More on Related Themes
2015-03-27 Liquidity by Howard Marks of Oaktree Capital Management
My wife Nancy’s accusations of repetitiveness notwithstanding, once in a while I think of something about which I haven’t written much. Liquidity is one of those things. I’m not sure it’s a profound topic, and perhaps my observations won’t be either. But I think it’s worth a memo.
2015-02-17 Keynesian Contrarianism: Where is the Minority Today? by William Smead of Smead Capital Management
To get a good feel for where the largest pools of money are invested around the world and to identify the minority, we draw from the NACUBO-Commonfund Study of Endowments in North America. This year’s survey included $516 billion in investable assets. The results for the fiscal year ended June 30th of 2014 are listed below. Pay particular attention to the largest endowments, because we believe they represent the asset allocation of the largest worldwide institutions.
2015-01-30 Finding Tax-Free Transfer Opportunities in Undervalued Energy Stocks by Carin Pai, Elisa Shevlin Rizzo of Fiduciary Trust Company International
In the past few weeks, crude oil has extended its biggest price slump since the 2007-2009 global financial crisis, dropping to the lowest levels since 2009 amid signs of softer demand growth from major economies, strong output from the US and steady output from the rest of the world.
2015-01-16 Yesterday?s Gone: Year-End Capital Markets Commentary and Expectations by Chris Brightman, Jim Masturzo of Research Affiliates
With updated return expectations, we estimate that the performance of U.S. stocks and bonds over the next 10 years will be significantly lower than long-term historical averages. Other asset classes may produce moderately better returns.
2014-12-17 Where Did The New Middle Class Citizens Go? by William Smead of Smead Capital Management
The "well known fact" with regards to oil over the last decade read like this: because of huge GDP growth in emerging markets like China, there were going to be 400 million new middle class citizens born of uninterrupted prosperity; they were going to want all the autos, consumer goods, $10,000 watches and food that Americans have.
2014-12-02 The Tooth-Fairy Economics of Jeff Madrick by Laurence B. Siegel (Article)
Incentives don't matter, tradeoffs don't exist and there are no limits to what the government can give you. Those who believe this dogma are likely to still have faith in the tooth fairy. In Seven Bad Ideas, a critique of the neoclassical revival in economics that surrounded Milton Friedman and that affected policy and politics worldwide for more than a generation, Jeff Madrick emerges as tooth-fairy economics' chief exponent.
2014-11-18 Is This Purgatory, Or Is It Hell? by Ben Inker of GMO
GMO is often accused of being a glass half empty investor, and I admit that in a year that has seen the S&P 500 rise 8.3%, MSCI All-Country World rise 3.7%, and the Barclays U.S. Aggregate rise 4.1% through the third quarter, the words Purgatory and Hell are unlikely to come to mind to most investors when opening their brokerage statements. It has been a dull year, perhaps, but certainly not a hellish one. So what is bringing Danteesque visions of damnation into our slightly warped minds?
2014-11-11 Capital Raising in the MLP Sector Remains Active by David Chiaro of Eagle Global Advisors
We continue to see evidence that underpins our long term positive outlook on MLPs and midstream energy infrastructure companies. The need for new midstream infrastructure remains significant and announcements of large projects continue to be made. New export markets for U.S. hydrocarbons continue to develop and offer new profit opportunities for MLPs.
2014-10-30 Got Loans? by Mark R. Kiesel, Elizabeth (Beth) MacLean, Rudy Pimentel of PIMCO
?We believe select investors looking to reposition portfolios may benefit from a move to senior secured floating rate loans. CLOs have been an important source of demand in the market, and even with more strict risk retention rules just announced under Dodd Frank, we think demand will remain strong. While the Fed has criticized some banks for not following their leveraged lending guidelines, Fed members themselves, in our view, do not appear concerned about loans having a major impact on financial stability.
2014-10-28 The Individual Investor's Edge by Patrick O'Shaughnessy (Article)
Even if the sophistication of professional managers makes it seem as though individual investors do not have an edge, they do. Without a job to worry about, individual investors can tolerate short-term underperformance on the path to long-term outperformance.
2014-10-14 You Ain't Seen Nothin Yet by William Smead of Smead Capital Management
Someone recently asked a group of us which band we saw at our first rock concert. My answer was the Canadian band, The Guess Who, in 1975. With hits like No Time, Undun and These Eyes, The Guess Who hit the perfect balance between my 17-year old testosterone driven aggressiveness and my urge to romance the woman of my dreams. The key members of the band in the 1960s and 1970s were Burton Cummings and Randy Bachman.
2014-09-30 Microcap as an Alternative to Private Equity by Chris Meredith, Patrick O'Shaughnessy of O'Shaughnessey Asset management
Private equity has become a central component of many institutional and high-net-worth investment portfolios over the past decade. While private equity offers potential advantages, it also requires taking distinct risks. This paper highlights an alternative to private equitymicrocap equitieswhich mitigates several of these particular risks.
2014-09-04 Risk Revisited by Howard Marks of Oaktree Capital
In April I had good results with Dare to Be Great II, starting from the base established in an earlier memo (Dare to Be Great, September 2006) and adding new thoughts that had occurred to me in the intervening years. Also in 2006 I wrote Risk, my first memo devoted entirely to this key subject. My thinking continued to develop, causing me to dedicate three chapters to risk among the twenty in my book The Most Important Thing. This memo adds to what Ive previously written on the topic.
2014-07-30 The Outlook for MLPs and Midstream Energy Infrastructure Continues to Look Bright by David Chiaro of Eagle Global Advisors
The quarter saw a number of positive developments that underpin our long term positive outlook on MLPs. Firstly, the need for new midstream infrastructure remains significant, and a number of announcements of large new projects highlighted that this need is not abating. Also, a significant new development in the quarter was the emergence of new export markets for ethane and condensate which will entail associated infrastructure development and other possible profit opportunities for MLPs.
