AdvisorShares
Commentary
Avoiding Groupthink Yield Chasing
There was news Tuesday that a one-time dividend investor favorite Seadrill (NYSE: SDRL) was warning shareholders that they should expect to “receive minimal recovery for their existing shares” as concerns have escalated to whether it can continue as a going concern.
Commentary
Return, Risk, and Diversification
When assessing a portfolio and determining their asset class mix, investors often allocate large portion to equities as this is believed to have a much better longer-term investment return profile than “bonds,” while “bonds” are considered less risky and offer a diversification benefit to a portfolio.
Commentary
The Beginning Of The End Of Hedge Funds As We’ve Known Them?
So proclaimed Bloomberg in an interesting column about investors losing interest in hedge funds due to poor performance, or perceived poor performance, and high fees. I won’t defend the fees but will point out that fewer and fewer hedge fund investors pay the full 2 and 20 (2% management fee with 20% of the gain) in the last few years.
Commentary
The Floating Rate Loan Market: More to Consider
For those concerned about interest rates rising, turning to the floating rate loan market may seem like it could be a great alternative. Over the past few weeks, as we have seen the expectation for higher rates firmly take hold and a spike in Treasury yields, floating rate loans (also called leveraged loans) are once again becoming a popular trade.
Commentary
Your Chance To Pay It Forward
Over the last few weeks I’ve fielded several financial related questions (more personal finance than actual investing) from some younger people in my life (mostly nephews). This is a great reminder of a point I have made quite a few times over the years which is that even if you’re not an advisor...
Commentary
No, This Time is Not Different
A day or two after the election someone (not a Trump fan) asked me about selling out of the market as they apparently thought the market would go down. This is a great example of something that repeats over and over in the market and the thought process of market participants.
Commentary
Simplicity In All Things Including Portfolio Management
A basic stock and bond portfolio is a great starting point for building an effective portfolio. Exposure to things like factors and alternative strategies, when implemented correctly, will enhance a basic stock and bond portfolio, not attempt to replace it.
Commentary
A Place for Active Management
Be it how hedge fund returns have been struggling over the past year or how index funds have been gaining some traction, there has seemed to be much in the financial media over the past few weeks about the challenges facing active management.
Commentary
Investing By Duration
With all of the talk of the Federal Reserve taking action and raising rates in the next couple months, investors naturally are considering how they position their portfolios.
Commentary
High Yield Market Conditions
As we all know, the Fed held rates steady last week and while they kept the door open for a December rate hike, they certainly didn’t indicate it is a foregone conclusion.
Commentary
No, You Shouldn't Invest Like Yale
The Yale University endowment recently announced its return for the year ending June 30th, 2016 as well as its asset allocation targets for the current year.
Commentary
Alternative Context
Barron’s had an article about alternative strategies over the weekend that attempted to sort out whether the traditional mutual fund wrapper might be better than the ETF wrapper for this segment.
Commentary
The Worst Months of the Year!?
In late July Bespoke Investment Group posted a table of average returns for the Dow Jones Industrial Average for each of the 12 months of the year*. Over the last 20 years, August has been down 45% of the time an average of 1.30% and September has been down 50% of the time with an average decline of 0.70%.
Commentary
The US Fixed Income Market
The U.S. fixed income market is massive at around $40 trillion. The largest subcategory is U.S. Treasury debt. Mortgages represent the second largest single subcategory of the bond market; this helps to explain why problems in the mortgage market nearly took down the entire financial system in 2008.
Commentary
This Is The New Normal
As the world was rolling over into financial crisis in 2008 the stewards at PIMCO coined the phrase New Normal which, very short version, meant low interest rates, very slow growth and in a word; malaise. The malaise seems to be perpetual, the growth might be slower than had been imagined back then and interest rates seem to be going lower.
Commentary
Loans: The Floating Rate
We see investing in the loan market as predominantly a way to expand our investment universe. Again, high yield debt issuers have the option to issue bonds, loans, or both. We see cases where companies take out bonds with loans or vice versa, take out loans with bonds, so by having the option to include both, investors are able to access companies with attractive metrics and yield no matter the security, and in cases where a company issues both bonds and loans, loans are secured and rank higher the company’s capital structure so can allow for the ability to invest in a lower levered piece of the capital structure.
Commentary
Today’s Floating Rate Loan Market
We are high yield debt investors. While our focus over the decades has been on investing in high yield bonds, we also do allocate a portion of our portfolio to floating rate bank loans. We see the inclusion of loans primarily as a way to expand our investment universe.
Commentary
Time for Something Adventurous
A Facebook friend is visiting the Republic of Georgia and the pictures look stunning. He and I engaged in a back and forth in which he said he plans to spend part of his retirement there. He noted that it is very cheap there, it is also stable and safe and while he appeared to be out in the middle of nowhere he was able to communicate with me via his smartphone (speaks to the infrastructure).
Commentary
The Evolution of Korea’s Industrial Structure
Over our previous writings on AlphaBaskets, we have covered the reasons why the services sector's growth potential exceeds that of manufacturing and why consumer sectors are better positioned than industrials. This is not a temporary phase, but a structural change as Korea evolves into a developed economy.
Commentary
Deploying Cash When The Market Is At All Time Highs
A reader left a comment on the Seeking Alpha version of last week’s blog post asking for my thoughts on how to deploy cash now given the highs in the markets and valuations that are at the very least stretched (some would obviously say the market is now very expensive). He added the context of someone being 20 years until retirement.
Commentary
Don’t Just Do Something, Stand There
You might be familiar with the quote from the title from a few years ago. It is of course a play on words that I’ve seen several people use. I believe I first read it from Jack Bogle and as it relates to investing it is of course about not overtrading in response to news or other price-moving factors.
Commentary
Index Popularity Leading To 2000 2.0?
One of the most important indicators of the overly ebullient sentiment in the U.S. equity markets is the sudden acceleration of assets moving toward passive strategies like Index Funds and Smart Beta (which we contend is an oxymoron like jumbo shrimp…).
Commentary
Apples vs Oranges
“Apples, meet Oranges”. “Oranges, meet Apples”. That is how the conversation needs to start for most media articles on hedge fund industry performance. As is the case in “Hedge Funds Set for Worst First Half Since ’11 on Turmoil”. As is usually the case, the article compares the returns of the hedge fund industry to the S&P 500. The often quoted Hedge Fund Research, Inc (HFR) database, which is the most institutionally used benchmark provider for hedge fund performance, is not well understood by the media.
Commentary
Pension Pitfalls
The other day I stumbled across an item via Seeking Alpha that Japan’s Government Pension & Investment Fund (the public pension) had investment losses of $50 billion for the year ending in March against an asset base of $1.4 trillion. The losses were attributed to a rising yen and falling equity prices in Japan.
Commentary
VIX Not The Hedge It's Supposed To Be?
A curious thing happened during Monday’s session, day two of the Brexit aftermath. As equities fell so too did the CBOE S&P 500 Volatility Index known as VIX. Many participants of course view the VIX as a way to hedge declines in equity prices through the many exchange traded products (sort of) tracking VIX and the options market.
Commentary
Of Supernovas & Deflation
Barron’s was chock full of interesting quotes and comments over the weekend in addition to the bizarre cover story on watches…as in wrist watches.
Commentary
The Selective Energy Opportunity
After working to sizably cut our energy allocation in early 2015 as we expected the volatility in oil to continue, we are now selectively adding a few energy names to our portfolio. Since we have been clanging gongs for a long period of time on the avoidance of high yield bonds financed by US exploration and production (E&P) companies operating in shale basins, has anything changed now that many of these bond prices have collapsed?
Commentary
Consumer Spending in China: “China Play” Again
Once the “world’s factory,” China is no longer the leader in global manufacturing as the services sector has emerged as a dominant engine since manufacturing-centered growth has wound down. Since 2012, the weighting of tertiary industry to GDP exceeded secondary industries, and the gap has widened rapidly.
Commentary
Closed End Fund Palooza
Barron’s had a closed end fund palooza over the weekend with two articles devoted to the space.
Commentary
Hopefully The Short Run Doesn’t Kill You
Andrew Lo from MIT was featured in Barron’s over the weekend for several things including the roughly $7 billion he runs at AlphaSimplex Group. The focus of the strategies is alternative in nature and Lo had a lot to say about implementation and expectations.
Commentary
Positioning for Value
We have seen a pretty sizable bounce back in the high yield market off of its February 11th lows, with spreads declining and prices rising.
Commentary
Great (But Wrong) Expectations
A favorite topic to blog about has long been alternative ways to allocate assets beyond the 60/40 standby as well as the extent to which big market trends influence allocation decisions.
Commentary
The New Asset Allocation Standard?
Where alternatives used to be more about reducing volatility, the conversation is shifting to include bond market substitutes due to what seems like an increased likelihood of lower for longer for interest rates.
Commentary
When To Take Social Security; Still Complicated
Yahoo Finance ran an article titled How To Delay Taking Social Security Benefits Until You Absolutely Have To. This sort of thing is always of interest and the article had a couple of interesting even if not original ideas.
Commentary
The Sweet Simplicity Of Core & Explore
The current Barron’s features an ETF roundtable where four panelists talked macro, how they use ETFs along with a few ETFs they each recommend. There was one comment in there that is worth exploring in a little more detail.
Commentary
It’s The FOMC’s World
For the last few weeks in the weekly market update I write for Alpha Baskets, I’ve included a reference to at least one of the many forms of dysfunction that is influencing markets. Last week the Nikkei 225 took a dive because the Bank of Japan did not, for the umpteenth time in a row, ramp up its asset purchases/take rates further into negative territory.
Commentary
Moderately Constrained
The Barron’s cover story was an interview with Bill Gross from PIM….er I mean Janus that was titled Why Interest Rates Must Rise. The why they must rise part of the article focused on Gross’ perceptions of the many consequences of ZIRP and NIRP including the effect on retirees, pensions being able to match their portfolios with their liabilities, as well as how insurance companies oversee their pools of capital.
