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Advisor Perspectives
Insights into the world of high- and ultra-high net worth investing
May 26, 2009- Vol 3, Issue 21
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Those of us old enough to remember Studebakers and the
military-industrial complex will recall the Eisenhower Recession, which began in 1957, lasted eight months and
was followed by the 10
month "Rolling Adjustment" recession beginning in
1961. The W-shaped path of the US economy during this period is the correct analogy to today's
crisis, according to Loomis Sayles and
Company's Dan Fuss.
Whether or not tax rates change, municipal
bonds clearly offer an attractive alternative to Treasuries and taxable
bonds. This piece from Northern Trust Investments explains how
the comparatively low volatility, historically
high credit ratings - and
above all the tax advantage - make municipal bonds an alternative worth
considering for risk-adverse investors. We thank them for their
sponsorship.
New research from Tom Howard of Athenainvest shows buying and holding the typical active US equity fund is a recipe for
underperformance. On the
other hand, Howard shows that funds
actively placing stock selection bets and enjoying recent return success earn
increasingly superior returns and experience an improved likelihood of
beating the market as the fund ages. Howard argues for the importance of being truly active as a fund
manager.
We answer a question posed by a number of readers in response to our
article last week, Opportunities and Risks in TIPS,
and show that TIPS purchased at a
discount offer superior performance relative to those purchased at a
premium, given deflationary assumptions.
Market timing is discredited by passive investment advisors as a voodoo
ritual. Buy-and-hold proponents argue most compellingly by citing the "missing out" scenario - they show
a dramatic drop in return, to Treasury Bill levels, if investors are out of
the markets for only a few good days. In this guest
contribution, Ted Wong debunks the
missing out argument, using 137 years of market data.
New Feature
We now update the list of most popular
articles and commentaries every day.
These lists appear next to all new
articles and on the home page.
An optimistic outlook is the
most important trait advisors can bring to the job. Overcoming a negative
mindset is the necessary first step that makes everything else we do
possible. Dan Richards shows how to
put explicit strategies in place to stay motivated - for most of
us, motivation doesn't happen unless we make it happen.
Timing matters, and it matters before and after retirement. In this
guest contribution, Ron Surz and Craig Israelsen show that when money is
being invested annually the sequence of returns matters,and it matters even more for portfolios in the
distribution phase. The authors discuss the significance for target date fund and other
retirement-focused investors.
Last week, the Argyle Executive Forum hosted its 2009 Hedge Fund Leadership Forum in New York. This event attracted more than 200 leaders from the hedge fund industry, with
a series of panel discussions centered on the key issues managers now
face. Although the sessions were "off the record," we have summarized the key themes from the
discussions.
Lastly, we highlight submissions to Advisor
Market Commentaries.
We welcome guest submissions from our readers. For more information, here are our guidelines.
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Loomis Sayles and Company's Dan Fuss was the keynote speaker at an event in
Boston
last week, where he said "There is a trap in the current market -
credit is very attractive but highly dangerous." Danger lies not
just among the high-yield sector, which Fuss said is unattractively priced,
but within investment-grade bonds, which he said were fairly valued.
Dan Fuss and the Eisenhower
Recession Redux
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Taking
Tax Advantage of Municipal Bonds
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The tax benefits
of municipal bond funds make sense today more than ever. As stock market
volatility has increased, so has the flight to safety. Municipal bond funds
offer a possible refuge from the high volatility of stocks. This piece from
Northern Trust Investments gives financial advisors a quick refresher on
the tax advantages municipal bonds may provide clients.
Taking Tax Advantage of Municipal
Bonds
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The
Importance of Being Active
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The average
"active" US
equity fund underperforms and gets worse with age. A large number of funds
can survive in the face of declining performance by effectively plugging
into the current style grid-based distribution system and becoming a fund
distributor rather than a fund manager. Style grids constrain managers to
style boxes, making it extremely difficult to remain active. On the other
hand, the style grid facilitates distribution across multiple fund sales
channels. Powerful industry forces destroy fund performance.
The Importance of Being Active
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TIPS
- When a Discount is Really a Premium
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If your economic forecast includes deflation, TIPS priced at a discount are
more valuable than those priced at a premium. Based on prices as of
the close of business on Friday, the market understands this, and
premium-priced TIPS offer superior yields. Our Treasury department
also understands this, as shown in their recent TIPS auctions.
TIPS - When a Discount is Really a
Premium
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What
the "Missing Out" Argument Misses
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Ask yourself this question, "If you could help your clients avoid most
the bear markets, would they mind missing a few mighty rallies?" Human
beings are more sensitive to the pain of losing than to the joy of gaining.
That's why most passive financial advisors don't buy the "missing
out" argument, especially during bear markets.
What the "Missing Out"
Argument Misses
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Developing
an Optimistic Outlook
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Dan Richards reviews recent research showing that our thoughts and how we
anticipate the future are the most important choices we make. You can
change your thoughts, you can choose to think differently and you can
choose a different set of beliefs.
Developing an Optimistic Outlook
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Risk
Control along the Glide Path
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Ron Surz and Craig Israelsen believe extending the "auto-pilot"
glide path beyond the stated target date is a mistake. Doing so
overlooks the critically important transition phase from
"accumulation" to "distribution" that occurs from five
years before retirement to five years after retirement. The
year 2008 is the only proof we need.
Risk Control along the Glide Path
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The
Big Issues Facing the Hedge Fund Industry
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Over 200 leaders from the hedge fund industry gathered in New
York last week.
We summarize the key market, macroeconomic, and hedge fund industry issues
they discussed.
The Big Issues Facing the Hedge Fund
Industry
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Highlights
from Advisor Market Commentaries
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Suze Orman has become a familiar fixture on the financial beat, with many
fans. Among those fans is Merriman financial advisor Cheryl Curran, who
nevertheless believes Orman's investment advice should not be followed. In
the following article, she tells why.
Read the commentary
Nouriel Roubini warns that commodity prices seem to be getting ahead of
fundamentals again. As of May 13, 2009, the Rogers International Commodity Index rose 7.6%
since the start of 2009 on the belief that putative 'green shoots' around
the world validated a V-shaped economic recovery in 2009. However, these
'green shoots' might still be a signal of the stabilization of economic
activity at low levels, rather than a return to trend growth.
Read the commentary
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