Analysis: U.S. shutdown strategy - Many advisers keep clients in stocks
Schumer, Reid, Murray and Durbin stand with a clock counting down to a government shutdown at a news conference at the U.S. Capitol in Washington
By Lauren Young
NEW YORK (Reuters) - Should I stay or should I go?
The looming U.S. government shutdown has plenty of investors asking if it's time to exit the stock market or stay put.
Stock prices have been under pressure in recent days in anticipation that the government may shut down on Tuesday if lawmakers are unable to agree on a spending bill.
With the S&P 500 less than 3 percent from its all-time high, some advisers said the threat of a shutdown is a chance to reap some gains in a market that could be ripe for a correction anyway.
Yet most financial advisers and institutional investors interviewed by Reuters on Monday are telling clients to hang tight - for now. Only a minority are putting clients on red alert and jumping into cash or other safe-haven assets.
For most folks who manage money, government shenanigans are becoming a regular part of the environment, after similar battles in 2011 and 2012.
"There may be some short-term market moves ... but markets are getting increasingly immune to nonsense out of Washington," said Eric Stein, co-director of the Global Income Group at Eaton Vance in Boston, who manages more than $17 billion, including Eaton Vance Global Macro Absolute Return fund and Eaton Vance Strategic Income fund.
A key argument for staying put: Previous shutdowns haven't had much of an impact on portfolios. Bank of America-Merrill Lynch examined 17 government shutdowns since 1976 (all but three of which took place before 1987 under Presidents Ford, Carter and Reagan). In the month prior to a government shutdown, the market gained 0.1 percent; it dipped 0.8 percent during a shutdown, and then bounced, gaining about 1.1 percent in the month following a shutdown.
BofA-Merrill strategists see any significant decline as a buying opportunity. But they said they view "the risk of a 10 percent correction brought about by political brinkmanship to be a low probability event."
Indeed, several money managers said they are buyers rather than sellers. "All short-term sell-offs related to the government have been buying opportunities in the past, and I view this as just another opportunity to buy at a discount from an all-time high," says Matthew D. McCall, president of Penn Financial Group in New York City.
McCall's shopping list includes European banks along with a few exchange-traded funds. On Monday, McCall bought ING Group for one client. "Valuation-wise, European banks are better than U.S. financials, and they are still trading at a discount because of the black cloud hanging over the continent," said McCall, who manages $150 million in client assets.
McCall is taking advantage of market weakness to buy into an exchange-traded fund he has been watching for months - the Guggenheim Timber ETF. "Timber and land stocks typically do well during inflationary times, which we feel are around the corner," he said.
Still, not everyone is as confident.
It's been more than 20 months since the stock market had a 10 percent decline - known to professional investors as a correction. That is why Erik Davidson, deputy chief investment officer for Wells Fargo Private Bank, said he has been advising clients to use the shutdown as an opportunity to trim back on U.S. stocks that have performed well this year and move money into lagging areas such as U.S. government bonds and emerging market stocks.