Commentary
A Blogger Looks At 50
Ten years ago I wrote a post called A Blogger Looks At 40 which was a play on words of the Jimmy Buffett song A Pirate Looks At 40 (long story short, that post is no longer on the internet). Recently, I turned 50 which like other round numbers can be a good time to review and assess where you are in life.
Commentary
High Yield Market Technicals
As we start to see the high yield market gain some footing, it is important to note the improved market technicals, mainly fund flows and primary market issuance. For the week ending March 16th, we saw high yield retail funds take in another $1.7 bil, making it the fifth consecutive week of inflows.
Commentary
Wednesday Twofer
A twofer with this post. First is an update on the market which has been dancing back and forth around its 200 day moving average (DMA). I said back in August that I thought a bear market had started and I still believe that to be the case.
Commentary
No You Don't Need $20 Million to Retire
Americans are facing serious problems accumulating reasonably sized nest eggs for their retirements. Depending on which articles you read, Americans might be having trouble accumulating any nest egg for the future. There are so many stats from so many sources lacking consistency in terms of groups studied and data collection methods that I think they lack value in terms of trying to understand specific numbers. But there can be no doubt that collectively we are horribly under saved for the future.
Commentary
Avoiding Unnecessary Risks In Firefighting & Investing
Over the President’s Day weekend, I saw a big chunk of the movie Backdraft. This is the 1991 firefighting movie with Kurt Russell, Billy Baldwin and Robert De Niro. I was not involved with firefighting back then, so I don’t know how unrealistic the fire ground scenes were, but I can tell you that firefighting has changed dramatically versus how it was portrayed in the movie.
Commentary
Bear Market Confirmed?
Back in September I wrote a post titled Bear Market Coming? Bear Market Here? in which I talked about taking defensive action in the face of what might have been the start of the next bear market. As of now the S&P 500 is down about 11% since a high hit in May, a little better than that factoring in the dividends.
Commentary
ETF Mechanics and Liquidity
When a stock or a bond is traded, the traded price is the value of the security. This is due to the fact that stocks and bonds are non-derivative securities. Their value is driven solely by supply and demand at the moment of the trade. The supply of the security is fixed.
Commentary
High Yield vs. Equities—Is This the End of the Run for Equities?
The decline in credit has been well publicized over the last several weeks, though this decline began months ago. Since the summer, we have seen spreads, a measure of valuation for the high yield market, widen from 400bps to 760bps1, which are levels we have not seen for the last four years.
Commentary
Closing The Books On 2015
The transition from the old year into the new is always busy for tax reasons, reviewing the old year and game planning for the future.
Commentary
There Is Nothing That Must Be Traded
A couple of weeks ago the Barron’s Striking Price column included the following related to the December FOMC meeting; "The rate hike is one of those events that has to be traded, no matter what. No portfolio manager wants to sit on the sideline and miss what could be a big move in the market." The context was probably not aimed at investment advisors but that is unclear and of course the many individual investors who also read Barron’s could be influenced by that sort of sentiment as well.
Commentary
Understanding Covered Call CEFs
Barron’s recently had a favorable write up on closed end funds that one way or another use a covered call strategy as a means of providing income. Where the article focused on CEFs, the yields can be quite high because of the leverage that CEFs often use as well as returning capital, when necessary to maintain a payout. It is also worth noting that there are traditional funds that sell calls and ETFs that sell calls and puts too for that matter.
Commentary
Life in a No Growth World and the Impact on Interest Rates
The recent Fed decision seems to provide no more clarity: they left the opening for a December hike but didn’t specifically commit to making a move then. So the question remains, when will the Fed begin raising rates and by how much? It is clear they want to start increasing rates in order to give themselves some flexibility if they need it down the road, all the while fulfilling their dual mandate. However, it seems the “data” for our “data dependent” Fed isn’t getting better globally.
Commentary
Myopia & Market Function
The Wall Street Journal posted an article written by Shlomo Benartzi who is a professor at UCLA specializing in behavioral finance. The article primarily focuses on the behavioral problems, like myopic loss aversion, that can arise when investors check their account balances or the prices of their holdings which thanks to technology has become increasingly more convenient to do.
Commentary
Risk-On Risk-Off vs Qualitative Market Environments
A “Risk-on Risk-off” environment exists when prices fluctuate relative to investors’ tolerance for risk. In this environment, stocks and sectors tend to be highly correlated. Volatility is often higher during these times as a result of investor uncertainty, similar to what we’ve seen in recent months. Many investors decide to go “all-in” or “all-out”, often through buying or selling an index. Indexes are simple to trade and their market cap weighting is appealing during fearful times.
Commentary
The Defaults Ahead
Much has been made about the outlook for defaults in the high yield market. Many have speculated that we are at the beginning of a big upturn in that default cycle and thus, this market should be avoided. While this makes for good headlines, the projections we’ve seen, and our own expectations, don’t add up to a big uptick in default rates. Yes default rates will likely increase, but remain below historical averages for the high yield market.
Commentary
Back To Bodie And The 10/90 Portfolio?
I wanted to follow up on several different ideas including one from quite a few years ago but they all tie together.
First up is replacement rates in terms of figuring out how much to plan on for retirement. The Wall Street Journal had an article that says research calls into question the “venerable 80% rule” and there was also a companion piece at ThinkAdvisor. So first I always thought the rule of thumb was actually 70% but either way.
Commentary
Liquidity Premiums In High Yield Investing
There is no denying that liquidity has become a well-publicized concern in today’s high yield market, with much focus specifically on high yield ETFs. With the post financial crisis regulation that has curtailed market making activity by the large investment banks and dealer inventory, liquidity has decreased and volatility increased. However, we believe that arguments that liquidity concerns within the ETF space will lead to the high yield market’s demise are overblown.
Commentary
Yieldcos or Yieldnos?
A little over a year ago we looked at a new income vehicle called a yieldco which was highlighted in Barron’s. Over the weekend Barron’s provided an update on the still small niche and basically they’ve had a rough go in the last three or four months although I should note that for the six months prior they were white hot. Along the way GlobalX listed a fund that tracks the space and although not charted below it has also gone down considerably in the last few months.
Commentary
Fear Mongering in The High Yield Market
There have recently been a few high profile investors that have spoken out against the high yield market, with Carl Icahn among the more vocal. While Icahn may have an agenda or perhaps a short trade in high yield, it is peculiar that he is so vocal against high yield bonds, calling it a bubble, when many of his equity purchases also are high yield issuers, not to mention his Icahn Enterprises is an issuer of high yield bonds.
Commentary
Fed Action: Low and Slow
In what may at first seem to be a counterintuitive reaction, stocks did not immediately rise when the Fed made the decision to leave rates unchanged at their September meeting. Aren’t low interest rates a positive for the market?
Commentary
Done in By Biases?
Howard Gold had a post at MarketWatch noting research that shows baby boomers have too much in equities relative to when they would be likely to retire. He talks about this being poor asset allocation strategy, that it plays into some behavioral finance issues, says that many people need to admit they can’t manage their own money and concludes that everyone should put their 401k money into the target date fund in their 401k most suited to their intended retirement date.
Commentary
Say Goodbye To The 4% Rule?
Wade Pfau has a white paper posted at FA Mag that pretty much blows up the 4% (retirement withdrawal rate) rule or attempts to anyway. Pfau lists several different factors for why 4% may prove to be too optimistic going forward including longer life spans (the 4% rule was originally conceived with a 30 year retirement and now 40 years may make more sense), the prospect for lower equity market returns (which may or may not happen) and historically low interest rates which we know we have but who knows how long they will remain low and various fees related to investing.
Commentary
The High Yield Market: A Look at Past Recessions
The Fed interest rate decision came and went with relatively little market reaction. They pushed out an increase in rates, citing concerns about global economic conditions. Like many, we do share their concerns about the global economy, as we expect that it will result in muted growth here at home (and as we have noted in prior writings over the past several months, we’d expect that muted growth to ultimately result in a very moderate move in rates). But some market participants are voicing concerns that this global weakness will lead to a U.S. recession.
Commentary
Bear Market Coming? Bear Market Here?
If your strategy involves taking defensive action around a breach of the 200 day moving average (DMA) you probably should have taken some action by now as the S&P 500 has been below that trend line for about a month.
Commentary
Closed End Funds versus Exchange Traded Funds
There are currently a number of fund-based options available to investors looking for yield. In addition to traditional open-ended mutual funds, investors are also turning toward closed end funds (CEFs) and exchange traded funds (ETFs) to generate yield, including in the high yield bond market. Both CEFs and ETFs have continuous trading and pricing throughout the day, making them very liquid options for investors. While CEFs tend to be actively managed, there are both index-based options and actively managed options in the ETF space.
Commentary
Defensive Expectations
Last week there was an article in the WSJ noting the performance struggles of one of the larger liquid alternative mutual funds. I am not going to link to the article or name the fund because any fund can do very well, attract a lot of assets, then do poorly and lose the assets which is the arc of this fund’s story but instead want to focus on avoid that sort of loop or at least recognizing the potential for that sort of loop so that no one is surprised if/when it happens.
Commentary
What Value are Credit Ratings?
If there was any question about it, the financial crisis of 2008 demonstrated to us all just how flawed the ratings process is, where AAA debt was suddenly in default and highly rated companies all of a sudden required bailouts seemingly overnight. However in the aftermath, while there have been efforts to reduce our reliance on ratings, it has also become clear that changing the ratings process is exceedingly difficult, if not impossible. They are ingrained in our system and ingrained in the way many people and institutions invest.
