Advisor
Perspectives
Insights into the world of high- and
ultra-high net worth investing
November 25,
2008- Vol 2, Issue
48
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We wish all our readers a Happy
Thanksgiving!
The greatest threat to the American
economy is now the fragile state of the automobile industry,
particularly General Motors. Leaving aside the "bailout versus
bankruptcy" debate, it is a different, very specific question that
will determine the ultimate fate of GM: What will it take for GM to break-even in
the current low-demand environment? We provide some
answers.
Patrick Anderson,
founder and CEO of Anderson Economic Group, consults to all
three US automakers on the economics of their business model.
Our interview with Anderson provides a broad perspective of the
challenges facing
GM.
Several readers responded to our interview last
week with Jeremy
Siegel. Not everyone agrees with Siegel that stocks are "dirt cheap," and three readers take issue with Siegel's
analysis.
The just-released S&P Index
versus Active (SPIVA) study claims that passive strategies are consistently
outperforming active managers. Our analysis shows that
the SPIVA study is flawed and
misleading, and their conclusions cannot be justified by
their analytical approach.
Tom Brakke challenges advisors to analyze
every element of what they believe about the future of the
economy, the markets, and the investment business. When these
fateful questions are answered, advisors will be able to articulate
their views and explain how they differ from others'.
We have
two guest contributions:
It is critical to determine if mutual fund labeling approaches are
effective - that they are grouping funds together that are pursuing
the same strategy, while avoiding the undesirable consequences of a
poorly thought out scheme. Tom
Howard of AthenaInvest presents new research on the effectiveness of
his approach - Strategy-Based labeling - versus traditional Style
Box labeling.
Way back in 1994, the first target date funds were
introduced. Back then, a target date of say, 2010, seemed far
away. Here we are - just 14 months from 2010 - the first major
target date - and Craig Israelsen
looks at how these funds are faring against a passive
benchmark.
Lastly, we highlight some recent Advisor
Market Commentaries.
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How to Fix GM
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Two
major changes are needed to realign GM's business to a break-even
level in today's low demand environment: reducing the number of
models from 8 to 3, and transitioning the status of union workers to
a level comparable to Toyota's. GM could be forced into
bankruptcy as early as the end of this year and, whichever side you
take in the "bailout versus bankruptcy" debate, you will want to
know the implications for GM's business model.
Read the
article
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Our Interview
with Patrick Anderson
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"There is a very profitable GM contained within the current
edifice. However, getting from the GM of 2008 to the GM of 2010 is
going to be very difficult," says Patrick Anderson. Anderson
is an expert on the economics of the automobile industry, and he
dissects the big issues facing GM: healthcare costs, work rules, the
Jobs Bank, and whether Japanese manufacturers have an unfair
advantage because their government subsidizes R&D
costs.
Read the
article
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Letters to the Editor: Jeremy Siegel on
Why Equities are "Dirt Cheap"
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Three
readers refute Jeremy Siegel's claim last week that equities are
dirt cheap. One reader challenges Siegel's data on dividend
payout ratios and another challenges Siegel's use of operating
earnings instead of GAAP earnings. A third reader looks at
Siegel's longer term track record and the consequences of following
his consistently bullish advice. We also have a letter from a
reader that challenges last week's article "Out of the Red," arguing
that the Russian market is too fraught with sovereign risk to offer
decent returns.
Read the
article
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Active versus Passive: A Flawed and
Misleading Study
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S&P's
SPIVA study attempts to show that passive strategies beat active
managers. Our review of their study shows that it contains
several methodological flaws, including a reliance on "headcount"
data, the use of only a single benchmark, and the lack of any
correction for classification bias.
Read the
article
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Being Able to Answer the Question
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This
tumultuous time in the market has brought into question the business
models of all types of financial firms, from the tiny to the
gargantuan and from the basic to the supposedly sophisticated.
For the health of your business, it is critical to examine your
model and to make a compelling case for every element of it if you
are to thrive. There are opportunities for those who innovate
and differentiate themselves.
Read the
Article
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Labeling Equity Fund Managers
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Strategy
labeling is very effective at clustering funds pursuing the same
strategy and at identifying skilled active managers within these
strategies. On the contrary, Style Box labeling is very ineffective
since it spreads common strategies across clusters rather than
concentrating them within clusters.
Read the
Article
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| A Rough Road
Toward 2010: A Performance Comparison of Active vs. Passive Target
Date Funds |
A target
date fund that fails to attenuate risk near the target date has
failed in its primary purpose. With that as the premise,
nearly all 2010 target date funds are failing.
Read the
Article
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Highlights from Advisor Market
Commentaries
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We highlight recent
submissions to Advisor Market Commentaries:
The analysts at
Evensky & Katz have written two commentaries:
"The Lost Decade" by
Matthew McGrath
"Managing the Stress of
Today's Markets" by Charles Bennett Sachs
Eve-Marie
Kuntzman of Beacon Pointe Capital summarizes a host of market
barometers and concludes that there is a lot of reason for optimism
amid all the signals.
Read the
Commentary
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