2014-07-23 U.S. Equities Continue to Look Attractive: Equity Investment Outlook by Team of Osterweis Capital Management
As we sit down to write this Outlook we are struck by two trends: the consistency of the economic recovery in the U.S. and the dramatic escalation of geopolitical turmoil. Whether these two trends will collide to derail the bull market is an open question, but usually geopolitical flare-ups have only short-term effects and do not overwhelm long-term economic trends. Thus, they tend to appear as hiccups in stock market progress.
2014-07-02 Alternative Investments: The Right Expectations by Roger Nusbaum of AdvisorShares
Every year around this time we hear about the fiscal year investment results for the various college endowments and typically there is much written about the endowments and 2014 is no exception but this year most of the attention seems to be on the extent to which various forms of alternative investments have been a drag on endowment results after years of their having provided outsized gains.
2014-06-24 The Over-Capitalization Curse by William Smead of Smead Capital Management
At Smead Capital Management we are conscious of the few, but significant pitfalls which we believe exist for the long-duration common stock investor. One of the main pitfalls we want to avoid is the over-capitalization curse. This is a situation where investor enthusiasm gets very high, prices get historically high and investors drown the company, industry or sector with capital. In our experience, it pays to avoid the over-capitalized areas for as long as five to ten years as they work their way back to being hated and contentious.
2014-06-10 The Orphaned Bull Market by William Smead of Smead Capital Management
Howard Gold is an inquisitive writer for Marketwatch.com and we think has done us all a great favor in his latest column titled, Not even a bull market can interest people in stocks. He points out via the chart below thatdespite a huge rebound the last five years in US common stocksequity holdings as a percentage of global investable assets just climbed to levels only seen at major stock market low points. Relative to the past 50 years, this stock market has been abandoned and orphaned even as it had made participants wealthy.
2014-05-14 Worried about the Downside? by Richard Bernstein of Richard Bernstein Advisors
There have been numerous academic studies that suggest investors reactions to market risk are not symmetric. Investors consistently react more negatively to losses than positively to gains. At RBA, we incorporate this asymmetry in our sentiment work. Data clearly show that no group of investors is currently willing to take excessive US equity risk. Pension funds, endowments, foundations, hedge funds, individuals, Wall Street strategists, and even corporations themselves remain more fearful of downside risk than they are willing to accentuate upside potential.
2014-04-29 How to Help Business Clients Unlock Wealth by Bob Veres (Article)
Is there a way to help your business clients diversify their holdings, take some risk off the table and create a side investment portfolio that will sustain them if their business runs into trouble? Is there a way you can help your clients find capital when they need it most?
2014-04-16 Every Portfolio Has Faith by William Smead of Smead Capital Management
At Smead Capital Management, we believe that everyone who invests has faith in someone or something. We also believe that who and what you put your faith into is greatly influenced by the time period involved. As we look out into the rest of 2014 and beyond, we would like to consider the kind of faith required by the largest pools of investment dollars in the US. This includes looking at who they are trusting, what they are trusting in, and what time frames they are operating under.
2014-02-28 The Stock Market's Shaky Foundation by Chris Martenson of Whitney Peak
Martenson explains the headwinds that make the long-term case for lower valuations than we've seen in previous decades. But more urgently, he lays out the litany of short-term triggers likely to result in a vicious correction in stock prices this year. In fact, for the first time in years, he believes the time to actively short equities is arriving.
2014-02-12 Harvard?s Endowment: Wise or Foolish? by William Smead of Smead Capital Management
Warren Buffett says, "What the wise man does in the beginning, the fool does in the end." In a Barron's feature over the weekend, writer Andrew Bary dug into the portfolio of Harvard's Endowment through an interview with their CIO, Jane Mendillo. After all, who could possibly be wiser than what many would argue is the most respected undergraduate and graduate university in the world? Using a combination of Bary?s article and our perspective, this missive will seek to determine whether the Harvard Endowment is wise or foolish.
2014-02-11 Focus on Income: The Illiquidity Premium: Opportunities for Investing in Credit Today by Jack Rivkin of Altegris
At a time when many investors are seeking income for their portfolios, traditional sources of fixed income - principally government bonds and high-grade corporate bonds - look less than compelling. Yields are low and there is an increasing risk that interest rates will rise, which would cause the value of existing bonds to fall.
2014-02-04 Letters to the Editor by Various (Article)
A reader responds to Stephanie Keltons article, Code Red or Red Herring? Mauldin and Teppers Code Red Reviewed , and a reader responds to Justin Kermonds article, Harvards Post-Crisis Endowment Strategy, both of which appeared last week.
2014-01-07 Turn the Page: Outlook for Economy/Stocks in 2014 by Liz Ann Sonders of Charles Schwab
In this comprehensive (read: long...sorry!) 2014 outlook report, we assess the likelihood a correction is in the offing given the strong gains since 2009.
2013-12-31 The Ten Best Articles You Probably Missed by Robert Huebscher (Article)
Great articles don’t always get the readership they deserve. We’ve posted the 10 most-widely read articles for the past year. Below are another 10 that you might have missed, but I believe merit reading.
2013-11-19 Levitate: Dismiss Bubble Talk for Now by Liz Ann Sonders of Charles Schwab
Its premature to be calling this market a bubble. Rolling 10 year returns havent even reached a long-term mean. Valuation still well below prior bull market peaks.
2013-10-30 The Thermometer of the Stock Market by Bill Smead of Smead Capital Management
As long-duration owners of common stock, we believe it is the wealth created by the businesses which causes the owners to prosper. We have also been participants in the US stock market since 1980 and are very aware of big swings in enthusiasm for owning common stocks. So we thought it would be helpful to share our opinion on the current temperature of the market. To take the temperature of the market we need to examine the thermometer readings.