Commentary
The Paradox of Chasing Returns, Part 2
In part one, we looked at the statistics of how difficult it was for hedge fund managers to consistently outperform the universe average. In part two, we wanted to examine the consistency of a hedge fund’s1 performance as its assets grow. We took the HFRI Equity Hedge Fund universe and looked at individual managers’ assets and returns during a recent period. The dataset includes funds reporting at any point between August 2008 to March 2015.
Commentary
The Paradox of Chasing Returns, Part 1
Our firm often cites a paradox in the hedge fund industry: hedge fund of funds lag the mean hedge fund return. Represented below, the HFRI Fund Weighted Composite Index is composed of individual hedge funds of all types that are equally weighted while the HFRI Fund of Funds Composite Index is a separate index composed of equally weighted funds of hedge funds.
Commentary
Time is on Your Side, Yes it is
Business Insider and Barry Ritholtz both had posts in the last few days contributing to the same big idea that time is a valuable asset not just in and of itself but also as part of a financial plan and an investment strategy.
Commentary
The High Yield ETFs: Market Size, Money Flows, and Liquidity
The entire U.S. fixed income market (municipals, Treasuries, mortgages, corporates, federal agency bonds, money market, and asset back securities) totals $39.2 trillion. Of this, corporate credit is about $8 trillion. The high yield bond market is a growing piece of that corporate debt piece, now at $1.8 trillion, and accounts for over 20% of total corporate bonds outstanding. If you add in high yield floating rate loans, that total high yield debt number moves to over 30% of corporate debt.
Commentary
Putting Adaptability to Work
In our last post we looked at the importance of adaptability to overcome obstacles that impede retirement plans. This may also turn out to be especially important for portfolio management going forward, more so than in the past.
Commentary
High Yield Default Outlook
With the energy markets once again taking a turn downward, we are seeing concern for the high yield market again escalating and talk of a spike in default rates heating up. Yes, the energy industry does make up a large portion of the high yield market, in fact the largest industry holding within the space at about 14-17% depending on the index used. We do expect defaults to increase in this industry.
Commentary
Mid-Year Update: A Look at the High Yield Market
I have seen every cycle since 1985 and while this cycle which began in 2009 has not been without a few warts, it has also been very different and far more conservative than many of these prior cycles. The majority of issuance was and continues to be for refinancing activity. This lowers interest expense and improves credit metrics for companies. Case in point, as noted below, high yield interest coverage (cash flow, or earnings before interest taxes, depreciation and amortization divided by interest expense) has steadily improved and at the highest levels we have seen over the past 15 years.
Commentary
Is Gold Dead?
Gold hit $1080 per ounce Sunday night which was the lowest price level since February 2010. Gold in U.S. dollar (USD) terms has a three-year annualized return of -11.1%. It is no wonder that money managers currently carry the smallest net long positions in gold.
Commentary
Jason Zweig Is Wrong About Gold
Jason Zweig’s latest post is titled Let’s Be Honest About Gold: It’s A Pet Rock and attempts to debunk most of the reasons people own gold but oddly skips over the one I believe to be most important and is still wholly intact.
Commentary
The Futility of Retirement Calculators
USA Today syndicated a post from Motley Fool that did a good job taking down the concept of retirement calculators. The two big points made were that these calculators make an assumption based on people needing a percentage of their pre-retirement income, which does not take into account the particulars of individual circumstances, and that the calculators often overlook other sources of income including, in some cases Social Security.
Commentary
All That Crap About Not Panicking?
It is still true. As I write this post Monday after the close there is still a lot of uncertainty on how Greece will precisely play out. Markets were down on Monday of course, right now the S&P 500 is at 2057 right around where it started the year and is flirting with its 200 day moving average.
Commentary
The Joy Of Portfolio Boredom
Last week I stumbled across an article that favorably critiqued an alternative-strategy ETF for being boring which is its objective. “Boring” is not the stated objective in the prospectus but terms like market neutral, absolute return, low correlation to equities and some others really are about boredom. You can judge for yourself whether a given fund that is supposed to be boring is indeed boring as not every fund will deliver on its stated objective.
Commentary
25 Things I Wish I Learned Before I Opened My First Brokerage Account
Brett Arends had a great post about what he wished he’d learned before graduating high school. It was a great mix of financial nuggets, points about not wasting time or money and some other generally sound ideas. With a nod to Arends; things people should know about finance and investing before they start and should be reminded of every so often as they go along.
Commentary
High Yield Bonds: Rates and Returns
With a number of data points over the past month, including Friday’s better than expected jobs report, pushing the expectations for a September rate hike higher, concerns about the impact of interest rates on various asset classes is heating up. It is important to keep in mind that if and when “rates” do rise, we are talking about the Federal Funds Rate which we expect will primarily impact the short end of the yield curve, and less so those 5-year to 10-year maturities that relate more to the high yield market.
Commentary
Don’t Follow The News? More Like Don’t Overreact To The News
Tadas Viskanta has a great blog post up titled Make More By Doing (and listening) Less. The general tone of the article is the extent to which investors too frequently are influenced by stock market media enough that they make changes to their portfolio that end up being the wrong thing to have done.
Commentary
Does It Make My Portfolio Better?
Cliff Asness posted a commentary a few days ago that includes the following;
One of the most basic lessons of investing is to think about how each investment impacts your overall portfolio not just its characteristics stand alone. You don’t evaluate your other investment options based on, “Would I trade my whole portfolio for this?” but rather on, “Does it make my portfolio better?”
Commentary
U.S. Oil Production Dynamics: Now and To Come
In our last commentary (“Energy Markets: There Will be Winners and Losers), we gave our current thoughts on long-term US oil production and the vulnerable sub-sectors within the energy industry. So far this year, US production has been resilient even with rig counts falling over 50% from their highs and capex budgets being slashed
Commentary
Working In Retirement Is A Hope?
In this scenario their nest egg increases significantly and their monthly expense goes down a fair bit and keep in mind Wheelhaus is very expensive in this realm. There is a resort in Wilson, WY that has a bunch of these from Wheelhaus, we’ve seen them first hand which is how I know about it at all and they are stunning so this sort of downsizing does not have to mean a double wide trailer at ground zero for some future tornado.
Commentary
The (Investment) World Is Changing And You Need To Get On Board
Fast Company posted an article that looked at existing jobs that are likely to change dramatically or disappear altogether over the next ten years. Change happens of course often spurred along by technology and/or innovation.
Commentary
Time to Go Active
Earlier this week we saw one of the major financial publications feature an article about how active management has outperformed passive management so far in 2015. While their article and data focused on equity funds, we believe that the same sort of opportunity for active fixed income managers exists over the balance of 2015.
Commentary
Rates and Returns, 2013 versus 2015
Given the recent move in Treasury yields, with the 10-year U.S. Treasury yield up over 30bps in just the last 30 days, the concern about interest rate risk is heating up again.
Commentary
Close to Retirement and Under-Saved, What Should You Do?
A blog post from the Wall Street Journal back in February noted that “the typical working household with a 401(k) approaching retirement had only $111,000 in a 401(k) and IRA.” There are plenty of articles floating around in the last couple of years lamenting how low retirement balances are. If $111,000 is right, that would be one of the higher averages published (obviously it is all in how the data is collected and who is surveyed but that is not the point of this post).
Commentary
A Look at High Yield Bond and Equity Valuations
There has been talk in the media recently about high yield being overvalued at current levels. However, we feel that historical metrics indicate that we are nowhere near a point of overvaluation; rather, there is still value to be had in this market.
Commentary
NASCAR, Firefighting, and Investing
Over the weekend at the Geico 500 at the Talladega Superspeedway, the underside of the Number 3 car driven by Austin Dillon caught fire in spectacular fashion. Someone on Dillon’s pit crew advised him to keep driving to the point where one of the racetrack fire crews was positioned which resulted in an instantaneous response and faster suppression of the flames.
Commentary
High Yield Bonds: A Legislative History and the Opportunity Created
Throughout history of the high yield market there have been various legislative acts that have created and continue to create the market dislocation that allows investors an opportunity to produce what we see as attractive risk-adjusted returns.
Commentary
Social Security & Portfolio Withdrawals; It’s Complicated
The Wall Street Journal ran a blog post that outlined Michael Kitces’ argument for delaying Social Security which can be summed up by saying it should be thought of it as an asset in a portfolio so by waiting, the value of your asset grows.
Commentary
The Active/Passive Debate: Others Weigh In
In the most recent AdvisorShares Alpha Call Josh Brown and Michael Batnick from Ritholtz Wealth Management discussed at length the importance finding the right strategy and then taking the time to understand the strengths and weaknesses of whatever you decide is the right strategy.
Commentary
Overview of the Fixed Income Market
As we look at the high yield bond market, it is important to have an understanding of the fixed income marketplace and the investment options within it. The first thing to note is the sheer size, which is massive (just under $40 trillion).1 Somewhat surprisingly, mortgages represent the second largest single subcategory of the bond market; this helps to explain why problems in the mortgage market nearly took down the entire financial system in 2008. The largest subcategory is U.S. Treasury debt.
Commentary
Is a Lost Decade for Performance Coming?
Game plan the composition of your portfolio for the long term. There will be periods of generally good performance in the market (this will be most of the time) and the occasional declines (12-18 months is a normal duration) and a portfolio’s strategy and composition need to account for cycles and rotating performance leadership. No segment of the market can be the best for all times.
Commentary
Rates and Bonds
So at long last we know whether the word “patient” stays or goes: it’s gone and Treasury yields have actually declined as a result. So far this year we have seen rates go from a 2015 low of 1.19% on the 5-year and 1.68% on the 10-year on February 2nd, and then spike a month later at 1.70% and 2.24%, respectively, on March 6th. So an over 50bps move in a month all over the worry about the word “patient” and whether rates will rise as early as June. Only for rates to fall after the statement was released and the key word removed.
