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Wealth advisers look for opportunities

Top wealth advisers see gains, but some have lingering worries about the recovery

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Chart of top wealth advisers from Virginia.
For many wealth advisers, 2009 was the year of recovery. After a year in which the S&P 500 index lost 38 percent of its value, the markets rallied, and many hard-hit portfolios rose steadily to pre-recession numbers. They may have lost a year of growth, but after the hit they took in 2008, many advisers were willing to declare a qualified victory.

“Our typical account fell 24 percent in 2008 — the worst year we’d ever had but dramatically better than the market,” says Ric Edelman, chairman and CEO of Fairfax-based Edelman Financial Services. “In 2009 our clients enjoyed 100 percent of the stock market’s gain but with much less risk.”

Edelman wasn’t alone in outperforming the markets during the worst of the crisis. Douglas Stewart, managing director of the Fredericksburg office of Richmond-based Cary Street Partners, saw many of his clients’ portfolios climb last year to the high-water mark of 2007. And Steve Cassaday, president of McLean-based Cassaday & Co., says his portfolios “performed significantly better than most other advisers that we see. It was still a very bad year for us, but our clients were the tallest midgets in the room.”

Clients appreciate success in a challenging environment. So do the organizations that acknowledge exemplary performance. In February, Barron’s singled out 1,000 wealth advisers nationwide, using a system developed by author R.J. Shook. Twenty-five of those wealth advisers work in Virginia.  (See the chart of top wealth advisers from Virginia).

Here, culled from interviews conducted in April, is what nine of those advisers experienced in 2009 and what they expect to see this year.

Brenda Blisk
CEO of McLean-based Blisk Financial Group
Managed assets: $280 million
Number of clients: 175 households
Rank on Barron’s Virginia list: 21st
Performance in 2009: Blisk’s focus on diversification paid off for her clients, who rebounded quickly as the markets rose. “Our assets under management were up 18.5 percent from January 2009 to this January,” she says. She did make some tactical adjustments, though. “We increased small and mid-cap allocations because they’re more nimble as small companies,” she says. “And we added a little more to the overseas weightings.”
Outlook for 2010: “I think we can look forward to the recovery lasting until 2012, when the new tax law changes will put a damper on the growth of the economy,” Blisk says. “People can earn only so much money, and they can only divide it into so many pots.” She is advising clients to stay invested and spend within their budgets so they can take advantage of rising markets. “If you’ve got too much money in cash, it doesn’t grow,” she says. And despite continuing worries about commercial real estate, Blisk believes investments in high-quality commercial real estate will prove lucrative over the next five to eight years. “You want to invest in an asset class when everyone else is heading for the hills,” she says.

Updated comments, May 26

“We’ve just experienced the largest rally since the 1930s.  As the many economist point to the data which shows, we are well into a normal “V” shape recovery.  What most folks forget is that the markets never go up in a straight line.  Expect some bumps along the way as the economy recovers.  This is natural and to be expected.  Factors which will dampen the growth of our economy and slow our recovery will be the expiration of the current tax laws on Jan.1, 2011,  the new mandate on health care, and fear.  All of this in the short term contributes to the uncertainty in the capital markets, as we witnessed the market swings of the last few weeks.  People earn a fixed amount of money each year, and they can only spread it among so many pots.”  She is advising clients to keep two years of cash available, if they are in distribution mode/retired.  “Stick to your budget - do not over spend, and stay invested to take advantage of the rising markets.  Panic is not an investment strategy!”


Steve Cassaday
President of McLean-based Cassaday & Co.
Managed assets: $800 million
Number of clients: about 575 high-net-worth (more than $1 million) households
Rank: fourth
Performance in 2009: Lower-quality municipal bonds proved lucrative for Cassaday’s firm last year. “We got 10 years’ worth of gains from January through December — upwards of a 40 percent total return,” he says. While his clients were initially skeptical, his reasoning was straightforward. “If you buy a portfolio of bonds for 75 percent of their maturity value and 10 percent of them default (which would be unprecedented), you get back 90 percent at maturity,” he says. “Plus you get a 7 percent tax-free income while you wait.” And because he advised his clients to stay fully invested in stocks during the decline, they were well positioned to take advantage of the turnaround. “Over time, more money is lost being out of the market than being in the market,” he says.
Outlook for 2010: “I think we’ll have a robust recovery, and we’re unabashedly bullish,” Cassaday says. “We’re going to have a rip-snorting stock market for the next 10 years, and it will be a surprise to the pundits, as usual.” He always advises clients to diversify their portfolios broadly, saying, “I believe you can’t predict declines, so we try to have money in a lot of different places.” And he is currently avoiding gold and longer term, high-quality bonds. “Huge amounts of money are going into high-quality bonds, and those people are going to be slaughtered,” he says. He also believes commodities and raw materials “will probably do better than historical averages for the next couple years.”

