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Advisor Perspectives
Insights into the world of high- and ultra-high net worth investing
March
9, 2010- Vol 4, Issue 10
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Sign up here for a free webinar, "The Fiduciary
Opportunity" on March 16 at 4pm EST where Envestnet discusses the
rules governing advisors. Join them for this free webinar to learn
more about the pending legislation and the implications to the financial
industry.
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Headlines warn that the rapid buildup in the money supply,
caused by the Federal Reserve's efforts to confront the financial crisis,
is destined to result in inflation. That may be the case, but a
more ominous signal from the money supply warns of impending economic
contraction.
Advisors, like so many people in relationship-oriented
businesses, depend on strong communication to maintain and grow their
businesses. In this guest contribution, author Beverly Flaxington
discusses her new book about how advisors can communicate with ease and
strengthen their bonds with clients.
In order to reduce health care costs, consumers must be
empowered to shop for and select health care services in a competitive
environment, according to Jack Ablin. Ablin, the chief
investment officer of Harris Private Bank, delivered the keynote address at
last week's Boston Security Analysts Society market forecast event, where
he also spoke of the need to reform labor practices in the public sector.
Time travel is every investor's fantasy - imagine if you
could go back forty years and make investment decisions, knowing then
what you know now. That's precisely the opportunity that Dan
Richards gave a group of investors one recent evening.
If you knew the returns for every stock one month in the future, you could
construct a very impressive portfolio from the top performers. What's
less obvious, as William Rafter shows in this guest contribution, is that you
can improve on your results by holding those securities for less than a
month. Rafter examines the implications of his finding for the active
versus passive debate.
Given the ever-shifting landscape of information consumption and consumer
behavior, financial advisors have been forced to change their thinking
about the way they market themselves. In this guest contribution, Dan
Sommer speaks with two investment professionals who answer a series of
marketing-related questions for advisors.
In our letters to the Editor, readers respond to a number of recent
articles, including the charity challenges posed by Roger Schreiner and
Dave Loeper, the active v. passive debate, Morningstar ratings, and our
article on the PIMCO Total Return fund.
To err is human, and our humanity was on display in a couple of recent
articles. We provide the necessary corrections under Errata.
Lastly, we highlight submissions to Advisor Market Commentaries.
We welcome guest submissions from our readers. For more
information, here are
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The broadest measure of money supply, known as M3, has
decreased rapidly over the last year, which, both economic theory and
historical evidence teach, presages a contraction in GDP and a rise in
unemployment.
A Looming Lack of Liquidity
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Put the focus on the client and make the determined effort to be a better
listener, says Beverly Flaxington. Refrain from assumptions and understand
the client's behavior and values. Armed with those techniques, you'll stand
out in every conversation.
Communicating with Ease
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Healthcare, Unions and
the Next Bull Market
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Ablin's main point is that we have too much insurance. Broadly
speaking, there are only two buyers of health care: Medicare and private
insurers. Since the typical American can get a $3,500 MRI without
cost, they do not in any meaningful sense buy health care.
Healthcare, Unions and the Next Bull Market
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Lessons from an
Investing Time Machine
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Imagine that it was January 1 of 1970, forty years ago - and you have $100
to invest. You can put that $100 in one of six stock markets: the
United States, Europe, Japan, Hong Kong, Canada and Australia. Further, you
can divide it up in any way you wish - you can put it all into one market,
divide it up evenly among the six or any combination in between.
Lessons from an Investing Time Machine
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Modeling the Active
versus Passive Debate
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If you ignore interim news or market action, you do so at your peril.
The buy-and-ignore strategy is only acceptable if you are unable or
unwilling to devote more time to your investment analysis.
Modeling the Active versus Passive Debate
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The New Rules of
Marketing - A Roundtable
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The combination of new
media and increasingly accessible technology has fundamentally altered the
marketing tools that financial advisors have at their disposal. Those who
have not taken a serious look at the way they currently market themselves -
both online and off - run the risk of stagnant growth.
The New Rules of Marketing - A Roundtable
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In our letters to the Editor, readers respond to a number of recent
articles, including the charity challenges posed by Roger Schreiner and
Dave Loeper, the active v. passive debate, Morningstar ratings, and our
article on the PIMCO Total Return fund.
Letters to the Editor
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Our March 2 article Massachusetts Pensions in Crisis contained some
erroneous information on Massachusetts teacher pension contributions and
benefits. The article asserted that Massachusetts teachers have a career
span of 12.8 years. This assertion was based on a misreading of a state
report, and is incorrect. The article's claim that Massachusetts teachers
pay an average of $167,273.38 into the state pension systems during the
course of their careers is therefore also incorrect, as is the claim that
Massachusetts teachers receive an average of $335,567.53 more in pension
benefits than they contribute to the system. This was corrected
on-line on March 4, and we are continuing to research this question.
Our February 23
article Interest Rates, Inflation and the PIMCO Total Return Fund
misstated the results for question four of the survey we conducted.
That question asked respondents to rank their perceptions of the sources of
risk in the Total Return Fund, using a scale of 1 (greatest risk) to 6
(least risk). The correct rankings are as follows:
Overall level of
interest rates - greatest risk (score=2.3)
Yield curve positioning - (score=2.9)
Use of derivatives and leverage - (score=3.1)
Sector allocation - (score=3.3)
Issuer credit, including sovereign risk - (score=3.4)
"Other" - least risk (score=3.8)
This was corrected on-line
on March 5.
We apologize for these errors.
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Highlights from
Advisor Market Commentaries
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A lack of global aggregate demand, brought by twenty years of accelerated
globalization, is the fundamental economic problem of our age. Many states
have used government debt to make up for shortfalls in aggregate demand.
But as the crises in Dubai, Iceland, Ireland and Greece show, not every
state is able to pay off its new debt load. Investors should therefore
concentrate on states that have lower credit or inflationary risk, such as
Germany and Canada, and avoid higher-risk states such as Greece and the
U.K.
Don't Care by Bill Gross of PIMCO
Sizeable real returns will be difficult in this decade, as they were in the
last. Almost all asset classes are priced richly relative to historical
norms. We can tilt the odds back in our favor, however, by tactically
altering our portfolio risk based on measures as simple as yields and yield
spreads. The surest path to success marries tactical asset allocation with
a more efficient beta, such as the Fundamental Index methodology, and a
full toolkit of alternative markets.
Lessons from the 'Naughties' by Robert D. Arnott of
Research Affiliates
Have analysts become more conservative, or will the recommended bond
weighting continue to fall as the market goes up? Wall Street strategists
currently recommend a 30.5 percent weighting in bonds. Before the run-up in
treasury bonds during the financial crisis, the recommended bond weighting
ranged between 15 and 20 percent. As bond prices rallied, strategists
increased their recommended weighting. Bond prices peaked in December 2008,
however, and have been drifting lower since the onset of the current bull
market in stocks.
Recommended Bond Allocation by Team of Bespoke Investment
Group
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