Commentary
The Active Passive Debate Evolves by Necessity
Daily Alts took a stab at the topic of evolving asset allocation and the blurring of the line between active and passive citing work/theory done by Eaton Vance. As a starting point, and something we’ve been talking about here for several years, the basic 60/40 may be losing some of its effectiveness especially on the 40 side, the fixed income portion, because interest rates are so low and as we learned from the most recent Fed statement may stay lower for longer. The article also considered a blurring of the line between active and passive management.
Commentary
Great Advice from Bill Bernstein
Investing/indexing legend Bill Bernstein was interviewed by ETF.com and had a couple of great nuggets that are useful for any type of investor and helpful for advisors’ communication with their clients.
Commentary
The High Yield Default Outlook
We see default risk as the most prominent risk for credit investors. As we look forward, a benign default environment is projected over the next few years.
Commentary
The Benefits of Tiny Withdrawal Rates
For about the last year we have been blogging about the concept known as tiny houses. In that time interest has proliferated in terms of new websites devoted to the concept as well as at least four TV shows about tiny houses. The show Portlandia just had a bit making fun of tiny houses in a sketch where the toilet and the office were the same space as was the bathtub/shower and TV area.
Commentary
Today’s Floating Rate Loan Market
Together the high yield bond and floating rate bank loan market total over $3 trillion.1 This has evolved into a significant, and growing asset class. With high yield bonds and loans now representing about 30% of corporate credit2, this market deserves not only our attention, but we also feel is ripe with opportunity for investors.
Commentary
Hedge Funds on the Comeback?
A few days ago I stumbled across a post from CIO titled Reports Of My Death Have Been Greatly Exaggerated that chronicles the outflows from hedge funds last year and posits whether a comeback might be around the corner but with generally lower fees. The lower fee angle of the article seemed to focus on negotiating a lower fee with the manager. Of course lower fees are available through the various exchange traded products that one way or another replicate the exposure but doing so without the so called ‘2 and 20’ fee structure.
Commentary
High Yield in a Rising Rate Environment: Duration and Yield
We began February with a yield on the 10-year Treasury of 1.68% and today sit at 2.14%.1All the concerns and talk of maybe even no rate rise this year that we saw in January, have turned to frequent mention of a rate rise beginning in June. So what are bond investors to do? Is this finally the year of rising rates and what impact does that have?
Commentary
Loan Fund Primer
Last week the Riksbank (the Swedish central bank) dropped its benchmark interest rate to -0.10 and as of earlier this week Sweden’s ten year sovereign debt was yielding 0.50%. So Sweden is now the latest country to make headlines about extreme central bank policy to stimulate growth.
Commentary
Alpha Generation for Active Managers
As we discussed in our recent blog (see “The Opportunity in Volatility”), we are currently seeing a lot of attractive opportunities in the high yield market—discounts and yields that we haven’t seen in some time. And while we have seen the yields in the high yield indexes and the products that track them increase over the last six months, they don’t really seem to reflect the true opportunity we are seeing in the market.
Commentary
The Trouble With Zero
We have watched the decline in crude noting the slow decline that started in June that then turned into a crash starting at around $75 at Thanksgiving. The circumstances of crashes are always “different” but the market action is very similar almost every time and the oil market is showing the same pattern for now.
Commentary
The Opportunity in Volatility
While 2014 was characterized largely by the lack of volatility for most the year, and active management suffered as a result, we see those tables turning in 2015 as we expect this volatility to continue. As we sit today, we see an attractive entry point into the high yield market for active managers who can parse through the space to determine where there is value to be had, and where there are value-traps.
Commentary
Retirement Realities and Contingencies
Stites on Estates took an interesting look at retirement intentions versus retirement reality along with a reiteration of the dismal statistics about how little savings people who are working have accumulated as well as how few dollars people have put away when beginning their retirement.
Commentary
The Benefits of Proper Risk Budgeting
William J. Bernstein had an interesting op-ed in the Wall Street Journal titled How To Tell If Your Retirement Nest Egg Is Big Enough. Anytime the term nest egg pops up in a post I feel compelled to make the Lost in America reference when Julie Hagerty loses the nest egg at the tables in Las Vegas almost immediately after they hit the road and Albert Brooks tells her to never use the words nest and egg in the same sentence ever again.
Commentary
11 Investing and Personal Finance Hacks
You?ve probably seen one or two of the listy articles about life hacks which are little tricks that can make the day to day routine a little easier. Some are for very mundane aspects of life like using a paper clip to mark the spot where the roll of tape starts or laying a wooden spoon across a pot of boiling water to prevent it from boiling over. I saw one of these lists a few days go where one of the hacks was a little off the beaten track, suggesting you always carry bolt cutters with you.
Commentary
High Yield Bonds versus Equities
Investors are often led down the path that they must invest in equities in order to generate a decent return, and that the high yield market is too risky and speculative. However, reality and the data points suggest otherwise. Looking over the past couple decades and various periods in between, you can see that high yield has outperformed the equity market (as measured by the S&P 500 Index) on a risk adjusted basis (return/risk) over the past 5, 10, 15 and 25 years, and performed equivalently over the last 3 years.
Commentary
Barron?s Makes The Case For Active Management
The Barron?s cover story made the case for active management outperforming passive indexing when interest rates rise citing the history that supports the notion from past periods of rising rates with the underlying logic being that ?rising rates go hand-in-hand with outperformance of smaller stocks, which active managers tend to favor? as well as part of active management including what to avoid which is a concept we have discussed here many times before.
Commentary
How Can The Bond Bull Keep Going?
In our Weekly Market Update we have made an effort to track the deflationary story being told in the global fixed income markets, specifically sovereign yields have continued to trade lower defying what most investors thought was possible; Swiss 10 year debt recently yielded 25 basis points. A while back I quoted a Seth Klarman Tweet about German debt trading at multi-century low yields.
Commentary
MLPs Werent Supposed To Decline
Most income investors will know at least a little about Master Limited Partnerships more commonly referred to as MLPs. Most MLPs are tied to the transportation of energy products. They collect royalties as the energy product moves through their pipeline (this is a very common structure). Fundamentally, the movement of MLPs should not be vulnerable to price movements of the underlying energy product. The royalty collected is what it is.
Commentary
Holiday Randoms
Business Inside posted an article a few weeks ago that recapped the Black Swan concept using Nassim Talebs example of the Thanksgiving Day Turkey who is well fed and treated well until the day before Thanksgiving and then the ax fallsliterally.
Commentary
Canary in a Coal Mine?
With the collapse of oil, market participants are logically discussing which assets are vulnerable to more selling and which are value buys.
Commentary
Jorge Posadas (Financial) Slump
Add Yankee great, Jorge Posada to the long list of names of professional athletes who have been done in by their investment advisors. There are of course several accounts of this around the web but according to the NY Post he lost millions on a real estate deal and in a hedge fund run by his advisors. The Post implies he has not been totally wiped out but that Posada and his wife, who are referred to as nave in the article, have taken a meaningful blow to their net worth.
Commentary
Does Victory For Abe Mean Defeat For The Yen?
Prime Minister Shinzo Abe prevailed on Sundays snap election which will give Abe a fresh mandate to implement his policies to revive Japan from its prolonged well chronicled economic malaise. There was no way Abenomics wasnt going to continue since Abes LDP party had 352 candidates to the opposition Democratic Party of Japan fielding only 198 candidates for the 475 seats up for grabs.
Commentary
If Corporate America Is Investing in Sustainability, Then Why Arent You?
Unfortunately, thirty seconds in an elevator or hallway is not enough time to build the case for sustainability. But here on AlphaBaskets, were afforded the space and time to better explain why Sustainability should matter to them, and you.
Commentary
Grandma Got Run Over By A Dividend Portfolio
Forbes had a very short article titled High Yield Grandma which offers a brief profile of a woman who has overcome a few setbacks and has a very substantial investment portfolio worth $3 million. As the clever title implies she focuses on dividend stocks.
Commentary
Examining the Correlation between Oil and Gold
Crude Oil and Gold have generally exhibited a positive correlation (meaning they move in tandem) for the past 7 out of 10 years. In general both fall in the commodity asset class and are commonly used by investors as an inflation hedge as well as for portfolio diversification. As inflation increases, both commodities will tend to follow suit.
Commentary
Whos Really in The Kingdoms Gun Sights?
According to the EIA, U.S. crude oil imports averaged about 7.3 million barrels per day last week with Canadian barrels making up 3.2 million barrels of the total. U.S. commercial reserves increased by 1.9 million barrels week over week where total inventories fell 3.7 million barrels versus expectations of a build of 950,000.3 Are we at the beginnings of a rebalancing of the market? Possibly.
Commentary
The All Everything Portfolio? No Such Thing
Barry Ritholtz has had some good fun torching Tony Robbins All Weather Portfolio for having too much in bonds and commodities as well as being to backward looking and being put forth as a one size fits all. The latest was in his WaPo column dated December 5, 2014.
Commentary
Right for the Wrong Reason
It has been a poorly kept secret that I am among the biggest skeptics in the planet as it relates to this whole US energy independence fantasy. As a credit investor, I have been no bid on the entire US E&P business. This was not an easy thing to sidestep as energy as a sub-set is by far the largest component of the various high yield indexes representing around 18%1.
Commentary
What the Swiss Gold Vote Means to the Capital Markets
As expected, Swiss voters rejected a proposal Sunday to increase the Swiss National Bank (SNB) gold holdings to a mandatory 20 percent of its foreign exchange reserves. The Save Our Swiss Gold proposal was voted down by 77 percent to 23 percent which was a larger margin than what polls had indicated. The SNB had campaigned against this referendum initiated by the European Union-skeptic right wing Swiss Peoples Party which falsely argued that this would have strengthened the SNBs credibility.