Updated comments, May 25

“Our view is that the recent market decline is primarily a technical correction.  This is to be expected from a market that has risen 70 percent through late April from its March 2009 low point without having a 10 percent correction.  Every bull market since 1932 has experienced at least one major correction of 10% or more before moving on to new highs and a final peak.  We do not believe that April 26 was the final peak.
“Despite our confidence, investors are understandably nervous and worried about a repeat of 2008.  Some ask whether we should be “preserving capital” or taking defensive measures.  With so many scary things going on how can we stay invested?
“Although there are issues of concern, this is not 2008. Conditions are significantly different than what we saw at that time when we saw rapidly declining economic indicators.  Today, most economic indicators are rebounding briskly and balance sheets of corporations are in great shape with earnings and top line sales increasing.  Despite the current decline, we believe that the trend will be positive for investors willing to have a longer term view.  Although there can be no assurances and there is always risk when investing, our conclusion is that these factors will combine to create a strong economic expansion and thus a positive environment for stocks.”


Kent Cox
Senior vice president of the Richmond-based Cox Dunbar Group at Morgan Stanley Smith Barney
Managed assets: $834 million
Number of clients: 85 high-net-worth clients
Rank: 19th
Performance in 2009: Hedged strategies and bonds helped Cox’s clients preserve capital during the decline, he says. And he credits the firm’s global investment committee for calling for a rebound in stocks in March last year. “We raised our equity weightings considerably,” he says. “As the markets improved, we added other opportunistic strategies.”
Outlook for 2010: “The Morgan Stanley global investment committee believes that we’ve just concluded the first year of a multiyear bull market,” Cox says. “There will be corrections along the way, but it will be a continued up-trending market nonetheless. The U.S. economy is forecasted to grow around 3 percent in 2010.”

Ric Edelman
Chairman and CEO of Fairfax-based Edelman Financial Services
Managed assets: $4.6 billion
Number of clients: more than 14,000, including 1,000 high-net-worth clients
Rank: first
Performance in 2009: Edelman, who calls his investment strategy “cautious,” positioned his clients to take advantage of equities early last year, while they were at historic lows. “We were strongly encouraging our clients to increase investments during this period because markets were severely oversold and presented buying opportunities,” he says.
Outlook for 2010: Edelman, who is confident the recovery will continue, is advising his clients to focus on the next 10 years rather than the next 10 months. But he thinks equities will be a good investment during the course of the next year. “We believe we’re in the early stages of a bull market, and this is an opportunity to invest,” he says.

Updated June 1

“There is no question that, despite our belief that the markets will end the year higher than where they began, we will continue to experience significant volatility. In itself, volatility is not bad. It is important to note that a volatile market is not the same as a declining one; indeed, by its very definition, a volatile market rises as much as it falls. Therefore, volatility creates opportunity, and smart investors will capitalize on that to further improve their returns while lowering their investment risks.”


G. Carl Mahler Jr.
President of the Midlothian-based
Pinnacle Group
Managed assets: $200 million
Number of clients: 150, including more than 60 high-net-worth clients
Rank: 17th
Performance in 2009: Because the vast majority of Mahler’s clients followed his advice and stayed in the markets during the worst of the downturn, they were well positioned to benefit from last year’s resurgence. He also allocated a higher percentage of his portfolios into bonds than he has in the past. “We were looking for different investments that would give us some protection on the downside,” he says. “We added high-yield bonds into our models early in the year, which gave us a nice bump.”
Outlook for 2010: “There are a lot of problems that still exist, but I think the recession is over, and we’re in a more normal rhythm in the market,” Mahler says. However, with the Federal Reserve likely to raise interest rates this year, inflation will impact investment strategies. Shorter-duration and tax-free bonds will become more appealing, Mahler suggests. And emerging markets will play an increasingly important role in portfolios. “We’re going to have to expand our horizons and look internationally as never before,” he says.

