By Joseph A. Giannone
NEW YORK (Reuters) - Like kids on a road trip, investors keep asking: are we there yet?
Investors big and small are running out of patience with a market producing stomach-wrenching ups and downs, and losing confidence that a recession spawned by the financial crisis will fully recover any time soon.
If it's not one thing, it's another: first, Japan's tsunami and nuclear disaster in March halted a rebound. The Federal Reserve's "QE2" stimulus program ended last month, having lined the pockets of portfolio managers, but contributing to rising commodity prices that hit consumer pockets.
The markets have been volatile. Since the benchmark S&P 500 Index reached a three-year high on April 29, it fell as much as 7.2 percent by June 15. It is down 3.2 percent through today.
That frightened investors -- the trend is illustrated by online retail brokers such as Charles Schwab Corp <SCHW.N>, where May trading activity fell 23 percent from the year-ago period and was down 9 percent from April.
Industry fund flows show that investors are fleeing stocks and stashing cash into "safe" bonds and money markets, despite stingy yields. U.S. stock funds saw net withdrawals in each of the past five weeks, and were down roughly $9 billion for the first half.
Bond funds gained about $65 billion in new money in the same period, while $74 billion poured into money markets.
A small sample of financial advisers told Reuters they are encouraging clients to stay invested.
LLBH's Pratt said his firm is trying to mute volatility with high-yielding master limited partnerships, emerging market equities and hedge funds.
Ron Carson, an independent broker and adviser overseeing $3.2 billion in assets, says his firm is in "protect mode," creating portfolios that are hedged against an expected downturn and "uncomfortably high" cash positions.
"We think (the market has) put our highs in for the year," said Carson, whose Omaha-based Carson Wealth Management Group is one of the largest U.S. independent advisers.
"Our clients don't see how the United States will get from underneath its debt, and wonder, 'do our politicians have a clue.' There's a real lack of confidence in the system," he said.
Barclays <BARC.L> is encouraging clients to stock up on U.S. and European stocks and to tilt away from corporate debt.
"There's cash on the balance sheets and an opportunity to deploy that cash," Cox said. "You'll continue to see a pickup in M&A activity. There's a stability you'll get from developed equities you're not going to see elsewhere in the market."
Barclays also introduced separate accounts that build customized muni bond portfolios, he said.
Sontag Advisory, a New York investment adviser overseeing $6.8 billion, also is leaning toward blue chip stocks and strategies that seek out high yields.
"We're looking for diversification, but it's hard to find," said Chief Investment Officer Donna Levy, noting the firm has added emerging market bonds and alternative investments, such as global macro funds.
"There's a crescendo of macro factors the markets are focused on, and that is creating a bipolar market," she said.
More sanguine was Andrew Bodner, founder of Parsippany, New Jersey's Double Diamond Investment Group LLC, who observed that markets went on a tear after three previous periods when investors realized no gains after a decade or more.
Yet investors remain leery of diving back in to stocks, preferring to sit on cash.
"Three years ago, we had new money pouring in, but now it's more difficult," said Bodner, a former UBS <UBSN.VX> broker who oversees about $300 million. "People are just afraid."
(Editing by Robert MacMillan)