Commentary
Learning From Mistakes Made By Pension Funds
Forbes took a look at How Pension Funds Make Investing Too Complex. The issue was hedge funds and private equity funds that tend to be expensive, opaque or both. These types of direct investments also tend to be illiquid in terms of having long waiting periods before investors can get their money out.
Commentary
Active Investing: Opportunity in Gold
As active managers, we embrace both a top down and bottom up investment philosophy as we look for opportunities for investment. One such potential opportunity we are seeing from more of a top down, thematic approach is in gold.
Commentary
Experts Weigh In On Solving Retirement
There were a couple of very interesting retirement articles posted last week that are worth pointing out. The first on was from the LA Times and focused on research and comments on the research from Alicia Munnell from the Boston College Center for Retirement Research which, cutting to the chase, concludes most people will not have the retirement they hope for in financial terms.
Commentary
Gold Gets Physical
Its happening again the gold cost of carry as defined by the one month gold forward rate has swung sharply into negative territory. This means that an investor is able to earn a positive carry from owning gold. This is unusual for gold markets and a relatively rare occurrence the more common scenario is that because of the storage costs associated with gold, an investor would expect to have to pay a cost of carry to hold gold. Prior to the instance in July 2013, the last time that gold forward rates went negative was in November of 2008.
Commentary
Buyer Beware: Nowhere To Hide
The price/sales ratio is often used as a valuation metric in the place of earnings because of the common belief that revenues are harder to manipulate than earnings. In my book, Whats Behind the Numbers? (McGraw-Hill, 2012), I debunk that theory and outline many ways that management teams can aggressively manage the top-line. Nevertheless, the price/sales ratio is useful because there are fewer inputs, such as reserves, tax issues, share buybacks, and recurring charges, than earnings that can be used to manage the reported results.
Commentary
A Yield Play Without Any Yield?
On Friday a recently launched IPO fell about 15% on an earnings report that was poorly received by markets leaving the stock down 39% since its first day of trading in June. Naming names becomes difficult for compliance reasons but as a hint it is an infrastructure name and you would probably need to read the name two or three times to figure out the word.
Commentary
Volatility and Risk
Volatility has seemed to be the trend in markets over the past couple months. It was just a few weeks ago that we saw equity markets getting crushed, only to roar back and actually finish up for the month of October and back near all-time highs. It makes no sense to us that investors have no problem dealing with volatility in stocks, investing for the long run, as the stock market has historically gone up, but with the high yield asset class, we often see the risk on or risk off mentality, meaning investors think they should either be fully invested
Commentary
Portfolio Effects of Holding Gold in Yen Terms
Last week in Gold in Yen Calm in the Eye if the Storm we focused on the factors behind the significant outperformance of gold priced in yen versus gold priced in dollars, identifying the strength of the dollar as the primary factor pushing down the price of gold in dollars. While on the currency side, the strength of dollar resulted in significant weakness in the YEN/USD FX rate.
Commentary
Buyer Beware: Jobs? WHAT Jobs?!
While many market observers debate whether quantitative easing (QE) worked the general consensus appears to be that the lower unemployment rate is a positive result of the Federal Reserves policies. Recently the unemployment rate hit 5.9%, the lowest since 2008. However, in our view, that is highly misleading with respect to the effectiveness of QE. The chart below shows the labor force participation rate as well as the percentage of people employed relative to the population.
Commentary
Election Impact on Oil
The tally is in and it was a very bad evening for the Democratic party. Senate races in Iowa, North Carolina, Georgia and a host of other States went red. Alaska is still to be determined (likely Republican) and Louisiana is slated for a run off. All told, it looks likely the Republicans have garnered a solid majority in the Senate (up to 53-54 seats) and the biggest majority in the House (over 246 seats and counting) since Truman 60 years ago. This certainly seems to have surpassed the nightmare scenario envisioned by the Dems. While the markets may enjoy a honeymoon rally, it always fades.
Commentary
Gold in Yen Calm in the Eye of a Storm
Since the beginning of August there has been a striking divergence in the relative performance of gold priced in US dollars versus gold priced in yen. Gold in yen has outperformed its dollar cousin by just over 10% over a period of three months. In fact year-to-date gold priced in yen has returned +5.3% with a 10.7% annualized standard deviation while gold in dollars has returned -2.6% with a 12.5% annualized standard deviation.
Commentary
Buyer Beware: A Notable Divergence
As a short selling portfolio manager, we constantly monitor market relationships for positive or negative divergences in the broad equity market indexes. One of the most important relationships is that between price and volume. In a bullish scenario, one would want to see volume expand as price rises.
Commentary
How Exchange-Traded Futures Can Improve the Efficiency of Gold & Currency Linked ETFs
With a number of gold and currency linked ETFs now using exchange traded futures to gain their gold and currency exposure versus the alternative of holding physical gold/hard foreign currency, we discuss below some of the key features of these futures markets which, in our view, mitigate most if not all of the concerns investor may have about these futures based ETPs.
Commentary
Risk Aversion on the Rise Gold Back in Vogue
In this weeks commentary we present a simple methodology for measuring the amount of risk aversion in gold markets. This measure of risk aversion (which we define below) compares the variability of observed gold prices versus the variability that can be implied from gold option prices.
Commentary
Investing by Duration
It was hard to ignore the call in the fixed income space for short duration investing over the last couple years. Duration is a measure of interest rate sensitivity (the percentage change in the price of a bond for a 100 basis point move in rates), so the lower the duration the theoretically less sensitive those bonds are to interest rate movements.
Commentary
Why High Yield, Why Now
Here are some of the reasons we believe that the high yield bond market looks attractive at current levels.
Commentary
Optimizing a Portfolio Allocation to Gold
Gold continues to be an attractive asset class that many investors wish to hold in their portfolios primarily for its diversification benefits and defensive characteristics during periods of high risk aversion in global markets. And notably many investors gain their gold exposure via exchange traded products given the ease of access, liquidity and the transparency they offer, particularly to retail investors who historically faced numerous barriers to holding gold in their portfolios.
Commentary
Bullish on Gold Priced in Euro Gold Priced in Dollars, Not So Much
In this weeks discussion we revisit our earlier analysis looking at the relationship between the gold price and real interest rates. Over the last three months the gold price in dollar terms has fallen 9% moving briefly below $1,200 and naturally raising concerns amongst investors that this pull-back may extend as the dollar continues to strengthen against a broad basket of currencies.
Commentary
High Yield Market Technicals
It has been a long quiet period in credit but volatility has returned with a vengeance. I have had an opportunity to discuss this with a number of our institutional clients in recent days, but there are a few factors that are exacerbating the recent price declines in the high yield bond market.
Commentary
Time for an Allocation
The size of the U.S. dollar high yield bond and loan market is over $3 trillion, representing nearly 30% of the corporate credit markets.
Commentary
Lessons From The Past
Let me start by making two unremarkable statements. The first: Businesses are in business to make a profit. The second: Buying low and selling high is more effective than buying high and selling low.
Commentary
Gold and US Monetary Policy
In this weeks Gold Report we conduct a historical analysis of the impact of US monetary policy announcements on the price of gold in US dollars. Beginning with the Federal Reserves extra-ordinary 75 basis point Fed Funds rate cut in January 2008 and the most significant central bank policy announcements since, the analysis looks at the resulting reaction of the gold market and the US 10 year real yield over a three month period.
Commentary
Evaluating Break-Even Levels when Interest Rates Rise
In the current low interest rate environment across the Treasury curve and investment grade credit space, low coupon rates provide less protection against market value loss resulting from rising interest rates. When interest rates were higher, fixed income investors enjoyed the benefit of earning higher recurring income to offset any market value declines.
Commentary
Gold for the Long Run
We continue on the theme gold and the dollar but this week take a short look at their long-term relationship and relative movement over the last 40 years. In particular we focus on the period post the ending of the Bretton-Woods agreement by the Nixon administration in 1971 (the so-called Nixon Shock) which terminated dollar convertibility to gold and thus established the dollar as a fiat currency.
Commentary
High Yield in a Rising Rate Environment: A Perspective on Historical Performance
Since 1980, Treasury yields have increased (i.e., interest rates rose), in 15 of those years. In every one of those years, high yield has outperformed the investment grade market. The long-term numbers show that over those 15 years since 1980 where we saw Treasury yield increases (i.e., interest rates rose), high yield had an average return of 13.7% (or 10.4% if you exclude the massive performance in 2009). This compares to only a 4.5% average return (or 3.6% excluding 2009) for investment grade bonds over the same period.
Commentary
Conditions are right for the dollar to weigh on gold
In last weeks Gold Report we looked at the historical relationship between the gold price in dollars and the value of the dollar, as measured by the Intercontinental Exchange US dollar trade weighted index (USDX) and found a strong inverse relationship between the two a strong dollar has historically tended to be associated with a weak gold price.
Commentary
High Yield Bonds and Interest Rates
Over the last month, we have seen the equity markets hit all-time highs, all the while bond investors seem to be indicating there are reasons to be concerned, sending the 10-year Treasury to the lowest yields seen over the past year.
Commentary
Gold in the Time of the US Dollar
Continuing on the theme of the impact that strength in the US dollar might have on the price of gold in dollars, in this weeks discussion we investigate the close historical relationship between the price of gold expressed in dollars and the value of the dollar.
Commentary
The Peritus Process Managing Risk
What is risk and how is it defined? To us, risk is about losing money and managing risk is what portfolio management is all about. Lets begin with credit risk, which is something we take on and expect to get paid for. First of all, credit investing is a negative art. What you dont buy is more important than what you do buy. Investors will not appreciate this until the cycle turns, which will inevitably happen at some point.
