Stock markets have entered the early stages of a bull market, and advisors have a key role to play in helping clients participate in the potential returns, executives at Franklin Templeton Investments Corp. told financial advisors on Thursday.

At the company’s Investment Outlook and Opportunities Forum in Toronto, Don Reed, president and CEO of Franklin Templeton Investments, said numerous economic indicators display that an economic recovery is on the horizon. He pointed to such factors as rising consumer confidence, a stabilization of job claims in the United States and rising commodity prices.

“There are a large number of positives that were not there at the end of 2008,” Reed said.

He warned that the financial system has not yet fully recovered from the crisis. Before he is confident that stabilization has returned to the sector, he is looking to see writedowns by the banks come to an end, and stronger industry earnings. He noted that the current earnings season has begun to show promising signs.

“We need to see the system thaw out a little bit more,” he said. “We’re starting to see that happen, and we need to see more of that.”

The executives also noted substantial improvements in stock markets, including significant drops in market volatility levels and a boost in investor sentiment that has driven the market rally of recent months.

Brent Smith, chief investment officer at Franklin Templeton Managed Investment Solutions, also pointed out that recent gains in financial sector stocks are a promising sign, indicating that the early stages of a bull market have likely set in.

“Financials tend to do better at the beginning stages of an economic turnaround,” Smith said.

But many investors, discouraged by the market crash of last year, have missed out on the market rally so far. Reed pointed to a recent Franklin Templeton survey of investors, which revealed that only 9% of investors were aware that the stock market had rallied by more than 20% in the past few months. Half of the investors surveyed admitted that they were not paying any attention to stock market activity, according to Reed.

“I found that staggering,” he said.

This is because Canadians tend to pay attention to what’s going on in the economy, rather than the markets, according to Reed.

“They tend to focus on the economy, and they really don’t understand that markets lead the economy,” he said. “Every time we see a market downturn and then the market starts to rally, there’s a pretty large segment of the population that will miss the first part of the rally.”

This is where advisors have an opportunity to make a difference for clients, according to Reed. Since many clients are not paying attention to market activity, he said advisors should help them recognize the positive signs that have emerged, and remind clients that markets lead the economy.

“It’s an opportunity to help stabilize your clients’ accounts,” said Reed. “I think advisors should be talking to their clients about this.”

In particular, Reed encourages advisors to help clients re-evaluate their investment policy statements and remove any securities from their portfolio which are not performing, or which no longer fit into their objectives, and replace them with securities better suited to their long-term goals.

“Then I think they need to refocus,” he said.

IE