Wealthy U.S. investors are optimistic about the outlook for the stock market but worries about terrorism and other geopolitical factors have kept them from opening their wallets, according to a survey released Tuesday.
The survey, sponsored by United States Trust Co., polled a sample considered among the wealthiest 1 percent of the population, based on adjusted gross income of more than $325,000 per year or a net worth greater than $5.9 million.
The respondents said they expect annualized stock market returns of 10 percent over the next three years and over the next 10 years. Their expectation over a one-year period was 8 percent.
But the optimism did not match the behavior of wealthy investors, said Paul Napoli, executive vice president and head of personal wealth management for U.S. Trust.
“They have taken a very defensive, very conservative posture,” Napoli said in a telephone interview. The wealthy investors have about 40 percent of their portfolios in cash and bonds. About 33 percent is allocated to domestic equities.
“They need to vote with their dollars and make investments, as opposed to being frozen,” Napoli said.
Of investors in the latest survey, taken in late April and early May, 89 percent expressed worry about terrorism hurting the economy, up from 86 percent in the prior survey in September, 2003.
A separate survey of wealthy investors by Chicago-based consultants Spectrem Group, also released Tuesday, showed investors concerned about Iraq, high oil prices, possible interest rate increases and the U.S. presidential election.
Spectrem Group said its “affluent investor index” fell to a level of 12 in May from 16 in April, remaining in “mildly bullish territory.”
But the index’s measurement of the U.S. economic outlook for the next 12 months fell dramatically from 40 in April to 15 in May — the same level seen shortly after the 9/11 attacks.
The Spectrem affluent investor index measures the investment outlook each month of 250 U.S. households with $500,000 or more in assets to invest.
The U.S. Trust survey also probed views on corporate governance. Nearly all the respondents, 96 percent, said audits by an accounting firm that does no consulting work for a company would be very effective or somewhat effective.
Separation of the roles of chairman and chief executive, with an independent chairman, was backed by 73 percent. In addition, 71 percent favored quarterly certification of the financial statement by an auditor, and 70 percent supported compensating executive officers in direct correlation with the performance of company stock.
Napoli said the preference for linking compensation and stock performance was a surprise, considering that many experts believe such a tie leads to a focus on short term strategies.
“Given our hope that businesses have a long term perspective, we are somewhat surprised by that finding,” he said.
Questioned about their attitudes toward various financial advisers, only 19 percent rated stockbrokers or brokerage firms as very trustworthy. Insurance companies fared only a little better with 20 percentage rating them very trustworthy, and mutual fund companies were third from the bottom with 21 percent saying they were very trustworthy.
Certified public accountants or accounting firms garnered the highest rating for trustworthiness, 53 percent.
Private banks won the backing of 41 percent and investment management firms compensated by fees instead of commissions was third with 38 percent giving them a high rating.
Formally knows as the U.S. Trust Survey of Affluent Americans, the poll was the 23rd conducted since 1993.
The latest survey is based on a sample of 150 people from all regions of the U.S..
U.S. Trust, which manages $102 billion in assets, is a subsidiary of Charles Schwab Corp.The outlook for the U.S. economy among affluent investors polled by Chicago-based consultants Spectrem Group in May fell to the same level as it was in the aftermath of the attacks of Sept. 11, 2001.
Spectrem Group said Tuesday its "affluent investor index" fell to a level of 12 in May from 16 in April, remaining in "mildly bullish territory."
However, the index's measurement of the U.S. economic outlook for the next 12 months fell dramatically from 40 in April to 15 in May — the same level seen shortly after the attacks.
The Spectrem affluent investor index measures the investment outlook each month of 250 U.S. households with $500,000 or more in assets to invest.
Spectrem said ongoing hostilities in Iraq, higher oil and gas prices, uncertainty over the U.S. presidential election and potential interest rate increases were the main news events that drove future economic outlook lower.
Spectrem's "millionaire index," which measures households with assets to invest of $1 million or more, fell to 19 in May from 25 in March and April.
This brought the roughly 100 millionaires polled more in line with overall affluent investors than in March and April, when millionaires demonstrated a more bullish investment outlook, Spectrem said.
Uncertainty abounds
"Affluent investors clearly were put off in May by the hostilities in Iraq, sharply higher fuel costs and the uncertainty that typically comes with presidential elections," said George Walper, president of Spectrem Group.
"However, the fact that millionaires are now less bullish as well suggests that national and world events may be having a significant impact on the investment environment.
"Additional components of the Spectrem affluent investor index tell us that these investors remain quite cautious in terms of both asset allocation and investment product decisions."
The Spectrem affluent investor index is based on 250 10-minute telephone interviews each month.
Spectrem Group is a consulting firm specializing in the affluent and retirement markets.