Commentary
Gold: Keeping Calm And Carrying On
We continue from last weeks discussion on the role of interest rates in the gold market by looking at trends in the cost of carry of gold as priced in dollars, euro, yen and pounds. By way of a brief primer we define the cost of carry of gold in dollars as the London Bullion Markets Association 3 month Gold Forward Offered Rate (GOFO). GOFO is published every day by the LBMA and is calculated as US dollar Libor minus the gold lease rate.
Commentary
An Inefficient Asset Class
We believe that the best approach to credit investing is to be agnostic on the credit ratings. This ratings agnosticism is central to our investment philosophy and process. We believe that credit ratings have created inefficiencies in corporate credit and an opportunity for those willing to step down on the ratings spectrum.
Commentary
Gold – Keeping it Real
One of our favorite measures to monitor in relation to the gold market has been the relationship between the gold price expressed in US dollars and the US 10 year real yield with the real yield being the nominal yield on a government bond adjusted for inflation expectations. Over the long term studies have shown that gold has a much stronger relationship with real interest rates versus nominal interest rates.
Commentary
How to Hold Gold Financed in Euro
We are often asked how US based investors can construct a long position in gold that is financed in a foreign. In the discussion below we show the components of trade that gives an investor long exposure to gold that is financed with European euro. A useful way to understand how the portfolio would be constructed is to look at the cash flows associated with a gold transaction. Looking first at a gold transaction that is funded in dollars we show a diagram of the associated cash flows.
Commentary
Which Denomination of Gold is Your Parachute?
We continue on the theme of gold as a defensive asset in this weeks discussion by examining the performance of gold priced in dollars (USD), European euro, British pound and Japanese yen through a number of different periods which were characterized by a sudden rise in investor risk aversion.
Commentary
Expanding the Opportunity Set for Income Generation
High Yield investors should understand the difference between an index-based product and its yield generation characteristics and portfolio composition based on the underlying index, versus some of the expanded opportunities available to active managers. For instance in the high yield bond and bank loan space, we see index-based, passive products that are largely high yield bonds or largely floating rate bank loans, not a blend of each.
Commentary
High Stock Dividends: A Competitive Retirement Income Solution
Sufficient yield, keeping up with inflation, and outliving the funds available are three major concerns facing investors who are building a retirement portfolio. A high dividend yield equity portfolio can provide a competitive approach to addressing each of these concerns.
Commentary
What Are Gold Option Markets Telling Us?
It is often a valuable exercise for investors to monitor the option market associated with the cash market as option markets may carry useful information about how the balance of supply and demand in the cash market is evolving over time. In this weeks note we review the history since January 2006 from when we have available data, of the markets relative preference to own gold calls (seeking to profit from rising gold prices) versus owning gold puts (seeking to profit from falling gold prices) and how this has related to the price action in the gold cash market.
Commentary
The Opportunity in Unconventional Oil
Be it energy geopolitics or pipeline politicking, oil markets are clouded by noise that push prices up and down. In order to make long-term investments in the space the trick is to boil it down to the bare bones of the issue. Recently an article was published espousing that oil was headed to $75. It was an interesting notion but not one we would put much stock in for a variety of reasons, the most basic of which being supply.
Commentary
Comparison of Rising Rates Strategies
With the ultra low interest rate environment becoming more of a norm in many investors mind, complacency has driven portfolio managers to maintain the status quo and stick to traditional duration and asset allocation targets. Recent history of bond market behavior has also supported this view. On a forward looking basis, however, the important questions center around how risk/return profiles change under rising interest rate environments and what investors should consider in evaluating the risk of their current portfolio mix.
Commentary
High Yield versus Equities
Investors are often led down the path that they must invest in equities in order to generate a decent return, and that the high yield market is too risky and speculative. However, reality and the data points prove otherwise. Looking over the past couple decades and various periods in between, you can see that high yield has consistently outperformed the equity market (as measured by the S&P 500 Index) on a risk adjusted basis (return/risk).
Commentary
Why We Favor Owning Gold in Euro Terms
In this discussion piece we discuss the rationale for why investors looking to buy gold as a defensive asset during these uncertain times should consider buying gold in euro terms. When an investor buys gold in dollars they are expressing the view that they expect the price of gold to increase relative to the dollar. Similarly when an investor buys gold in euro, they express the view that they expect the value of gold to increase relative to the euro.
Commentary
Why Japan? Why Now?
One of the most popular investment themes coming into 2014 was Hedged Japanese Equity (owning Japanese equities while simultaneously hedging out the risk of the Japanese Yen weakening against the US Dollar). At its core, this theme leaves investors long Japanese equities in US Dollar terms, not Japanese Yen terms. This investment turned in very poor performance for the first half of 2014. By the end of Q1 2014, Japanese equities had sold off rather sharply and the US Dollar had weakened 2.01% versus the Yen.
Commentary
A Perspective on High Yield Spreads
There have been recent headlines about yields in the high-yield market hitting all-time lows. Yes, this is true, but lets put this in some context. First, interest rates have been at or near all-time lows for years, pressuring yields in all fixed income securities as investors search for places to generate returns. Comparatively, we believe the high yield market still looks very attractive.
Commentary
Alternative Investments: The Right Expectations
Every year around this time we hear about the fiscal year investment results for the various college endowments and typically there is much written about the endowments and 2014 is no exception but this year most of the attention seems to be on the extent to which various forms of alternative investments have been a drag on endowment results after years of their having provided outsized gains.
Commentary
A Brief Note on Gold as a Defensive Asset
In previous notes we have written about the defensive nature of gold relative to the broad equity market. Much of the discussion has focused on the low correlation and beta of gold versus equity markets. In fact, the ten year monthly returns of gold (priced in US dollar terms) and the S&P 500 show a correlation of zero with the beta of monthly gold returns versus S&P 500 returns also being essentially zero (0.1).
Commentary
Self Sufficiency and Resourcefulness Over Complaining
There were several interesting and related articles from the last few days that could make for an interesting discussion.
Commentary
The True Opportunity in Todays High Yield Market
There has been talk recently about the yield of the high yield market, as represented by the various indexes, and if there is return left to be had. While the high yield indexes are representative of the high yield market, we do not believe they are representative of the true opportunity in the high yield space.
Commentary
A Brief Review of Year-to-Date Gold/Currency Performance
As a brief primer on how the performance numbers are calculated, we note firstly that all figures shown here are expressed in US dollar terms.
Commentary
Hedged High Yield
A strategy that we have seen emerge over the past year within the high yield market has been hedged high yield, most recently with iShares rolling out an product last month that uses their passive, index-based HYG fund as the high yield component. The gist of the hedged high yield strategy is to go long high yield bonds and short Treasuries (or Treasury futures). The basic premise is that the strategy will hedge interest rate risk, with any bond pricing decline due to rising rates being offset with the short in Treasuries.
Commentary
Some Gold Indicators to Watch
With recent sharp falls in the price volatility of a wide range of assets including gold and the markets apparent insensitivity to macroeconomic news, many gold investors have shifted focus to some of the more widely watched gold technical indicators to see if they provide insight into the future direction of the gold price. In this weeks short discussion piece we look at the Gold Forward Offered Rate (GOFO), the US inflation adjusted (real) interest rate and the Gold/S&P500 ratio.
Commentary
Trends in Gold Option Volatility
Liquidity in gold option trading has risen significantly over the last five years. Using the COMEX 100 ounce gold option contract as a proxy for the market, Year-to-Date Average Daily Volume has risen from approximately 30,000 contracts in May 2009 to 70,000 contracts (~ 217 metric tonnes) in May 2014. This period of growth in option use has coincided with the rapid rise in the gold price after the 2008 credit crisis and perhaps reflected a need from the growing number of gold investors for derivative contracts with which they could manage the risks inherent in their gold exposure.
Commentary
An Inefficient Asset Class
The high yield and floating rate loan market are often misunderstood asset classes. Just what is the formal definition of high yield? High yield, or its more polite acronym, non-investment grade, is based off of the ratings grids provided by the two major credit rating agencies, Moodys and Standard & Poors. All bonds rated below Baa by Moodys are considered high yield or non-investment grade.
Commentary
Examining the Relationship between Gold and the Commodity Currencies
In this weeks commentary we examine the performance of the price of gold expressed in the currencies of the worlds largest gold producing countries. In a number of previous commentaries we have investigated the currency like nature of gold investing.
Commentary
Mexico: A Country in Transition
We have been traveling regularly to and investing on and off in Mexico for over thirty years. We have seen the Peso strengthen and bust a couple of times; government-owned banks privatized and then bust; an ongoing roller-coaster ride in the Bolsa. Through it all, we have been big believers in the long-term prospects for the country, its economy, and financial markets. However, it is clear that a thoughtful process regarding entry and exit points is required.
Commentary
Overview of the Fixed Income Market
Junk bonds are often still considered an alternative asset class and remain tremendously confusing to much of the investing public. They are considered by many to be very risky and illiquid. The truth is that the high yield market is a relatively straightforward, well developed and liquid market.
Commentary
Gold and Portfolio Efficiency
In previous commentaries we have discussed the benefits of using a diversified financing currency approach for investing in gold by which we mean using two or more currencies (rather than just the US dollar) to make gold purchases. The example we have used to demonstrate the approach was to construct a time series of the price of gold purchased with an equal weighted basket of dollars, euro, yen and pound.
Commentary
Europe Part 2: The Smart Beta Portfolio
In our last post we discussed the attractiveness of European equities in aggregate, and assessed the pros and cons of implementing this regional investment theme with a market capitalization weighted ETF (VGK ? Vanguard). It was our conclusion that the most effective way to gain exposure to the expected advance in European equities was through a multi-factor ?smart beta? portfolio.
Commentary
Does Negative GOFO Signal Higher Prices for Gold Financed in Currencies?
In recent weeks a number of gold commentators have once again highlighted the strong inverse relationship over the last year between the price of gold in dollar terms and the London Bullion Market Association Gold Forward Offered Rate "GOFO". Since the first week of July 2013 when the price of gold bounced decisively, the GOFO rate has fairly reliably predicted the future direction of the gold price.
