As anti-American protests spread across the Mideast last week, financial advisers in the United States say that the uprisings only confirm existing biases toward domestic investing.
“I'm not real comfortable with much outside the U.S. right now, because if you look around the world, it's pretty clear that the U.S. markets represent the best horse in the glue factory,” said Sam Jones, president of All Season Financial Advisors Inc., which has $110 million under management.
“There's been unrest in the Mideast for a thousand years, and I think that's the way most money managers and advisers look at that situation,” he said. “At this point, it's not something you can react to from an investment standpoint unless it really got messy and became a war play for the U.S., but I'm not sure that's what you want to play right now.”
Theodore Feight, owner of Creative Financial Design, said that he has kept his client portfolios away from Africa and the Mideast ever since last year's celebrated Arab Spring, during which several governments were violently overthrown.
OIL COMPANIES
“We've been avoiding the Mideast and Africa, and we're out of Europe,” he said. “And we've been trying to avoid — as much as possible — the oil companies, because I think they're too high anyway.”
Experts are debating the cause of the sudden explosion of anti-American protests, noting that cultural outrage over a YouTube video denigrating the Prophet Muhummad may be only one of several forces involved. Intelligence officials reportedly are investigating a possible link between al-Qaida and the attack on the U.S. consulate in Benghazi, Libya that set off the violence.
Mr. Jones pointed out that one might normally expect oil- and energy-related stocks to show strong gains during times of extreme unrest in oil-rich regions of the world. Last Monday, however, most of the broad energy-related proxies experienced sharp declines.
United States Oil Fund LP (USO), an exchange-traded fund that reflects the spot price of West Texas intermediate crude oil, was down more than 3%, which compared with a decline of half of 1% by the S&P 500.
The iPath S&P GSCI Crude Oil Index ETN (OIL), ProShares Ultra DJ-UBS Crude Oil (UCO) and United States 12 Month Oil (USL) exchange-traded vehicles were all down by more than 3% from the start of the day.
“I haven't made any adjustments to client portfolios at this point, but given what has gone on over the past four or five days, that could be an eventuality” said Clinton Struthers, owner of Struthers Financial Services, a $100 million advisory firm.
“You look at all the stuff going on, and you have to wonder if we're looking at another world war situation. And if that's the case, you have to think about how to position yourself,” Mr. Struthers said.
If the protests ultimately lead to a threat to U.S. oil supply, he suspects that the energy issue will become central to the conversation.
“If the whole Middle East is deciding to self-destruct, that creates some issues for this country,” Mr. Struthers said. “It could shut down the environmentalists that have prevented oil drilling on this continent.”
One possible exception to the general avoidance of Mideast markets is Israel, according to Jamia Jasper, founder and president of Amerisrael Capital Management LLC.
“With the exception of Israel, I would avoid all [Mideast] places, sectors and industries,” she said. “Israel is a unique market in the Middle East because it's a developed market among emerging markets, with a democratic society, [Securities and Exchange Commission]-equivalent regulatory body and audited financials.”
jbenjamin@investmentnews.com Twitter: @jeff_benjamin
