has a director of financial gerontology. Cynthia Hutchins, who holds this role, believes this is the first such position of its kind.

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Investor Attitudes Mixed Over Small-Cap Stock Performance

Posted on October 2, 2014 | AAII Survey

This week’s special question asked AAII members how the performance of small-cap stocks is affecting their six-month outlook for the overall stock market. Responses were mixed. The largest group, 40% of all respondents, said the weakness in small-cap stocks was not having any impact. Some of these respondents said they don’t invest in small-cap stocks or don’t view them as being a leading indicator of market direction. Slightly more than 16% of respondents viewed this year’s returns for small caps as a bearish sign for the broader market. An additional 7% of respondents said the decline in small-cap stocks has made them more cautious. On the other hand, about 10% of respondents thought small-cap stocks will rebound.

Here is a sampling of the responses:

  • “I don’t feel you can gain insights into the market as a whole by looking at market segments in isolation.”
  • “I hold very few small-cap stocks and only as speculative plays.”
  • “I expect small-cap stocks to get better as the economy improves.”
  • “It’s giving me reason for caution, so I’m cautiously optimistic as to the six-month outlook.”
  • “I do not consider small caps as part of my analysis.”


AAII Sentiment Survey: Pessimism Rises to a Three-Month High

Posted on October 2, 2014 | AAII Survey

Pessimism among individual investors about the short-term direction of stock prices rose to a three-month high in the latest AAII Sentiment Survey. Neutral sentiment also rose, while optimism fell to its lowest level since early August.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 6.4 percentage points to 35.4%. The drop puts optimism at its lowest level since August 7, 2014 (30.9%). It also ends a seven-week streak of bullish sentiment readings above the historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 3.7 percentage points to 33.7%. The historical average is 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 2.7 percentage points to 30.9%. This is the highest level of pessimism registered by our survey since August 7, 2014 (38.2%). The historical average is 30.5%.

Pessimism has risen by a cumulative 7.9 percentage points over the past two weeks as the S&P 500 has retreated from its recent highs. Though individual investors felt more cautious this week, it should be pointed out that this is just the eighth time in the past 12 months that pessimism is above its historic average.

In addition to the recent weakness in stock prices, prevailing valuations, events in the Middle East and Ukraine, the pace of economic growth and Washington politics are weighing on investors’ moods. Keeping other individual investors optimistic about the short-term direction of stock prices is the S&P 500’s overall upward momentum, earnings growth, sustained economic expansion and the Federal Reserve’s tapering of bond purchases.

This week’s AAII Sentiment Survey results:

  • Bullish: 35.4%, down 6.4 percentage points
  • Neutral: 33.7%, up 3.7 percentage points
  • Bearish: 30.9%, up 2.7 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 30.5%
  • Bearish: 30.5%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at: http://www.aaii.com/sentimentsurvey.



Sell OF THE WEEK 10/1/2014

Posted on October 1, 2014 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Owens-Illinois, Inc. (OI) is his “Sell of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

Audio url: Sell of the week





September AAII Asset Allocation Survey: Fixed Income Rises to an 8-Month High

Posted on October 1, 2014 | AAII Survey

Individual investors boosted their fixed-income and cash allocations last month, according to the September AAII Asset Allocation survey. Bond and bond fund allocations are at an eight-month high, while stock and stock fund allocations are at a four-month low.

Stock and stock fund allocations declined 0.6 percentage points to 66.7%. This is the smallest equity weighting since May 2014 (65.3%). Even with the decline, stock and stock fund allocations remained above their historical average of 60% for the 18th consecutive month and the 20th out of the past 21 months.

Bond and bond fund allocations increased 0.2 percentage points to 16.8%. This is the largest allocation to fixed income since January 2014 (17.0%). The historical average is 16%.

Cash allocations rose 0.5 percentage points to 16.5%. Even with the increase, September was the 34th consecutive month with cash allocations below their historical average of 24%.

