Investors Missing Bigger Picture: Analysts; H&R Block Financial Advisors Analysts Raise Equity Allocation Recommendation
KANSAS CITY, Mo.--(BUSINESS WIRE)--July 13, 2006--Analysts on H&R Block Financial Advisors' (HRBFA) research team announced it is raising its equity allocation recommendation by 5% for conservative, moderate, and aggressive portfolios.
"We believe trying to pinpoint Fed activity is missing the bigger picture and that downside momentum has been overdone," said Marc Zabicki, CFA and Senior Market Strategist for HRBFA. "Because equity valuations in many cases are compelling, investors may take advantage by increasing the equity portion of their portfolio."
Tactical Asset Allocation Views
Conservative Moderate Aggressive
MAJOR ASSET CLASSES
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STOCKS
U.S. Stocks 40% 45% 45%
Developed International 10% 10% 15%
Emerging International 0% 5% 10%
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50% 60% 70%
BONDS 25% 20% 15%
COMMODITY FUTURES 5% 5% 10%
CASH 20% 15% 5%
% of Stock Holdings Only
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U.S. Stocks 80% 75% 64%
Developed International 20% 17% 21%
Emerging International 0% 8% 14%
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100% 100% 100%
% of International In Total Portfolio 10% 15% 25%
Source: H&R Block Financial Advisors
Positive Fundamentals Support Reallocation
"We believe there are positive fundamentals currently underpriced by the market," he said. The recommendation stands on the foundation of still-strong economic growth, healthy corporate balance sheets, and steady earnings growth. "In a market of easing growth expectations, we suggest increasing equity positions by focusing on the more defensive sectors, which have historically outperformed during similar points in the business cycle," Zabicki explained. According to Zabicki, the firm also "raised our opinion on the technology space, as we believe the group should provide some leadership in a market rebound."
Reduce Position in Bonds to Make Reallocation
To make room for the equity increase HRBFA analysts are recommending investors take available proceeds from their tactical bond portfolios, while leaving cash positions unchanged. Zabicki reasoned, "In the near-term we are anticipating that the bond market could come under some pressure due to asset shifts toward equities."
The firm's analysts believe when the market's risk premium normalizes, investors may be more likely to shift assets from the bond market back to equities. In Zabicki's view, cash becomes increasingly important in this environment as a return stabilizer. Moreover, likely increases in short-term rates only bolster the importance of cash in a portfolio.
Reallocation Supports a U.S. Position
Notably, the equity allocation increase is pointed to U.S. equities, rather than international markets. "We are postulating that global monetary tightening should have a more detrimental affect on other global economies relative to the U.S.," Zabicki said. "However, we do not believe it is necessary for investors to take steps to reduce their international allocations, unless, during the market run-up, they had become oversized."
NOTE: Important disclosures below.
For information, contact Dan Grubbs at 816-932-4894 or 913-220-1305.
About H&R Block
H&R Block Inc. (NYSE: HRB) is a leading provider of tax, financial, mortgage, accounting and business consulting services and products. H&R Block is the world's largest tax services provider, having prepared more than 400 million tax returns since 1955. The company and its subsidiaries generated revenues of $4.9 billion and net income of $490 million in fiscal year 2006. In fiscal year 2007, it is operating in four principal business segments: Tax Services (income tax preparation and advice via in-office, online and software solutions); Mortgage Services (wholesale mortgage originations and loan servicing); Consumer Financial Services (investment and financial advisory services, retail mortgage loans, and banking products and services); and Business Services (tax, accounting and consulting services for midsized businesses). Headquartered in Kansas City, Mo., H&R Block markets its services and products under three leading brands - H&R Block, Option One and RSM McGladrey. For more information visit our Online Press Center at www.hrblock.com.
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Dan Grubbs, 816-932-4894
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