2013-10-29 Can Financial Engineering Cure Cancer? by Robert Huebscher (Article)
Securitization and the collateralized obligations it produced led to the financial crisis and the near-collapse of the financial markets. But financial engineering’s bad reputation could turn around. Andrew Lo, a professor at the MIT Sloan School of Management and director of its Laboratory for Financial Engineering, thinks financial engineering can cure cancer.
2013-10-24 Glory Days: Could They Come Back for US Equities? by Liz Ann Sonders of Charles Schwab
A "great rotation" may not be underway by individual investors; even amid record-breaking outflows from bond funds this summer. But fund flow data do show some shift in preferences and highlight the sensitivity of investors to any rise in longer-term interest rates. A more interesting place to look is at the fiduciary community; that has decidedly shifted its attention away from traditional equities (and fixed income) over the past decade.
2013-10-18 Trying to Stop a Bull Market Has Risks by Frank Holmes of U.S. Global Investors
U.S. stocks have been on a tear. The S&P 500 Index has climbed a surprising 20 percent so far this year, as a global synchronized recovery takes shape and funds flow back to equities. As I often say, investors take risks when they try to stop a bull run, and plenty of data suggest you might regret taking that action this year.
2013-10-15 Letters to the Editor by Various (Article)
Readers respond to Robert Huebscher’s article, The Futility of the Endowment Model, which appeared last week.
2013-10-10 Frustrating the Most People by Bill Smead of Smead Capital Management
A venerable sage once said, "The markets do whatever they have to do to frustrate the most people." For the long-duration investor, this means that you need to look at what people are invested in to determine where the frustration will come from. Thanks to the Associated Press, we know what the masses have done with their investments in the last five years.
2013-10-09 Getting Serious About Investing Responsibly by Luke Spajic, Josh Olazabal of PIMCO
To date, much of ESG-related investing has focused on negative screening, but we believe there is a better approach. This approach rests on three pillars: identifying and analyzing key ESG issues facing a given investment sector, engaging with the issuers of securities, and supporting the development of markets for ESG investments.
2013-10-08 The Futility of the Endowment Model by Robert Huebscher (Article)
In the past two decades, the so-called endowment model has been adopted by hundreds of endowments, foundations and advisors ? particularly those serving ultra-high-net-worth clients. By aggressively allocating to illiquid alternative asset classes, those investors hoped to duplicate the results of Yale and other top-tier institutions. New research exposes the futility of those efforts.
2013-08-23 What Does an Improving Economy Mean for Stocks and Bonds? by Charlie Dreifus of The Royce Funds
With the economy improving, inflation tame, and a Federal Reserve meeting approaching in September, Portfolio Manager and Principal Charlie Dreifus believes that small-caps remain an attractive option within the equities market.
2013-07-30 Revisiting “The Cost of Socially Responsible Investing” by Paul A. Ruud (Article)
Endowments have been warned that socially responsible investing incurs a financial cost, based on research by two prominent academicians. But that research ? which has been presented and debated in this publication ? is based on a tenuous model that is highly sensitive to its assumptions. Change those assumptions reasonably, as I did in my research, and the cost of SRI becomes trivial.
2013-07-23 Risk Communicates Signals that Something Important is at Stake by Robert Mark of Castle Investment Management
The equity markets hit new all-time highs again this past quarter. However, we believe this rally is largely due to Ben Bernanke?s policy of Quantitative Easing (QE) which presently equates to the purchase of $85 billion in U.S. government debt every month. Through the Federal Reserve?s policies our government has effectively printed trillions of dollars since the financial crisis began, arguably inflating a host of asset prices including the stock market.
2013-07-17 Men of Steel: How Retail Investors Saved the Muni Market by John Bagley of BondDesk Trading
It looked and felt to screen watchers late last month like the sequel to Man of Steel had arrived prematurely. This time, though, General Zod seemed to set his sights on the bond market, recruiting an army of bond fund managers to annihilate everything from 1-year Treasuries to 30-year corporate and municipal bonds. Over the three trading days following the June Fed meeting, yields on benchmark municipal bonds increased by 60 basis points, the largest move over a 3-day period in more than 25 years.
2013-07-16 Hedge Funds Can Advertise...But Should They? by Chris Maxey, Ryan Davis of Fortigent
In April 2012, the Jumpstart Our Business Startups (JOBS) Act was signed into law. The legislation eased a number of regulatory burdens on small businesses and private industry in a bid to boost job growth. The bill made additional headlines for lifting an 80-year ban on solicitation for private placements, the restriction that prevented hedge funds from advertising their wares to the general public.
2013-07-09 The Five Best New Investment Ideas: New Age Paradigms for the Post-MPT World by Bob Veres (Article)
Over the past four years, Ive been collecting the most tangible, concrete post-Modern Portfolio Theory insights offered by professional investors.
2013-06-21 Asia Brief: China's Energy Demand by Edmund Harriss, James Weir of Guinness Atkinson Asset Management
China has the worlds largest unconventional gas reserves, but these so far remain untapped despite its growing demand for energy. China is now trying to follow the example of the US, and the government has set aggressive targets for unconventional gas production. As the demand for transportation fuels grow over the next decade, this gas could be a major contributor to meeting that need.
2013-06-18 Newsletter June 2013 by Harold Evensky of Evensky & Katz
Do you remember hiding under the sheets listening to radio when your parents thought you were asleep? If so, I have an unbelievable collection of all the old-time radio shows we listened to when we were kids, if you have about six months? spare time. Find your favorite, click on it, and it lists literally hundreds of episodes you can re-live.
2013-06-07 Portfolio Comfort in Stock Splits by Bill Smead of Smead Capital Management
We have noticed that there has been a dearth of stock splits among the S&P 500 index companies in the last 5 years. Our observation is that the natural habitat for stock splits is normally a multiple-year market upswing and numerous stocks trading over $60 per share. What does the history of stock splits tell us about where we are in the long-term stock market cycle for the S&P 500 index? Who will the marginal buyer of common stocks be in the near term and what do stock splits teach us about who the marginal buyer is?
