Advisers, clients are steering clear of Egypt

Egypt's political future may be uncertain, but U.S. financial advisers are sure of one thing — it's best to observe Middle Eastern developments carefully but to steer clear of the region for now. Many advisory firms have examined their clients' exposure and decided there's no need to act at this point, noting that few clients have called expressing anxiety over the situation in Egypt. Still, clients should pay attention to how regional instability could affect oil prices, said Bob Andres, chief investment officer at Merion Wealth Partners LLC, which manages $500 million in assets. He noted that at least 40% of U.S. oil supplies flow through the Suez Canal, which is controlled by Egypt. Theo Gallier, chief investment officer with Private Ocean, an advisory firm that manages about $700 million in assets, said that while his firm's clients aren't invested in Egypt, he is paying attention to the region. Since his biggest immediate worry is a jump in the price of oil — a large component of inflation — Private Ocean hedges that risk with managed futures that contain crude-oil contracts. Financial adviser Sam Jones, president of All Season Financial Advisors Inc., thinks that the Egyptian crisis is of too limited economic significance to worry about. “To me, it's almost like a natural disaster, in terms of the economic impact,” he said. “It's doesn't have as much to do with economics as it has to do with politics.” Mr. Jones, whose firm manages $110 million in client assets, said that his clients haven't reached out to him for direction or feedback related to the political unrest in Egypt. “Our folks know that if it's heading south, we're out,” he said. Like other advisers, Tom Wald, a portfolio manager with Tactical Allocation Group LLC, purposely has avoided Middle Eastern investments for quite some time. “The situation in Egypt confirms for us that we want to stick with the criteria we use,” he said. “We look for countries with a high [gross domestic product] rate, low unemployment, strong demographics and strong fiscal management.” By monitoring those criteria, the firm steers clear of investing in countries that are likely to face the political and social chaos that Egypt is experiencing, said Mr. Wald, whose firm manages $1.3 billion in assets for institutional and individual investors. Egypt's “misery index” rating is too high for his firm, with its elevated rates of inflation and unemployment, he said. Tactical Allocation Group's investments in emerging markets include the BRIC countries — Brazil, Russia, India and China — which have “strong economies and are less inclined to social unrest,” Mr. Wald said. Financial adviser Troy Reinhart said that some clients have been curious about the importance of the Egyptian events and are asking questions about what it means to them and their investments. “We're looking to see what pops out the other end,” said Mr. Reinhart, whose firm, Northwest Quadrant Wealth Management LLC, manages about $250 million in client assets. “Will it be Muslim extremism? A democracy?” Mr. Reinhart said. “Long-term, this is a blip on the radar screen.” he said. E-mail Liz Skinner at lskinner@investmentnews.com.