Might 27, 2020
Merrill Lynch clients stay cautious about investing, barely growing their already elevated allocations to cash whilst market indexes have rebounded in latest weeks and deposit charges have hit new lows.
“Clients are maintaining some liquidity right now,” Merrill Lynch Wealth President Andy Sieg mentioned Tuesday at a digital traders’ convention sponsored by Deutsche Bank. “They have not on average been inclined to invest more deeply in equities even as the market is coming back.”
Traders throughout Wall Road gravitated to cash in February and March because the coronavirus clutch on the financial system emerged and shares skilled robust volatility.
At Merrill, cash allocations rose to round 13% of shopper portfolio values on the finish of the primary quarter from 10% in the beginning of the yr, and have edged up barely within the present quarter, Sieg mentioned. (Fairness allocations are all the way down to about 56% of shopper portfolios from 60% initially of the yr, which means shoppers have participated within the equities rally of latest days however have “not extended themselves,” he mentioned.)
The shift has continued regardless of rock-bottom charges that Merrill shoppers obtain on cash swept from their funding accounts to deposit accounts at Bank of America. (Merrill in 2018 shifted the sweeps to its sister bank from usually higher-yielding money-market funds.) Charges on many of the linked cash administration accounts are actually 0.01%, with a most of 0.06% on a Merrill “Preferred Deposit” account.
“The interesting point here to investors is that as we have brought rates down, as the environment has changed, deposit balances have been very constant,” Sieg mentioned on the bank funding convention. “We think it’s part of a very disciplined, responsible and symmetric way that we manage rates paid.”
It additionally displays incentives that Merrill and the bank have created to cross-market their wares. (Merrill is looking for to dismiss a purported class-action lawsuit alleging that it did not sufficiently disclose conflicts of curiosity in sweeping their cash to bank accounts.)
About 20% of Bank of America’s deposits originate with Merrill wealth clients, Deutsche Bank analyst Matt O’Connor mentioned on the decision.
About 45% of Merrill shoppers nonetheless should not have a Bank of America deposit or lending relationship, Sieg mentioned, however he flaunted the 30,000 new Bank of America accounts that Merrill shoppers opened within the first quarter. Referrals of bank shoppers to Merrill, he added, have “continued uninterrupted” in the course of the shelter-at-home disaster.
He additionally applauded Merrill’s greater than 14,000 brokers for retaining most of their shoppers targeted on long-term targets and monetary plans amid the anxieties of the pandemic.
Whereas U.S. stock indexes fell about 40% from their mid-February peaks to their March 23 lows, asset values in fee-based accounts at Merrill fell 30% to $800 billion. Out there upswing of latest weeks, the S&P 500 index has gained virtually 35% and Merrill traders have benefited by about $100 billion, the manager instructed AdvisorHub.
“That’s $100 billion our clients would have foregone collectively had they panicked, sold and gone to cash,” Sieg wrote in an e-mail. “This shows me that our advisors were extremely effective in terms of advising against ‘panic selling’ during the March volatility.”