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Advisers Increase Clients' Cash Exposure

Bad news for the mutual fund industry. The volatile market has stymied the "long haul" game; an increasing number of financial advisers are moving larger portions of their clients' assets into cash positions.

"When you see the market dropping like a rock, does it make sense to tell most people that they should be O.K. with that?" said Tim Maurer, director of financial planning for The Financial Consulate. Many of his clients at his Hunt Valley, Md.-based practice have moved as much as 50% of their assets into cash over the last two quarters.

A similar sentiment was echoed by Alyssa Moeder, first vice president, investments and private wealth adviser at Merrill Lynch. "We're increasing [clients' exposure] to cash," said Moeder, whose high-net-worth clients have AUM of $200 million. "We're structuring solutions."

Maurer and Moeder are part of a growing trend of practitioners who have taken what they consider to be offensive measures against a rattled market. Merrill's survey of 191 fund managers in the first week this month found 53% are now overweight with cash and 40% are underweight in equities.

"I realize there are ups and downs in a market, but when it's down 19% to 22%, that's real money," Maurer said. "As your clients start to inch closer to retirement, a capital preservation mentality needs to prevail."

According to the Merrill survey, just 16% of fund managers thought equities were cheap, even in lieu of the market declines this year.

Still, those declines are what Bear market purveyors like John Saunders, wealth adviser, Cornerstone Wealth Management, are telling investors to embrace. Saunders has increased some of his clients' cash positions, but only incrementally to about 19%, from an average of 12% last year.

He explained that having too much cash parked on the sidelines meant his portfolios miss out on the key opportunities a bear market presents; for example, the uptick seen in the Dow Jones Industrial Average and the S&P 500 during the week of July 14.

"If you miss the 10 best days [in the market] this year, you miss 90% of the returns," Saunders said. "And there are a lot of companies that have some very good PEs."

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