2013-06-06 A Longer Time Horizon Can Be an Advantage for Value Investors by Mark Cooper of PIMCO
We believe that given challenging prospects for attractive investment returns, the value premium could become even more important in the years ahead. Even in an uncertain environment like we are currently experiencing, we believe the merit in owning equities for the long term is unchanged: We want to participate as an owner in a growing, profitable business.
2013-05-21 Measuring the Cost of Socially Responsible Investing by Adam Jared Apt (Article)
Quite apart from its motivations, the consequences of socially responsible investing have intrigued analysts. The actual results, as distinct from the desired results, cannot be taken for granted. Mark Kritzman has written about the subject, but his research was little noticed until recently, when SRI achieved renewed prominence in the form of popular demands that institutional portfolios divest themselves of investments in fossil-fuel companies. Kritzmans point, and the conclusion of his analysis, is that SRI, properly understood, incurs a cost to the portfolio.
2013-04-30 Implementing Behavioral Portfolio Management by C. Thomas Howard, PhD (Article)
Behavioral portfolio management is based on the notion that if the advisor can redirect his or her emotions and mitigate the impact of client emotions, it is possible to build superior portfolios by harnessing market emotions. This article describes how this can be done and presents evidence of the superiority of focusing on investor behavior when constructing and managing portfolios.
2013-04-18 The Lure of Hedge Funds by John West of Research Affiliates
Investors often buy what they think is exciting, sophisticated, and complex with the embedded assumption that all of these attributes will lead to greater returns. We see this today where we witness the continued explosive growth of hedge funds. But, a careful examination of the data reveals that these fancy lures fail to hook as much in excess, after-fee returns as more time tested strategies.
2013-04-10 Making It Possible for Investors to Be Secure in Their Later Years by Michael Golub of The Golub Group
Stock investing should be viewed as old-age insurance. Stocks are serious business because, for most of us, how we handle them will determine how we will be able to live in our later years. The challenge of living comfortably for the rest of our lives has become more of a challenge as the Prudential Life Insurance Company has recently pointed out that the first human to live to 150 years old is alive today. The Wall Street Journal reported in its March 19, 2013 issue, that many workers are saving too little to retire.
2013-03-26 Adapting the Yale Model for Clients by C. Thomas Howard, PhD and Lambert Bunker (Article)
The Yale University endowment fund is one of the most successful in the country, with a 10-year return besting the endowment universe average return by 300 basis points and the Wilshire 5000 return by 400 basis points. David Swensen is the architect of this program, and his guiding principles are widely used to manage large endowments. They are equally useful for client portfolios.
2013-03-13 What's Your Advantage? by Bill Smead of Smead Capital Management
In the March 9, 2013 issue of Barrons, writer Jonathon Laing wrote an excellent piece about Howard Marks. This article provides the base from which we can discuss the main components of investment portfolio composition. These components are information, analysis of information, and decisions made from information and analysis. In doing so, we will bring to light why we believe todays best opportunity is in long-duration common stock investing.
2013-03-05 You?re The Cream of the Crop: Key Findings from the 2012 Advisor Perspectives Reader Survey by Jeff Briskin (Article)
Experienced. Results oriented. Focused on serving the needs of individuals and families. Confident in your abilities. Eager to expand your knowledge. If this sounds like you, you're not alone. These are the traits that stand out among Advisor Perspectives readers, based on the findings of our 2012 Reader Survey.
2013-03-01 Wait for Your Pitch in Today's Market by John West of Research Affiliates
Great hitting in baseball depends in part on waiting for the right pitch. In today's market, most asset classescoming off their impressive 2012 recordare "high and outside" the valuations necessary for future big league returns. Patience is the name of the game today.
2013-02-15 In Defense of Commodity Futures by Seth Masters, Jon Ruff of AllianceBernstein
Several prominent pension funds have slashed their commodity futures investments for delivering poor returns with higher volatility than usual, while failing to diversify equity exposures as expected, The Wall Street Journal recently reported. If inflation rises, they may regret it.
2013-02-07 Investing in a Low-Growth World by Jeremy Grantham of GMO
This quarter I will review any new data that has come out on the topic of likely lower GDP growth. Then I will consider any investment implications that might come with lower GDP growth: counter intuitively, we find that investment returns are likely to be more or less unchanged a little lower only if lower growth brings with it less instability, hence less risk. Finally I will take a look at the reaction to last quarter's letter, specifically about my outlook for lower GDP growth.
2013-02-07 We Have Met the Enemy, and He Is Us by Ben Inker of GMO
If modern portfolio management has a single defining urge, it is almost certainly diversification. We look for diversifying assets, strategies, and managers. A thoughtful investor can argue against almost any asset class stocks, bonds, hedge funds, private equity, commodities, you name it but arguing against diversification is like arguing against indoor plumbing. I dont want to sound like I'm calling for a return to chamber pots and outhouses, so I'm not actually going to argue against diversification.
2013-01-15 It's Not What Happens That Matters by Bill Smead of Smead Capital Management
Late in 2008 and in early 2009, a group of what we like to call "brilliant pessimists" hit the airwaves with their economic theories. The prognosticators' vision of the future was and is predicated on the history of similar situations and the mathematical realities of the huge debt overhang from the prior ten years of profligate economic behavior. They put very effective names on their visions like "new normal" and "seven lean years". They marketed their visions incredibly well to the point of shaming anyone who might disagree with their theories.
2012-12-26 The Ten Key Benefits of Investment Committees by Bob Veres (Article)
In this first part of a two-part report, I'll identify ten core purposes that investment committees serve in different types of firms, ranking them in order of the number of responses I received. If your investment committee is serving all ten purposes, based on the survey, you're among a select minority - which means that many advisors may find new ways to use this versatile new tool in their RIA practices.
