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As European Stocks Fall, Investors Rethink Strategies

The recent and quick decline in European markets has left yet another group of Main Street investors worried about their exposure to the continent.

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Over the past several years, many Americans’ portfolios have gradually shifted to heavier holdings in all things Europe. But since the start of the year, European stocks have fallen 19%, according to the benchmark Stoxx Europe 600 Index, with much of that plunge coming this summer. This morning, the index was down another 1.5%. As a result, some advisers are telling clients to review their holdings and make some — though not huge — tweaks in order to avoid future losses.  “We’re in very dangerous waters right now, and this is a time to be defensive — this is not a time to bargain hunt,” says Jeff Sica, president and chief investment officer at Sica Wealth Management.

Instead, Sica says he’s been moving his clients out of European stocks and into safer havens, including short-term bonds and cash. He also cautions against owning U.S. bank stocks, which he says could be impacted by the European debt crisis.  Randy Warren, chief investment officer at Warren Financial Service, a registered investment adviser in Exton, Penn., says he’s been reducing holdings in exchange-traded funds that have exposure to Europe and has been moving money into corporate bonds, Ginnie Mae bonds and Treasurys.

Just a few a days ago, Pacific Investment Management Co., announced in its latest quarterly outlook that it was dialing back its exposure to riskier assets — including stocks in developed markets, as well as bonds sold by financial institutions in Europe.

Meanwhile, major advisory firms have been telling their clients abandon Europe altogether. Jeff Kleintop, chief market strategist for LPL Financial, says he’s been telling clients to sell European stocks — especially European financials — to use those proceeds to buy U.S. stocks, or shares from emerging markets countries like Brazil or South Korea. For investors who decide to move the money back to the U.S., he recommends high-yield corporate bonds , where yields range between 8% and 10%.

To be sure, many investing pros warn against investors reacting too much to the news and making drastic changes to their portfolios. And yet a growing number of advisers and planners are dealing with market calamities differently than in the past, telling clients they can’t simply “buy and hold” stocks for years anymore and must make regular tweaks to their portfolios when the markets swing wildly. About two-thirds of advisers said they planned to adopt a more timing-oriented approach, known as “tactical management” in the industry, according to a survey this summer by insurance company Jefferson National.


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