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August
31, 2010 - Vol 4, Issue 35
Dear Reader,
State finances are in trouble, in large part due to unfunded
pension liabilities. To assess the depth of those problems, one
can look at what is likely the riskiest component of states'
pension assets - their exposure to alternative investments and,
in particular, to private equity. We assess those risks and look at
the larger question of whether unfunded liabilities can trigger
municipal defaults.
RidgeWorth Investments has published research detailing
six distinct reasons why investors should consider a specific
allocation to mid-caps. Specifically, it
explores historical performance, evaluates current conditions that
favor mid-caps as well as examines how mid-caps have performed during
different points in market and economic cycles. Finally, the
research looks at the incremental benefit of adding an allocation of
up to 40% of mid-cap stocks to a portfolio of solely large and small
cap stocks. We thank RidgeWorth Investments for their
sponsorship.
Do
bankers deserve big bonuses? Economists will tell
you that bonuses improve employee productivity by rewarding good
work. But did the large performance-based payments given to Wall
Street securities traders, for example, really steer them to better
choices during the run-up to the recent financial crisis? What about
financial advisors who base their fees on a percentage of the assets
they manage? We take a critical look at Dan Ariely's latest
research and the insights it provides.
Dan Richards was puzzled by some recent conversations with
investors, until he read a column in the New York Times about how to maximize
the pleasure from vacations. The column stemmed from
research by behavioral psychologists on how to structure activity to
generate the most impact - and led to some striking findings both
for planning vacations and for structuring how clients experience
their interactions with you.
The latest economic prophecy, which has gripped investors'
fears for the past three years and counting, is that a 'bubble' in
US Treasury bonds is about to burst. Hyperinflation is just
around the corner, the prediction goes, and US Treasury bonds, driven
up in price to record levels by unprecedented policy measures, are
about to crash. In this guest contribution, Sam Bass writes
that advisors shouldn't follow the advice of these
"seers."
Many investors read about the Dow Jones or S & P 500 index being
up or down 200 points but don't really understand what this
means. Today's interview with David Blitzer of S & P
provides an explanation of how indexes work that can be shared with
clients. We provide a transcript and a video of the
interview.
How can advisors evaluate an unconstrained asset manager, such
as John Hussman of the Hussman Fund? In a follow-up to a recent
article on research by Roger Ibbotson, we present views from
several advisors on the role of returns-based style analysis
and whether it can help identify whether managers such as Hussman
deliver alpha.
Finding a marketing firm for your advisory practice can be a
daunting task and hiring the wrong firm can be an expensive
mistake. It is essential that you spend time doing due
diligence to find the right partner for your growth. Kristen
Luke provides five steps that will help you with this process.
Lastly, we highlight the most popular submissions to Market
Commentaries.
We welcome guest submissions from our readers. For more
information, here are our guidelines.
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The Riskiest Pension Assets (and
the Implications for Muni Bonds)