2012-12-04 Economics 101: Little Return without Risk by Bill Smead of Smead Capital Management
A tremendous amount of energy and effort has been expended in the US on behalf of wealthy investors to secure returns while reducing risk. Like any useful endeavor, it started out as a wise thing and reached its stride in the late 1990s as a way to deal with a massive asset misallocation. As Warren Buffett always says, What the wise man does at the beginning, the fool does at the end. It appears to us that the efforts to eliminate risk in the US capital markets have reached the foolish point.
2012-11-29 Are E&Fs Jeopardizing Their Missions? by Seth Masters of AllianceBernstein
Many US endowments and foundations (E&Fs) still plan to spend 5% of their assets each year, despite unusually low expected returns. We think few understand how likely it is that this will limit their ability to fulfill their missions in perpetuity.
2012-11-27 A Critique of Grantham and Gordon: The Prospects for Long-term Growth by Laurence B. Siegel (Article)
The vigorous global economic growth of the last two centuries is over, according to Jeremy Grantham and Robert Gordon. That prediction, if correct, has profound and worrisome implications for investors. And the short-term trend is indeed disquieting: Growth has been close to zero over the last decade in advanced countries. But the most likely outcome is that per capita GDP growth going forward will approximate its U.S. historical average of 1.8%, and it will grow faster in developing markets.
2012-10-02 The Risk in Safety by Greg Nejmeh of HS Management Partners
The "risk on/risk off" sound bite is routinely applied by financial commentators when attempting to explain inexplicable market fluctuations. As the pendulum oscillates between greed (risk on) and fear (risk off), the fulcrum the pivot point where the scale rests in perfect balance can best be characterized as safety. It is from that state of equilibrium that the market begins each trading day...
2012-08-07 Robert Shiller on the Social Benefits of Finance by Laurence B. Siegel (Article)
It's a bad sign for the finance industry that one of its leading minds - the distinguished Yale economist Robert Shiller - has felt compelled to write a book in order to defend the idea that finance itself is a constructive pursuit, worthwhile to modern society. Have things really gotten that bad?
2012-08-03 Real Assets Replication: Solving the Capital Call Conundrum by Andrew Hoffmann, Niels Pedersen, Mihir Worah of PIMCO
Risk factors help to identify the fundamental value drivers of real assets and explain differences in the reported returns of public and private equity investments that hold substantially similar assets. By combining the fundamentals of real asset valuations with the statistical tools required to unlock the component risk factors of asset classes, it is possible to replicate the returns of private real asset investments using liquid publicly traded instruments.
2012-07-27 Secular Outlook: Implications for Investors by William Benz of PIMCO
For investors, the biggest challenge now is moving from a world of normal distributions, with expected occurrences around the mean, to one of bi-modal distributions where more extreme scenarios prevail. Key institutions, including governments and central banks, were previously stabilizing forces but are now helping to accelerate underlying, destabilizing trends in the global economy and financial markets.
2012-05-31 Institutionalizing Courage by Robert Arnott of Research Affiliates
Most investors measure wealth in terms of the value of their portfolio. We believe it is better to measure wealth in terms of the portfolios ability to support sustainable spending. This months Fundamentals explores why this approach requires courage.
2012-04-24 The Number One Priority for Advisors by Dan Richards (Article)
What's the single most critical need for advisors to succeed? There are lots of candidates ? investment knowledge, communication skills, the ability to sell, and attracting and motivating a strong team.
2012-04-17 The Elusive Equilibrium: How Financial Markets Shape Global Rebalancing by Ramin Toloui of PIMCO
The mental and organizational infrastructure in the asset management industry has been built for a world with a sharp dichotomy between developed countries and emerging markets. Effective portfolio management requires an integrated approach that eschews the traditional dichotomy between developed and emerging markets. Emerging markets account for about 36% of global output and 68% of global GDP growth, but only represent about 4% of the equity portfolios of U.S. investors. We believe the representation in bond portfolios is even lower.
2012-03-15 Investment Management with a Conscience by Douglas Hodge of PIMCO
Earlier this year the Financial Times ran a series of editorials under the title Capitalism in Crisis. Contributors ranged from Bill Clinton and Alan Greenspan to FT editors Martin Wolf and John Kay. There was also a submission with the byline, Occupy London. While I am admittedly unable to add much to their collective wisdom, I think a sound analysis of capitalism requires an understanding of the role of the investment management industry within the financial services ecosystem."
2012-02-17 Assessing Performance Records A Case Study by Howard Marks of Oaktree Capital
What are the non-negotiable requirements for accurately assessing investment performance? Id say: a record spanning a significant number of years, a period that includes both good years, and a benchmark or peer universe that makes for a relevant comparison. The other day, at an event for alumni and other constituents of the University of Pennsylvania, president Amy Gutmann reviewed the performance of the university during the financial crisis. Thinking about it afterward, I realized that I should share with you the story of Penns endowment and its lessons.
2012-02-16 Weekly Market Update: Introduction to Alternative Investments by Team of American Century Investments
Alternative investments (or alts as they are commonly known) have exploded in popularity in recent years. What began as specialty investment strategies utilized by only the most sophisticated institutional investorssuch as pension plans and university endowmentsare now readily available to retail investors through a number of mutual funds and exchange-traded funds. Here we try to explain alts appeal in broad terms, discussing how these strategies are used and what role alts may play in an individual investors portfolio.
2012-02-14 Boosting the Liquidity of the Market Engine: Horsepower vs. Torque by Robert A. Jaeger, Ph.D. (Article)
Everything you need to know about market liquidity you can learn from the engine of your car. Liquidity is often viewed as market lubrication, but lubrication isn't everything, and, even more importantly, horsepower is different from torque. This fact leads us to appreciate the importance of contrarian investing and enables us to think more clearly about the impact of potential regulatory changes, such as the Volcker Rule and the Tobin Tax.
2012-02-09 Private Equity: Fact, Fiction and What Lies in Between by Team of Knowledge @ Wharton
What good is private equity, anyway? Critics say these investment pools make money the wrong way -- buying "target companies," slashing jobs, piling on debt and selling the remnants, which by then are doomed to fail. Defenders say PE is a strong creator of jobs and value, and a vital source of outsized returns for pension funds, university endowments and other investment pools that serve ordinary people. Who's right?