After falling in the first half of the year, fixed-income allocations rebounded in the third quarter. Bond and bond fund allocations have stayed at or above 16% since yields on the 10-year Treasury started staying largely below 2.6% in early summer. Cash allocations have shown more variance over the past several months, with some of the fluctuations potentially being due to differences in which AAII members took the survey on a given month. Stock allocations have remained above 65% throughout 2014, aided in part by the market’s upward momentum.

The shift in allocations this month is subtle and does not appear to signal a shift in preferences. Many AAII members continue to be frustrated by low bond yields and low interest rates on money market accounts. Plus, optimism about the short-term direction of stock prices remained above average throughout September.

September Asset Allocation Survey results:

  • Stocks and Stock Funds: 66.7%, down 0.6 percentage points
  • Bonds and Bond Funds: 16.8%, up 0.2 percentage points
  • Cash 16.5%, up 0.5 percentage points

September Asset Allocation Survey details:

  • Stocks: 33.9%, up 2.8 percentage points
  • Stock Funds: 32.8%, down 3.3 percentage points
  • Bonds: 4.2%, up 1.1 percentage points
  • Bond Funds: 12.6%, down 1.0 percentage points

Historical Averages:

  • Stocks/Stock Funds: 60%
  • Bonds/Bond Funds: 16%
  • Cash: 24%

*The numbers are rounded and may not add up to 100%.

The AAII Asset Allocation Survey has been conducted monthly since November 1987 and asks AAII members what percentage of their portfolios are allocated to stocks, stock funds, bonds, bond funds and cash. The survey and its results are available online at http://www.aaii.com/assetallocationsurvey.



Members’ Asset Allocations Remain Mostly Stable

Posted on October 1, 2014 | AAII Survey

September’s Asset Allocation Survey special question asked AAII members how the record highs set by the S&P 500 this year have influenced their allocation decisions. More than half (53%) of respondents said they have not altered their allocations in response. Nearly 20% of respondents said the record highs have either made them more cautious or prompted them to increase their cash allocations. Some of these members said they are favoring more conservative (large-cap, dividend paying) stocks. About 5% said they have increased their equity allocations.

Here is a sampling of the responses:

  • “I always adhere to the same allocation, regardless of market movement.”
  • “It’s made me more cautious of a correction.”
  • “I have started taking profits, and transferred 30% of my portfolio to cash.”
  • “No, I’m normally close to 100% stocks and stock funds.”
  • “I’m very hesitant to invest more heavily in stocks; still waiting for a healthy pullback.”
  • “Staying with the plan from last year; just waiting for the opportune time to rebalance.”


AAII WEEKLY FEATURES 9/30/2014

Posted on September 30, 2014 | Weekly Features

This week’s AAII Weekly Features has been updated.
View this week’s Top AAII Articles, Featured Stock Screen and Member Question.

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BUY OF THE WEEK 9/30/2014

Posted on September 30, 2014 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Banco Bradesco S.A. (BBD) is his “Buy of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

Audio url: Buy of the week




Small-Cap Stocks Are Lagging, But We’re Not Intentionally Avoiding Them

Posted on September 26, 2014 | Dividend Investing

Small-cap stocks have been receiving a bit of attention lately for their lackluster performance. As of yesterday’s close, the Russell 2000 index has a year-to-date loss of 3.71%. This is nearly 10 percentage points worse than the Russell 1000 index, which is up 7.64% year-to-date.

The decline has some sparked some debate about the market’s overall momentum. There is a school of thought that large-cap stocks cannot continue to march higher without small-cap stocks also doing well. While we don’t disagree with the concept of a broad-based rally being a good thing, we’ll point out that large-cap and small-cap stocks have not historically always moved in lockstep. The 2014 Ibbotson SBBI Yearbook says small-company stocks have had a 0.79 correlation to large-company stocks since 1926.

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The Bears are Dancing, Plus Two Changes to the Portfolio

Posted on September 26, 2014 | Stock Superstars Report

The October SSR Monthly Report is now available at the SSR website. There is one new portfolio deletion and one new portfolio addition to announce.

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