Joe Montgomery
Managing director–investments in the Williamsburg office of Wells Fargo Advisors
Managed assets: $14.7 billion
Number of clients: 375 households
Rank: second
Performance in 2009: Montgomery’s strategy of sticking to his firm’s master plan — built on diversification and a keen focus on clients’ risk tolerance — positioned his clients to recover from the downturn quickly. “One of the values in developing a model when no bullets are in the air is that you’re not in a panic,” he says. Investments in municipal bonds and emerging-market equity and debt paid off especially well. “We’ve always taken a global approach, and it tends to benefit our clients over the long haul,” he says.
Outlook for 2010: Montgomery believes the worst is behind us, but his concerns about unemployment linger, raising the possibility of a double-dip recession. “A jobless recovery isn’t satisfying,” he says. His investment solution: Build a global model that is flexible enough to perform well in a slow- or fast-growing economy. Montgomery suggests intermediate bonds (both taxable and tax-free), managed futures and emerging-market equity and debt are good areas to consider, along with alternatives such as hedge funds. “We hope it’s all roses, but we’re going to continue to build with the idea that if it’s not, we’ll protect ourselves as much as we can on the downside,” he says.

John Sheehan
Senior resident director and first vice president of investments in Merrill Lynch’s Reston office
Managed assets: $1.2 billion
Number of clients: about 50 high-net-worth clients
Rank: fifth
Performance in 2009: Sheehan’s firm invested in master limited partnerships when they were down. “They were a good asset class for us,” he says.
Outlook for 2010: Sheehan is warning clients about holding too many equities in their portfolios. “With this little rally we’ve had from 6,000 to nearly 11,000 [in the Dow Jones industrial average in early May] it’s time to take some money off the table,” he says. “But you have to take opportunities when they present themselves.” He’s steering clients away from municipal bonds, though, because “most municipalities haven’t come to terms with their budget gaps and the implications to their credit ratings — and their constituents haven’t either.” On the other hand, investing in emerging markets and global fixed income over the next year is looking promising, he adds.
But Sheehan is unwilling to plan significant investments based on long-term economic projections. “There’s no money to be made in predicting the outcome,” he says. “If your thesis is wrong, what’s your exposure? My thinking: We’ll take the economic news as it comes and figure out how to make money in that environment.”

Frank Shull IV
CEO of Lara Shull & May in Falls Church
Managed assets: $700 million
Number of clients: about 2,000, including 500 high-net-worth clients
Rank: 13th
Performance in 2009: The banks hit turbulence in late 2008, but after Congress passed the Troubled Asset Relief Program (TARP) to help stabilize the financial sector, Shull moved his clients into depressed bonds, especially financials. “Once the TARP was approved, we knew there was a backstop,” he says. “They had a tremendous upside, and they absolutely paid off.”
Outlook for 2010: Shull believes the recovery will continue (especially in the Washington, D.C., area). “We go through cycles, and we’ve gone through the worst of it,” he says. He worries about the long-term debt federal spending is accruing, though.  The biggest investment opportunities are in emerging markets and natural resources, he adds. “Emerging markets are growing at a faster pace than we’re growing at in this country. Just look at the economic growth in China and Brazil: The demand will only go up.”

Douglas Stewart
Managing director of the Fredericksburg office of Richmond-based Cary Street Partners
Managed assets: $650 million
Number of clients: 500 high-net-worth clients
Rank: ninth
Performance in 2009: Stewart advised his clients to increase their gold exposure — “That worked out well,” he says — and to invest in tax-free municipal bonds and emerging markets during the downturn.
Outlook for 2010: Stewart expects to see steady economic improvement, although potential commercial real estate problems and high unemployment rates continue to cause some concern. “We think unemployment could take three to five years to improve,” he says. Real estate should offer great investment opportunities when it turns around, and “big cap, dividend-producing stocks are a great place to be,” he says. “We’re venturing into investments that take advantage of higher interest rates and inflation.”


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