2012-01-12 Nero (Iran) Fiddles While Rome (China) Burns by Bill Smead of Smead Capital Management
What is required for a whopper of a secular bear market is for most market participants to believe the positive side of the story all the way down. We believe that all the pieces are in place for commodities to suffer a multi-year bear market which will wipe out up to 70% of peak prices on most major commodities. We want to make sure everyone sees the potential for a massive reversion to the mean. In our opinion, the recession coming in Chinas economy will break the back of oil prices for decades. Lower oil prices could strip the economic relevance of Iran, Saudi Arabia, Syria and Yemen.
2011-11-17 Its All Very Taxing by Howard Marks of Oaktree Capital
But what is the fair share? How is it to be determined, and by whom? When Senator Reid says, its time for millionaires and billionaires to pay their fair share, he implies they havent been doing so thus far. How does he know? Whats the standard? If theres an objective standard for ones fair share, why does it only seem to be those from the left side of the political spectrum who say its not being paid? And if there isnt an objective standard, how can the fair share be determined? The truth is, fairness is almost entirely in the eye of the beholder.
2011-10-27 Is It Time for a Trading Tax? by Team of Knowledge @ Wharton
To its advocates, the idea is a no-brainer: Charge a tiny tax on each stock, bond or derivative trade to raise badly needed revenue, discourage dangerous short-term speculation and make Wall Street help clean up its own mess. But critics of the financial transaction tax concept say that it would actually make the financial markets less efficient, hurting ordinary investors by raising costs. Wharton faculty and investment experts weigh in.
2011-10-25 On Market Timing and Whiskey by J.J. Abodeely (Article)
Noah S. 'Soggy' Sweat, Jr. a Mississippi legislator, gave a famous speech addressing the controversial subject of prohibition. The consummate politician, Soggy tried to appeal to advocates on both sides of the issue, illustrating a lesson that advisors today will surely appreciate: In order to get at the substance of a contentious issue, sometimes you have reframe the question.
2011-10-17 Connecting the Dots by Pamela Rosenau of HighTower Advisors
The efficient frontier provides the optimal expected return for a portfolio for a given level of risk, or the lowest level of risk needed to achieve the optimal expected return. Over the years, investors have come to perceive that certain asset classes with higher risk premiums are more risky than others. We believe what many view as traditional asset allocation may be vulnerable going forward. In short, it is dynamic, not static. In todays negative real interest rate environment, investors will be well served by investing in certain asset classes perceived to be more risky.
2011-10-03 Recession, Restructuring, and the Ring Fence by John P. Hussman of Hussman Funds
We are headed toward a recession because our policy makers never addressed the underlying problem in the first place, which was, and remains, the need for debt restructuring. This is an issue that I suspect will re-emerge to the forefront of public debate in the next year. Hopefully, the response of our policymakers will be at different. In Europe the only real option is to allow peripheral defaults; to allow distressed and insolvent countries to exit the euro; and then for those countries to redenominate their own national currencies and peg them to the euro at a gradually depreciated level.
2011-08-15 Driving Buffalo over a cliff by David Edwards of Heron Financial Group
Who wins from the volatility of last week? High frequency trading firms that can effectively manipulate the markets by placing thousands of one sided trades on individual stocks, or even more effectively on thinly traded ETFs, to force the market one way or the other. There are no uptick rules and no margin requirements preventing these firms from setting up an initial position, manipulating the market in the right direction, and closing out the trades with a profit a few minutes later. Who loses?Pension plans, endowments, mutual funds, individual investors and corporations.
2011-07-27 From Asset Allocation Nirvana to Asset Allocation Nightmare by Bill Smead of Smead Capital Management
We believe the next 10 years will be about money moving back into non-cyclical US large cap stocks and domestic companies which enjoy lower commodity prices and the repatriation of money from highly risky asset classes with poor odds. Being widely asset allocated today prepares folks for an under-performance nightmare In our opinion, bonds are expensive, commodities are outlandish, small caps trade at a huge premium and as Chinas economic contraction occurs, the crowd will flee emerging markets.
2011-07-20 Secular Outlook: Implications for Investors by Bill Benz of PIMCO
As the economy undergoes important realignments, investors will need to rethink their traditional approaches to managing their portfolios. As the lines between interest rate and credit risk become blurred, finding sources of safe spread becomes even more critical. More, not less, discretion is warranted when navigating volatile global markets, avoid sectors affected by financial repression and hedge against inflation and/or adverse tail events. We believe investors need to look at risk factors rather than traditional asset classes when making asset allocation decisions.
2011-06-28 Reducing Risk through Value-Oriented Tactical Strategies by Mark E. Ricardo, JD, LLM, AAMS (Article)
Conventional wisdom was that the best way to reduce portfolio risk is to adopt a diversified long-term strategic asset allocation. That paradigm was challenged - deservedly so - following the 2008 financial crisis. Fortunately, an improved paradigm has emerged: Investors should combine long-term strategic allocations with a value-oriented tactical rebalancing strategy.
2011-06-21 The World Held Hostage by Credit Default Swaps? Alford on the FOMC: Watch what they say by Team of Institutional Risk Analyst
In this issue of The Institutional Risk Analyst, we feature a comment from Richard Alford on the state of thinking inside the Federal Open Market Committee regarding monetary policy -- at least based on what folks at the Fed say in public. We also comment on the latest financial bailout, in this case the apparent salvation of the European and US banks in the CDS market from taking a hit in the restructuring of Greece.
2011-06-07 Low Volatility Equity Solutions ? Is Now The Time? by K.Sean Clark of Clark Capital Management Group
Correlations converging amid the market declines of 2008 called attention to the limits of relying on diversification between assets for portfolio protection. The desire for non-correlated returns among assets had led to a significant reduction in U.S. equity exposures and accelerated flows into non-U.S. equities and alternative strategies. But the correlations of these uncorrelated assets spiked under the extreme market stress of 2007 and 2008. This shows that for downside protection, buying assets with many different risk profiles is not a substitute for buying volatility to manage risk.
