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Advisor Perspectives
Insights into the world of high- and ultra-high net worth investing
October 27, 2009- Vol 3, Issue 43
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Sign
up here for a free webinar on October 28 at 4pm
EST
where Dan Richards will review how things have changed in the past year and
what advisors need to do in response.
Boston University professor Zvi Bodie advocates
a retirement investment strategy that
offers investors some of the upside
potential in equities tempered with downside protection against bear markets and a low-risk inflation hedge via heavy
allocation to TIPS. Geoff Considine examines Bodie's strategy and
shows that it will work very effectively, including in a bear market like
the one just experienced.
Until recently, leveraged
index funds had daily objectives, rebalancing their leverage at
the end of each trading day in order to match their stated exposure rate.
This characteristic made it necessary for investors to monitor them daily
in order to both track and manage the exposure rates applied to their
investments in the funds. Direxion Funds has released the
first monthly-rebalanced leveraged funds, and they explain how they operate.
We thank them for their sponsorship.
Our article several weeks ago, Michael
Moore - Take This!, drew
responses from several readers, both supportive
and critical of the filmmaker.
Last week, two active management proponents responded to our article, Luck vs. Skill in Mutual Fund Alpha
Estimates, on the latest research from Ken French and Gene Fama. This week, a reader takes on one of those responses and
Michael Edesess, author of our article, says the debate between active and passive management is really a
sidelight to the real issue - which is excessive fees.
More articles below...
Dan Richards often asks advisors how many proactive calls they make to clients in
the average day. The most common response is one or two ... and often
the answer is zero. Many advisors
underestimate the impact of proactive calls on clients.
Is it reasonable for investors' objectives to change along with major
fluctuations in their wealth? In these instances, sticking with the current portfolio may not be the
best option - even for long-term investors. In this guest
contribution, Ted Ponko of Klein Decisions argues advisors need a reliable way to determine when to
stay the course and when to plot another.
No investor likes to see poor performance. But not all "bad returns" - even those of
equal magnitude - are treated equally. In this guest
contribution, Mariko Gordon takes a look at two common forms of underperformance and explains why
one is often viewed much less favorably
than the other.
If you decide to include a
blog in your marketing mix, you can use "canned" material from an outsource
provider or you can write your own. Kristen Luke looks at
the pros and cons of each approach.
Long-term equity investors face a critical juncture. They
can believe a V-shaped economic recovery
is imminent, if not underway, and valuations for broad-based
equity indexes properly reflect an end to the "decrepit decade"
of return-less risk in US markets. Or they can believe true economic recovery - growth, not just
stability - is still a long way off and
US equity valuations are in bubble territory, not reflective of the rough
terrain ahead. We provide our thoughts.
Lastly, we highlight submissions to Advisor Market Commentaries.
We welcome guest submissions from our
readers. For more information, here are our guidelines.
If you are experiencing problems
opening or navigating through our newsletters, we can send you a text-only
version. Please send an email to feedback@advisorperspectives.com requesting the "text-only" version.
If you have received this newsletter
in error, or you do not wish to receive future newsletters, please reply to this email with the word
"unsubscribe" in the subject line.
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Bodie called his strategy the 90/10 strategy: 90% of holdings go into TIPS
and 10% go into call options on an equity index. The idea is
conceptually simple, but it is sufficiently different from the common
practice of most investors (and advisors) that his approach is not well
understood or widely applied. Monte
Carlo simulations explain and demonstrate the value of
Bodie's 90/10 approach.
Managing Downside Risk in Retirement
Planning
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Leveraged
Index Mutual Funds Evolve to Meet Market Needs
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Monthly Leveraged
Index Funds are powerful investment vehicles for investors who are looking
to gain magnified exposure to the markets. This article provides a general
explanation as to how these funds operate, as well as a description of
certain risks that must be understood before any investment is made.
Leveraged Index Mutual Funds Evolve
to Meet Market Needs
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Letters
to the Editor - Michael Moore - Take This!
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"What Vitaliy fails to realize is that without checks and balances, capitalism
can go wrong. That is what Michael Moore is pointing out - you can't let
capitalism go unchecked. This country has thrived on capitalism
growing through a framework of rules and regulation..."
Letters to the Editor - Michael
Moore - Take This!
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Letters
to the Editor - Fama-French and the Active-Passive Debate Redux
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The
Power of Proactive Client Calls
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The reality is that you get much more credit for a telephone conversation
when you initiate the call than if the client calls first. Even if you
have exactly the same conversation, clients feel much better if you made
the call than if they did.
The Power of Proactive Client Calls
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Stay
the Course or Plot Another?
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After 2008's market turmoil, advisors shouldn't be surprised to learn that
many clients' objectives have changed. It's difficult to sustain
a significant decline in wealth without reassessing long-term goals.
It's up to the advisor to help determine when clients truly need a
different strategic portfolio and when it's best to stay the course.
Stay the Course or Plot Another?
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But if death by
leeches drives us money managers crazy, it drives our clients insane. A
money manager is more likely to get fired for leeches than for smoking
guns. Why? There's a tendency to overweight bad performance when it comes
slowly and to cut too much slack when it happens in one quick bang - even
if the cumulative hit to performance is the same.
Guns N' Leeches
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Should
You Write Your Own Blog?
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If you are considering a blog, evaluate the best option for you and your
target market. The right solution may even be a mix between original
and ghostwritten articles. Whichever direction you pursue, just be
sure to update your blog on a consistent basis, whether that is daily,
weekly or semi-monthly. You won't see any success from your blog,
whether the articles or original or not, if you don't update it regularly.
Should You Write Your Own Blog?
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For long-term investors with time horizons of ten years or more none of the
classic indicators are in place to suggest outsized performance in the
equity markets.
The "V" Points Downward
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Highlights
from Advisor Market Commentaries
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Investors need to know that retirement is a lottery where the chance of
winning is more dependent on asset valuations at the time of retirement
than the soundness of the investment plan. Individuals planning for their
retirement today need to soberly assess their return expectations since
stock prices are moderately above the historic average while long-term
interest rates are near record lows. Winning tickets will only be available
to those who can keep their expenditure levels in line with this
reality.
"The Retirement Lottery"
by Michael Nairne of Tacita Capital
We would suggest investors would be entirely better off with recognizing
that long-term equity returns have been remarkably consistent around the 6%
real rate and that is the highest likelihood of what they will look like
over the next five to ten years starting from the current base of
reasonable fair value. This suggests to us a traditional approach of
patient and carefully researched value investing is as timely today as it
has been throughout the vagaries of history.
"A Tsar too Far" by
Jeffrey Bronchick of Reed, Conner, Birdwell
Stocks are no longer undervalued unless one believes that earnings growth
will be very strong over the next few years. We believe that is unlikely.
Both fundamentals (such as the weakened consumer) and valuations are
pushing us toward a risk-aversion preference. Most recently this was
reflected in our August reduction in stock and high-yield bond exposure in
favor of emerging-markets bond exposure-an asset class that has a risk
element but that we believe will be materially less risky than the
combination of assets we sold.
"Insights About the Past,
Present and Future" by Litman Gregory
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Perspectives
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