Greek Prime Minister Alexis Tsipras addresses his party members and ministers at the Greek Parliament on June 16 2015 in Athens Greece

Greek Prime Minister Alexis Tsipras addresses his party members and ministers at the Greek Parliament on June 16, 2015 in Athens, Greece.

Greek Exit Could Trigger a Correction, Advisors Say

The Greek debt crisis has come to a head, as the country’s bailout expires and its debt payment to the International Monetary Fund comes due Tuesday. The events could lead to a Greek exit from the Eurozone, which some advisors say could trigger a market correction in the U.S. as well as a buying opportunity. 

On Monday, the S&P 500 Index was down 2 percent.

Jonathan Torrens, president and chief investment officer at Torrens Capital Management in Fairlawn, Ohio, said a correction of 10 percent or more is highly likely if Greece doesn’t reach a deal and defaults on its debt. But Torrens is not making any changes to his long-term investment approach.

Some advisors view a potential pullback as a buying opportunity.

“In reality, a Greek default, much like many historic sovereign defaults, would likely lead to rallies in stocks markets,” said Patrick Hejlik, CEO of Fourth Quadrant Asset Management in Danville, Calif.

“I am looking for a 7-10 percent correction or pullback in the markets which will allow us to take some of the dry powder we have on the sidelines and take advantage of the pullback,” said Jeffrey Carbone, senior partner at Cornerstone Financial Partners. “The overall economic data coming in continues to improve wage growth, housing and consumer spending all moving nicely.”

Carbone said his client portfolios have been positioned for volatility, with about 7 percent in cash. He’s also shifted to more defensive positions using managed futures mutual funds and ETFs. 

Stephen Barnes, chief investment officer and chief compliance officer of Barnes Investment Advisory in Phoenix, said his firm has been invested in intermediate- and long-term Treasury bonds as a hedge against a Greek exit, which he sees as inevitable. But the game plan going forward is to buy “risky” assets—“whatever folks are hastily tossing out the window”—and sell safety assets. 

“The first stage will be to add some equity exposure for relatively new clients who are still far from fully invested and existing clients who have added meaningful cash to their accounts recently,” Barnes said. “If the decline extends, we plan to execute a second round of topping up ‘risky asset’ positions for all clients. An even further decline would trigger a third stage that would simply be an extension of stage two.”

He expects only a modest correction of 5 to 10 percent.

Gary Harloff, founder and portfolio manager at Harloff Capital Management in Cleveland, does not believe the situation in Greece will cause a market correction, although he does see it as a buying opportunity.

“There will be a knee-jerk reaction to pull money out of Greece and put it in the U.S. safer market,” he said. “It will have minimal effect on the U.S. economy.”

“I feel that this situation, not being a surprise, was already planned for by big money movers,” said Karl Dunajcik, principal at Moneta Group in Chesterfield, Mo. “I think for the individual investor, they will experience some short term volatility but like other events of the kind, this too shall pass. It’s my job to see that my clients do not over-react to this.”

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