2011-05-26 In Good Company ? Institutional ETF Usage Trends by Kevin Feldman of BlackRock Investment Management
More institutional investors are making ETFs part of their portfolio strategy, and that?s good news for retail investors. With many innovations, institutional investors are often the first in. Later the retail investors follow. ETFs, however, have shown a slightly different pattern. After 1993, when the first ETF was introduced in this country, ETFs were primarily of interest to institutional investors. At first, their main use was as a place to hold cash before investing in a new asset class, but institutions soon began using them for other purposes, such as tactical allocations and hedges.
2011-05-26 How Quickly They Forget by Howard Marks of Oaktree Capital
Asset prices fluctuate much more than fundamentals. Rather than applying moderation and balancing greed against fear, euphoria against depression, and risk tolerance against risk aversion, investors tend to oscillate wildly between the extremes. They apply optimism when things are going well in the world (elevating prices beyond reason) and pessimism when things are going poorly (depressing prices unreasonably). If investors remembered past bubbles and busts and their causes, and learned from them, the swings would moderate. But, in short, they don?t. And they may be forgetting again.
2011-05-13 The Institutional Gold Rush by Peter Schiff of Euro Pacific Capital
I've worked on Wall Street my entire life, and one thing I've learned is that large institutional investors, like pension funds and endowments, rarely veer from the herd. They manage too much of other people's money to stick their necks out alone-if their investments go bad, at least they can point to everyone else who fared just as poorly. For this reason, these funds are often lagging in their perception of crucial market changes. While many of us are buying precious metals to hedge against the collapse of the dollar, gold and silver have been taboo investments on Wall Street for years.
2011-05-13 Bernanke Double Talk Creates Opportunity by John Browne of Euro Pacific Capital
Fed Chairman Bernanke?s remarks at his historic first press conference were met by a tidal wave of skepticism. Although many of the mainstream outlets characterized his performance as ?serious? and ?masterful," most rank-and-file Americans were left with a very different impression. Any casual glance at the broad internet coverage of the event shows that the public is deeply skeptical of Mr. Bernanke and the actions he is taking. If that skepticism runs more than skin-deep, it could herald a fundamental change in American politics and a restoration of sound finance in America.
2011-05-09 The Menu by John P. Hussman of Hussman Funds
One of the ways investors can think about prospective return and risk is from the standpoint of the Capital Market Line, which lays out a menu of investment possibilities at various levels of return and risk. In theory, investors like to believe that this menu is always a nice, positively sloped line, where greater risk is associated with greater prospective return. And somehow, regardless of where market valuations are, investors often seem to believe that 10% is 'about right' for the prospective return on stocks. As it happens, valuations exert an enormous effect on the prospective returns
2011-03-29 The Biggest Urban Legend in Finance by Rob Arnott of Research Affiliates
Stocks ought to produce higher returns than bonds in order for the capital markets to ?work.? Otherwise, stockholders would not be paid for the additional risk they take for being lower down the capital structure. It comes as no surprise, therefore, that stockholders have enjoyed outsized returns for their efforts for most - but not all - long time periods.
2011-03-21 Japan, by Brian S. Wesbury and Robert Stein of First Trust Advisors
While the news coverage of problems at Japan?s nuclear power plants was sensationalized and misleading, the death toll from the Japanese earthquake and tsunami is horrendous. Moreover, the economic damage to the affected areas is substantial and will require a large re-direction of resources. Japan?s economy will not gain from this shift in resources because the cost of repair only replaces what was lost. That said, after the initial economic blow is fully absorbed, Japan?s economy may accelerate for a time because people change their labor-leisure trade-off.
2011-02-23 2011 Outlook: Private Equity by NB Alternatives private equity team of Neuberger Berman
As a result of the financial crisis, for the latter part of 2008 and all of 2009, very few new private equity transactions were completed and portfolio company monetization was minimal. However, the operating performance of existing private-equity portfolio companies was better than generally expected and investment returns were superior to public equity benchmarks. Although some of this outperformance can be attributed to the resistance of some private equity firms, we believe the majority of the outperformance was the result of effective cost cutting, cash conservation and debt reduction.
2011-02-22 John Campbell on the Proposed Squam Lake Reforms by Dan Richards (Article)
In this interview, John Campbell, chairman of the economics department at Harvard, discusses his research into the underlying drivers of securities prices, and the key recommendations for reforming the financial system, based on his participation in the Squam Lake Group. This is a transcript of the interview.
2011-02-08 The Downside to Venture Investing (like Facebook?) by Dan Richards (Article)
In this interview, Harvard Business School professor Josh Lerner discusses the dangers of venture capital investing and the basis behind Facebook's valuation. This is a transcript of the interview.
2011-01-25 Demand Transparency in an Opaque Mutual Fund World by Andy Rachleff (Article)
Too many investors will end up in actively managed funds that fail in their mission to outperform a passive benchmark. And investors won't know until it's too late because they lack the information to evaluate which funds might consistently outperform the market.
2010-12-28 The Ten Best Articles You Probably Missed by Robert Huebscher (Article)
Great articles don't always get the readership they deserve. Here are 10 articles that you might have missed, but we believe merit reading.
2010-08-23 Markets Are Pricing in the 'New Normal' by Charles Gave of GaveKal
Either the upcoming U.S. elections, in a repeat of 1994, will bring about a Congress able to reduce the pace of government spending, thus triggering a massive sell-off in government bonds and a significant rally in equity markets, or the expansion of the U.S. government will continue, in which case investors in U.S. government bond markets will likely thrive in a repeat of what happened in Japan over the past two decades. You can guess which outcome the biggest fixed income investment houses are rooting for.