Commentary
Europe: Market Capitalization vs. Smart Beta
A bullish investor consensus for European equities appears to be building. More and more, we are hearing and reading that European equities are attractive and undervalued. It may be the right time for greater exposure to developed international equities, and Europe might be the right place for investors to focus. However, why stop there? Why stop at the regional level?
Commentary
Gold as a Defensive Asset
In our previous commentary ?Gold and the US dollar ? a love hate relationship? we used a normalized time series of the price of gold expressed in US dollars and an index representative of the value of the US dollar on currency markets to show the inherent relationship between the price of gold and the financing currency. As the financing currency strengthens on currency markets, one would expect the price of gold expressed in that currency to fall.
Commentary
Israel ? Under the Radar
In recent travels and presentations, I was asked frequently about Israel. How is it that the Israeli market is #2 in our country ranking methodology? It seems as though the country is off the radar screen of most investors, so a quick overview of the market and why it ranks high currently seems to be in order.
Commentary
U.S. Financials: Investment Theme Update
We reaffirm our recommendation for U.S. Banking and Financial Services as a satellite equity investment. The Federal Reserves "Stress Test" reinforces a constructive outlook and conservative risk profile for U.S. Banks. The positive results confirm that U.S. banks have enhanced their ability to withstand macroeconomic challenges by reducing problem assets during the past few years. Equally important, the financial sector appears to be more exposed to a key driver of the broader equity market advance over the last few years: share buyback programs and increasing dividends.
Commentary
The Default Outlook
On April 1st, TXU/Energy Future Holdings skipped their interest payment due that day, immediately triggering a default by some reporting mechanisms. While the company has a 30 day grace period to pay the coupon payment, most expect them to use the grace period to work further on a restructuring and ultimately file for bankruptcy at some point over the next 30 days.
Commentary
Gold - Managing the Downside
We get a lot of questions regarding the impact on portfolio risk of having an allocation to gold. In particular given the status of gold as a safe haven asset, focus has centered on its performance during periods of extreme market stress ? what is the downside to gold during periods of high risk aversion? The high level answer to this question is that the financing currency used to make the gold purchase matters and as is often the case when discussing portfolio construction, ?you ask a simple question, you get a complex answer?.
Commentary
Avoiding Complacency
Active managers dont have a mandate to hold any certain securities, thus they can pick and choose as to what they feel offers the best return level for a given risk profile. The high yield bond market still offers plenty of what we view as very attractive opportunities in credits that we see as solid companies at yields about 300 basis points or more above the yield level on this bond.
Commentary
The Treasury Yield Curve Starts its Tightening Process
Martin is the Investment Strategist to the AdvisorShares Pring Turner Business Cycle ETF (DBIZ)?and since 1984, he has published the ?Intermarket Review,? a monthly global market report revered among analysts and market technicians. Here, Martin shares his latest technical analysis.
Commentary
Why International Now?
One of the ongoing challenges that advisors face is determining what percentage of their clients assets should be allocated to international equities. The magnitude of this decision is often amplified when the United States has years of persistent out/under performance. US clients will inherently gauge the success of their portfolio based on the S&P 500, or similar index. The challenge for advisors is explaining why a more diversified exposure to global equities is meaningful in the long-run, despite recent years of outlandish performance.
Commentary
The Media?s Incomplete Coverage of the Active/Passive Debate
Barron?s revisited the debate between active and passive portfolio management with it?s conclusion revealed in the article?s title; Go Active for Bonds, but Index Your Stocks. This is an important issue for market participants to explore and the revisit every so often.
Commentary
Understanding Gold Cost of Carry in Various Currencies
Under normal market conditions, the term structure for the price of gold for delivery at increasing maturities (the term structure) exhibits an upward sloping curve. In futures market terminology the term structure is said to be in contango and implies that the price of gold for spot delivery is lower than the price of gold for future delivery.
Commentary
When Will it be Time to Get Back to EM?
Global investors have been experiencing an ongoing drag on returns to the extent they have had exposure to Emerging Market (EM) equities. It is difficult to abandon the asset class given historical performance, relative economic growth, current valuation discounts, and portfolio management tenets regarding diversification. But the fact that the U.S. has been such a strong performer, along with its size and prominence in the press, creates questions about why any non-U.S. stocks should even be in the portfolio.
Commentary
Assessing the Liquidity of Futures Backed Gold ETFs
Most gold ETFs that use futures to gain gold exposure will use the COMEX 100 ounce gold futures contract which is generally regarded as the most liquid gold futures contract in the world. The Commodity Exchange (COMEX) is a commodity exchange owned by the Chicago Mercantile Exchange (CME). As part of its gold exchange the COMEX offers warehousing for its members.
Commentary
What if Grantham is Right?
There were two articles recently both exploring the same possible outcome; that investor returns from capital markets could be much lower in the coming years. No matter what markets end up doing, advisory clients and do-it-yourselfers still have financial plans that likely require some amount of growth over time in order to have a chance of succeeding without something, such as desired lifestyle or working longer than hoped for, having to give.
Commentary
Assessing the Impact of Financing Currency on Gold Price Performance
In our weekly commentary we follow up our discussion from last week with a brief overview of the impact on performance of diversifying the financing currencies used to make gold purchases. We also compare "Gold/Basket" performance versus gold financed with a number of different, single currencies. For the purposes of this analysis we define the Gold Basket as a gold financed with an equally weighted basket of four currencies, the dollar, euro, yen and pound; the portfolio is also assumed to be rebalanced weekly.
Commentary
IPOs: Hot Again
Last week the Wall Street Journal gave a rundown of what has been a very hot IPO market. The Journal reported that there were 42 listings in the first two months of 2014 compared to 20 from the same timeframe in 2013 and keep in mind 2013 was a very good year for IPOs.
Commentary
Evolution of SRI Leads Investors to a Sustainable Future
It?s no secret that positive screening as an investment strategy is becoming increasingly popular as advisors seek ways to identify substantive investment opportunities. The practice focuses investors on the elements of a company that can make a positive impact both on the bottom line and on society, pointing to socially progressive companies that generate returns.
Commentary
"Purer" Gold Exposure for the Long Term Investor
This week we dive into a discussion on the impact of diversifying the financing currencies used to purchase gold. At a high level the primary objective of wanting to diversify financing currencies is to gain a ?purer? form of exposure to gold by using a number of different currencies (rather than a single currency) to make gold purchases. For example an investor could decide to use a combination of euro, yen, pounds and dollars to make a purchase.
Commentary
Stanford Wonk Argues In Favor Of Levered Equity Funds
A long-time reader sent a link to an article from Forbes titled Leverage Your Way To A Richer Retirement. The article considered research done by Jason Scott at Financial Engines which looked at completely revamping the 4% rule (the 4% rule pertains to the optimal withdrawal rate for a retiree take from their portfolio without exhausting their funds).
Commentary
The Important Role of Country Funds in a Diversified Portfolio
As most investors know, foreign equity markets have had a rough time of things performance-wise for the last couple of years relative to domestic equity markets. While Quantitative Easing may or may not be to blame, after years of generally outperforming the US in the previous decade the new decade has been a different story.
Commentary
The Differences Between Gold Financed vs Gold Hedged Transaction
Following on from our previous discussion piece on commodity fund taxation, this week we discuss the differences between a gold position financed in a (given) currency versus a gold position hedged into a currency. Broadly speaking the objective of a "currency financed" transaction is to give an investor the flexibility to choose the currency with which gold purchases are made.
Commentary
If You Can?t Retire at 30 Then How About 38?
A couple of weeks ago we looked at an article from MarketWatch about a couple, now 39, who ?retired? when they were 30. They live frugally, one way or another accumulated a pretty decent nest egg in their 20?s and took the time to become financially literate.
Commentary
Investor Refresher (An Intersection of Investing and Firefighting)
Anyone who has read my blog for any length of time may recall my active involvement with the local volunteer fire department where I live in Northern Arizona. Occasionally my work in the investment industry intersects with some aspect of firefighting and one such intersection just occurred last week.
Commentary
What Harvard Can Teach Us About Portfolio Management
The takeaway for advisors is the need to make sure clients truly understand their time horizons and that their portfolios are being navigated toward their time horizon versus responding to short term events like a Green Mountain Coffee (NASDAQ:GMCR) popping 30% on a deal with Coca Cola (NYSE:KO) or a stretch of poor returns for emerging markets.
Commentary
The Expanding Leveraged Loan Market
At the end of the day, a loan investor may be left with a security that has a low starting yield, little left in the way of capital gains potential, and with coupon income that is not at all increasing even if rates were to rise. While there are some selective opportunities for value in the loan space, broadly speaking we see high yield bonds as a more attractive market in the current environment.
Commentary
Commodity Fund Taxation
As markets, investment products and the manner in which clients access information have all evolved, advisors are answering more and more questions about how to invest in commodities which means advisors have to learn about the various taxation structures of the many different types of commodity exchange traded products.
Commentary
A Decline in January Draws Attention to Portfolio Protection
January was a bumpy month for domestic equities as the S&P 500 declined by 3.5%. Perhaps the decline was influenced by the even larger decline in emerging markets, an earnings season that was viewed by some as disappointing or for no reason at all (markets dont always have a reason for what they do).
Commentary
Bear Markets: Different Ingredients, Same Market Behaviors
While it is logical that markets are complex, the reality is that the level of complexity changes over time. The level of complexity started to increase last year when now former Fed Chairman Ben Bernanke first introduced the idea of what has come to be called tapering.
Commentary
Do Portfolio Diversifiers Belong in Client Portfolios?
The big idea is that the stock market goes up more often than not but when it does go down it scares the hell out of clients. During these large declines some advisors will use tools like gold, hedge fund replicators, absolute return, market neutral, funds that sell short or any other products that tend to not look like the stock market to try to spare clients from the full effect of the decline.
