How's the volatility? Wealth managers lap it up

When it comes to wealth management, 2013 has been a year when the physicians healed themselves.

Specialist wealth managers have been among the best performing stocks on the domestic market this year with diversified financials gaining 25%, well above the 15% rise recorded by financial stocks.

And with the recovery in equity markets following meltdowns in May and June, the gains look set to continue.

Among the standout performers this year have been Magellan with a leap of 130%, Platinum up 56% (see John Abernethy's Dollar doldrums put a shine on Platinum), BT with a 44% rise and Henderson Group gaining 35%.

A number of factors have driven this outperformance. The strong gains on the domestic market up until May led to a sharp rise in performance fees for each of these groups.

And with a gradual lift in superannuation contributions to 12% during the next decade, fund inflows are guaranteed to rise, lifting assets under management and hence income.

In addition, the recent market volatility, sparked by US Federal Reserve chairman Ben Bernanke’s warnings that fiscal stimulus eventually would be wound down, has seen a shift back towards demand for active funds managers.

Despite the seeming reversal of his sentiments overnight, it is clear the Fed chairman is softening up financial markets for a scaling back in the great experimental monetary stimulus program that has pushed real interest rates to zero and kept the greenback artificially low.

The only question remains around the timing. Some Fed members want the stimulus cut as soon as possible. Bernanke wants it gradually wound down only when America’s economic position has improved sufficiently.

Regardless of the timing, the shift out of bonds will be a long term move. And that will necessitate a move to other asset classes, whether cash or equities.  For that, many investors will seek the advice of wealth managers.