2010-08-12 Asset Allocation: Volatility, Correlations and Returns in the New Environment by Tom and Rob Boeckh of Boeckh Investment Letter
Slow growth, high unemployment and weak inflation will keep interest rates very low in the short term. Rising government debt levels and heavy reliance on monetary ease from the Federal Reserve, however, suggest rising risks of price inflation later on, possibly much later. The current period of low long-term interest rates should thus be thought of as an extended base-building period for higher rates down the line. Investors should maintain a diversified portfolio, shifting equity exposure to defensive, non-cyclical sectors, and build positions in cash and safe sovereign debt.
2010-08-10 Public Pension Showdown: Actuaries vs. Economists by Charlie Curnow (Article)
Public pensions are severely underfunded, at least according to the economists. Actuaries disagree, and at stake is nearly $2 trillion. We look at why these groups arrive at such different valuations, and which one is likely to be correct.
2010-07-20 Cash Investing: Considerations for Investing in a Low Interest-Rate Environment by Northern Trust Investments (Article)
Northern Trust's chief economist, Paul Kasriel, forecasts that interest rates will remain low for the remainder of 2010. Investors are looking for guidance on how they should best position their cash and fixed income portfolios to take this environment into consideration, and should consider the tradeoff between liquidity and yield. We thank Northern Trust for their sponsorship.
2010-07-09 July 2010 Newsletter by Harold Evensky of Evensky & Katz
Evensky & Katz president Harold Evensky doesn't know about you, but he's getting tired of living in interesting times. Unfortunately the market gods don't much care for his opinion. So, given the reality that the markets have been a tad exciting lately, in addition to his regular meandering tidbits, he's included a number of items that he thought might provide a little perspective on the ranting of the financial talking heads.
2010-07-02 The Art of Outperformance by Niels C. Jensen of Absolute Return Partners
This month's letter is different. Our usual ramblings about the dire outlook for the global economy have been put aside for a while. Instead we focus on a couple of ideas for equity investors who have grown frustrated trying to beat the market - which is very difficult indeed. We do make some rather unflattering comments about active managers, but please note that these are specific to the equity space. In other, less efficient, asset classes, active managers often do much better than is the case in the equity world.
2010-06-04 The Parable of the Lifeboat by David Edwards of Heron Financial Group
Many investors are hesitant to add to their stock allocations due to negative returns over the past decade. The problem is that alternative investments have performed just as badly, if not worse. Ten thousand appears to be a hard floor for the Dow, despite investors' fears. Markets are thinner and more easily manipulated during the summer time, but July earnings reports should paint a rosy picture. NASDAQ is implementing expanded 'circuit breakers' to sideline stocks with unusually large moves - anything to reduce volatility and get investors interested in stocks again.
2010-04-21 The Bernanke Put: Creating Tetrodotoxin Investors by Cliff W. Draughn of Excelsia Investment Advisors
The 'Bernanke Put' of low interest rates over an extended period of time has effectively lured investors to pursue greater and greater levels of risk without critically thinking about the ramifications of upcoming mortgage resets, consumer spending versus income, credit contraction, valuations, and unemployment. Our country has never experienced leverage of this magnitude. In this environment, we must remember the lesson from Benjamin Graham: 'The margin of safety takes priority over all other investment considerations.'
2010-04-19 playing in the street by tom brakke of the research puzzle
At one time there was a quaint notion that if your clients did well over time, you'd do well over time, especially if they thought you helped quite a bit along the way. Instead of maximizing the long-term value of their businesses, the goal of Goldman Sachs and other firms has become the production of short-term profits (and the accompanying compensation) at any cost. The firms act as if there is an inexhaustible supply of gullible clients, and for too long investors (and citizens, given that 'too big to fail' is still the way of the world) have proven them right.
2010-03-23 Game On! by Lance Paddock (Article)
Advisor Lance Paddock comments on the exchange between Wealthcare's Dave Loeper and SCM's Roger Schreiner. Paddock lauds Loeper's focus on managing assets based on client goals, but says Schreiner's challenge is nonetheless fair, and urges Loeper to accept Schreiner's terms.
2009-12-29 The Top 10 Articles You Didn?t Read (But Should Have) by Robert Huebscher (Article)
We closely monitor which articles draw the most readership. This allows us to fine-tune our content to the preferences of our audience. Reflecting on those articles that were most popular over the last year, however, we believe other articles also deserved your attention. We provide the "Top 10" articles you didn't read - but should have.
2009-09-15 Mohammed El-Erian: We Have Not Reached Escape Velocity by Robert Huebscher (Article)
Kicking off this year's Schwab Impact conference in San Diego, Mohammed El-Erian told an audience of nearly 1,000 advisors on Sunday night that the US financial system has not fully emerged from the financial crisis. El-Erian and his co-presenter, Larry Fink of Blackrock, addressed a range of topics, including the safety of the financial system, the future of regulation, and the outlook for inflation.
2009-06-16 Seth Klarman: Why Most Investment Managers Have It Backwards by Robert Huebscher (Article)
In his keynote speech last week to the Boston Security Analysts Society, Seth Klarman discussed how he repositioned his portfolio last fall to capture opportunities created in the wake of the financial crisis. Klarman is the lead editor of the sixth edition of Graham and Dodd's Securities Analysis, and his fund, The Baupost Group, is among the top performing hedge funds over its 27 year history.
2009-06-02 Jeremy Grantham's Warnings to Investors by Robert Huebscher (Article)
Of the thousands of investment letters penned in the industry, only one draws as much readership as Warren Buffet's annual letter to his shareholders: The quarterly commentary written by Jeremy Grantham. Grantham, the Chairman of the Boston-based investment firm Grantham Mayo Van Otterloo, was a featured speaker at Morningstar's Investor Conference last week, and he spoke at two breakout sessions. Those who, like me, attended both were richly rewarded, as he gave two distinctly different talks, addressing many subjects not covered in his commentaries.