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Changes in Asset Allocation
July 21, 2009

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Asset allocations changed significantly during the second quarter of 2009, as equity positions increased and cash and fixed income positions decreased.  Although some of these shifts were attributable to market movements (US equities advanced by 15.2% and foreign equities advanced by approximately 25.4% during the quarter, while the Lehman AGG advanced by 1.7%), these shifts were primarily attributable to proactive decisions or rebalancing by advisors.

Shifts occurred within US equity allocations, as assets moved out of large and small-cap and into mid-cap (reversing some movements in the prior quarter), as well as out of blend and into value and growth.  These shifts, particularly at the style level, may reflect changes in classifications due to rapidly changing market dynamics, and not due to proactive shifts by advisors.

In the fixed income markets, advisors contracted maturities in the taxable and municipal markets, increasing short and medium term holdings and decreasing long term holdings.  Advisors also shifted assets out of investment grade quality and into medium grade quality – a reverse flight to safety.

Here are some of the more significant movements during the quarter:

  • During the second quarter, equity holdings (US and non-US) increased by 8.7%, while the SPY advanced by 15.2%, and developed non-US markets (based on EFA) advanced by 25.4%.  Fixed income positions decreased by 6.4%, while the benchmark performance (the Lehman AGG) was up 1.7%.  Cash positions decreased by 2.4%, reversing a trend that has been evident since August of 2007.  From that time to the end of the first quarter of this year, cash holdings increased from 7.9% to 12.3% of total assets; now they stand at 9.9%.
  • If advisors had not rebalanced during the quarter, equity allocations would have increased by approximately 3.6% and bond positions would have decreased by 2.5% due to market movements, and cash would have decreased by 1.0%.  Since the actual movements exceed these approximations, we can infer that, in the aggregate, advisors rebalanced and/or made proactive re-allocations during the second quarter.
  • Continuing a trend from the third quarter of 2008, assets shifted into US equity and fixed income markets (+2.7%) and non-US markets (+0.7%); this was offset by a decrease in cash (-2.4%) and in securities where the domicile could not be classified.  The change in US and non-US allocations is partly attributable to market movements and to rebalancing by advisors.  Since our analysis began in May of 2007, there has been a shift in assets out of US markets (from 71.4% to 71.0%) and non-US markets (from 9.8% to 9.2%), as cash positions have increased from 8.4% to 9.9%.
  • Within the US equity markets, there was a shift out of large cap (-0.9%) and small cap (-2.5%) and into mid cap (+3.4%), as well as into value (+2.6%) and growth (+3.0%) and out of blend (-5.6%).  Over the past three quarters, allocations to growth have decreased by 25.5%, from 31.0% to 10.1%.  This shift in style allocations is not due to market movements, and instead is explained by changes in classifications of funds and individual stock positions (i.e., more stocks and funds are now classified as value than in the previous quarter).
  • Within fixed income allocations, muni bond assets decreased by 6.3% and taxable bond assets increased by 5.1%.  More significantly, taxable and municipal maturities contracted, as they did in the first quarter of this year.  On the taxable side, maturities shortened considerably, with short term assets increasing by 1.5%, medium term assets decreasing by 0.4% and long term assets decreasing by 1.0%.  On the municipal side, short term assets increased by 1.5%, while medium term assets increased by 0.1%, and long term assets decreased by 1.6%.  Investment grade taxable bond holdings decreased by 4.4% and medium grade holdings increased by almost the same amount.  Municipal bond holdings exhibited the same pattern, with investment grade holdings decreasing by 8.2%, medium grade holdings increasing by 6.5%, and high yield holdings increasing by 1.7%.  These changes in quality are mitigated by the fact that ratings are generally being downgraded, so a lack of rebalancing or proactive decisions would have the same effect on allocations. 


Every quarter we review changes in Asset Allocation in the Advisor Perspectives (AP) Universe.  Previous analyses were done:

January 6, 2009
October 8, 2008
July 22, 2008
May 13, 2008
February 19, 2008
November 15, 2007
August 15, 2007
May 27, 2007
June 9, 2009

This week we look at changes from March 31, 2009 to June 30, 2009.

Our analysis looks at changes across the entire AP Universe.  The AP Universe consists of assets from high net worth (HNW) and ultra-high net worth (UHNW) investors being managed by Registered Investment Advisors (RIAs).  The AP Universe is divided into three tiers based on account size.  In the tier containing the Largest Accounts, the average account size is approximately $3.7 million (and this remained constant over the quarter).  Approximately 94% of the assets (by market value) are in the Largest Accounts, so this analysis is primarily indicative of shifts in this account tier.

The tables below show the complete data for the AP Universe for each of the prior measurement periods.  The number in parentheses is the total AUM as of 6/30/09.

Mary Pitek, Operations Manager for Advisor Perspectives, contributed to this article.
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