US RIAs Serve The Wealthy Foreign Equity Mutual Funds

Matthew Smith

11 May 2007

Wealthy clients of registered investment advisors in the US are heavily invested in non-US equities, mainly though mutual funds, and are using high allocations of fixed income to offset risk – a new web-based service offering a glimpse into the asset allocation of high net worth individuals has shown. Non-US securities both directly and through managed funds comprise 10.2 per cent of all client holdings, based on a database representing $50 billion in client assets with an average account size of nearly $1 million. Fifty-six per cent of these investors’ non-US assets are invested though mutual funds, compared to only 17 per cent of the US assets, according to the data. The Advisor Perspectives database represents assets invested across several hundred registered investment advisory firms across the US with high net worth client bases, said Advisor Perspectives chief executive, Robert Huebscher. According to data from a white paper to be published in the US early next week, ten of the top 25 funds in the universe are foreign equity funds, and these ten funds represent 48 per cent of the assets in the top 25 most popular funds among RIAs. The Advisor Perspectives data ranked the most popular mutual funds and exchange traded funds in three categories of clients: those with single account balances of $3.7 million and up; those with single account balances of $119,000 and up; and those with single account balances of $15,000. The top five most popular US funds in the largest account category included : the iShares Trust MSCI EAFE Fund – foreign equities large cap blend; the JP Morgan Intermediate Tax Free Fund – US bonds medium term investment grade; the Dodge and International Stocks Fund - foreign equities large cap blend; S&P DEP Receipts - US equities large cap blend; and iShares MSCI Japan International – foreign equities large cap. “RIAs are using mutual funds for non-US securities here because they may have more confidence in their ability to select individual US securities and fewer information sources to evaluate individual non-US securities. Additionally, there are fewer sources for investing in non-US securities through separately managed accounts here,” Mr Huebscher told WealthBriefing. The data also showed the larger account category is heavily weighted to fixed income to offset risk , compared to the medium account category , and the smaller account category . Mr Huebscher noted smaller and mid-sized investors are somewhat less heavily invested in small and mid-cap stocks.