Commentary
The Equity "Game"
We have seen the cracks begin to emerge in the equity story over the past week. Earnings are beginning to come in and so far have been a disappointment. The retail sector is showing signs that Q4 was weaker than originally expected, with store cuts announced by, Sears, J.C. Penney, and Macys and job cuts at Target. Emerging markets have been roiled this week, with Argentina shifting policy, likely devaluing their currency, and other currencies plunging.
Commentary
How to Retire at 30!
MarketWatch had a very thought provoking post about a couple in Colorado who retired when they turned 30 (they are 39 now). In 2011 they took their story to the blogosphere with the very popular blog Mr. Money Moustache.
Commentary
Investing by Duration
Lower duration bonds would not eliminate the interest rate impact, just lessen it. We see this as a good strategy broadly speaking if you are talking the high yield asset class versus the investment grade asset class, with the high yield market naturally having a much lower duration. However, we believe this strategy is lacking when it is used to parse out the high yield space itself, investing in only the lower duration names within the high yield category.
Commentary
AdvisorShares Active ETF Market Share Update - Week Ending 1/10/14
The active ETF market continued its upward trend with combined net assets exceeding $15 billion. The total number of active ETFs rose to 75 with the launch of the AdvisorShares Sage Core Reserves ETF last week. The High Yield category had the highest weekly increase in net assets - approximately $68 million - with AdvisorShares Peritus High Yield ETF leading the way. Net assets in the Global Bond category gained over $35 million with RiverFront Strategic Income Fund and PIMCO Total Return ETF as the largest contributors.
Commentary
Turning Asset Allocation Upside Down
After the second 50% drawdown of the US equity market in one decade, the investment industry began to reassess the idea of what asset allocation should look like. Unlike the 1980s and 1990s, financial professionals can no longer rely on an almost static 60/40 or 70/30, watch the equity portion triple in 15 or 20 years and then flip the whole thing to fixed income for a safe 6%.
Commentary
Bonds and Rates
Right now the topic de jour in the fixed income space is interest rate risk. The traditional thought is that as interest rates rise, bond prices fall. But looking at history, the high yield market has defied this widely held notion. Lets examine the four main reasons why high yield bonds have historically performed well during times of rising interest rates.
Commentary
AdvisorShares Active ETF Market Share Update - Week Ending 1/10/14
The active ETF market experienced a sizable increase, with total net assets exceeding $14.8 billion. The total number of active ETFs rose to 74 with State Street launching three equity products: SPDR MFS Systematic Core Equity ETF, SPDR MFS Systematic Growth Equity ETF and SPDR MFS Systematic Value Equity ETF last week.
Commentary
Risk Management: The Ability to Say No
Heather Rupp, Director of Research for Peritus Asset Management, the sub-advisor to the AdvisorShares Peritus High Yield ETF (HYLD), discusses the advantages of active management when it comes to credit risk.
Commentary
The Leverage Buyout Overhang
While we are not opposed to leveraged buyouts, as they can often produce very supportive private equity partners, what does concern us is when the capital structure is levered up to a potentially unsustainable level due to these buyouts or large dividends to equity sponsors.
Commentary
AdvisorShares Active ETF Market Share Update
The active ETF market experienced a slight downtick during the shortened New Years week, with total net assets exceeding $14.7 billion. The Global Bond category, led by the PIMCOs Total Return ETF and Global Advantage Inflation-Linked Bond Strategy, had the highest weekly decrease in net assets by about $62 million. Net assets in the Alternative category decreased by almost $28 million, which included the AdvisorShares Ranger Equity Bear ETF.
Commentary
AdvisorShares Weekly Market Review
In this new year, the magnitude of 2013 comes full circle. The S&P 500 and the Dow finished the year with 29.6% and 26.5% gains, respectively. For the Dow, that was the biggest annual gain since 1995, and the fifth consecutive positive year. Most impressive in the developed markets was Japans Nikkei Stock Average, which surged 57%.
Commentary
Is it Lift off Time for Commodity Prices?
Martin is the Investment Strategist to the AdvisorShares Pring Turner Business Cycle ETF (DBIZ) - and since 1984, he has published the "Intermarket Review," a monthly global market report revered among analysts and market technicians. Martin shares his technical analysis on short and long term market momentum and the potential effect for commodity prices.
Commentary
Float Research Bubble Watchers Should Set Their Sights on Corporate Bond Market
Insatiable Appetite for Corporate Debt Despite Poor Performance. Corporate Bond ETFs Issue Staggering $21.6 Billion (27.5% of Assets) Year-to-Date.
Commentary
AdvisorShares Active ETF Market Share Update
Activity for the active ETF market was fairly mild for the previous week with net assets increasing slightly higher, reaching about $14.7 billion. No active ETF products launched last week, but there was growth in the short term bond category, as well as downward movement among the global bond and foreign bond categories, which included PIMCOs Total Return ETF as a notable decliner.
Commentary
AdvisorShares Weekly Market Review
In our last commentary, we noted the slow holiday week that did not provide us with much economic fodder. This week, the unemployment rate dropped to 7% and payrolls jumped more than expected. Third quarter GDP rose more than expected, and hit its highest mark since Q1 2012. Although the status of the U.S. budget remains up in the air, many expect Janet Yellen to maintain Chairman Bernankes accommodative policies. With the hectic holiday schedules nearing, it is difficult to predict what we will see this month.
Commentary
Float Research: Demand Indicators Point to Jolly Holiday Season for U.S. Equity Investors
Demand Indicators Point to Jolly Holiday Season for U.S. Equity Investors. ETF Flows Turn More Encouraging for Short Term.
Commentary
Float Research: Investors Pour $54.2 Billion into All Equity MFs and ETFs in October
ETF flows suggest stocks will have a tough time moving much higher. Inflows into leveraged short ETFs stopped in the past week, which is a cautionary sign from a contrarian perspective. Even more worrisome, investors are pouring money into equities. All equity mutual funds and ETFs received $54.2 billion in October, the third-largest inflow on record.
Commentary
Fund Flows Shift Dramatically This Year as Investors Embrace Risk
The Federal Reserve has been trying for almost five years to coax savers and investors into stocks by printing money to inflate the prices of assets in general and U.S. stocks in particular. The Fed finally seems to be succeeding. We are witnessing the biggest shift in fund flows since the crash of 2008.
Commentary
Active ETF Market Share Update & Weekly Market Review
Since the end of September, total AUM in all active ETFs increased by almost $443 million. Assets in the two largest categories Short Term Bond and Global Bond fell by $61 million and $12.77 respectively. The Foreign Bond category also fell, by $19.38 million. The largest gain was in Currency active ETFs, which added an impressive $499.5 million in value due to flows into one fund.
Commentary
Equity ETF Flows Send Bullish Signals
U.S. Equity ETFs gave up $4.3 billion in the week ended October 1, reversing a $3.4 billion inflow in the previous week. This weeks outflows signal low demand for stocks, a bullish short-term indicator from a contrarian perspective.
Commentary
Active ETF Market Share Update & Weekly Market Review
Last week, total AUM in all active ETFs fell by almost $40.9 million. Assets in the two largest categories Short Term Bond and Global Bond fell by $7.74 million and $10.156 respectively. In addition, the Foreign Bond category decreased by $36.33 million, while AUM in Currency active ETFs fell by almost $5.2 million.
Commentary
Weak Credit Growth Main Reason for Lackluster Economic Recovery
The U.S. economy is a credit-based economy. Economic expansion is fueled mostly by borrowing and consuming rather than saving and investing. A continuous expansion of credit is needed for the economy to grow. The main reason the economic recovery has been so lackluster is that credit growth has remained weak despite the Federal Reserves continuing liquidity injections.
Commentary
Corporate Bond ETFs Attract Steady Inflows Amid Bond Market Sell-Off
Corporate bonds remained popular with investors amid the bond sell-off in recent months, while Foreign and Municipal bond funds experienced the steadiest and heaviest redemptions.
Commentary
Long/Short Equity in Rising Rate Environments
The party in fixed income has been a good one. Spanning approximately 30 years and touching four different decades dating back to the Volker Era in the early 1980s, it has been a fairly smooth ride with few, short lived, painful periods. It now appears that possibly, and the market pundits are still debating, that the party may be over. Most agree that if not over yet, the end is near.
Commentary
Inflow into Equity Funds in September Fourth-Highest Ever
Although the S&P 500 sits just below a record closing high, we think the path of least resistance for stock prices is higher. The Federal Reserve seems as determined as ever to inflate asset bubbles by funneling $85 billion per month in newly printed money to the primary dealers, and our demand indicators continue to turn more favorable for the intermediate term.
Commentary
Active ETF Market Share Update & Weekly Market Review
Last week, total AUM in all active ETFs increased by almost $80.2 million. Assets in the two largest categories Short Term Bond and Global Bond fell by $20.65 million and $38.585 respectively. As the dollar weakened on the Federal Reserves decision to delay tapering, the Foreign Bond category increased by $65.725 million and Currency active ETFs added $7.43 in value. Just like the previous week, the second largest increase in AUM came in the High Yield ETF category, which this time rose by over $44.35 million, main
Commentary
Stock Buyback Announcements Slow to $2.3 Billion Daily in Third Quarter
Due to the acceleration in buyback volume in previous quarters, we are not reducing our $2.0 billion daily estimate of actual stock buybacks. Actual stock buybacks tend to track new stock buybacks closely with a lag. If the volume keeps falling in Q4 2013, however, we will likely reduce our estimate.
Commentary
Active ETF Market Share Update & Weekly Market Review
Last week, total AUM in all active ETFs increased by over $68.76 million. Assets in Short Term Bond active ETFs increased by nearly $140 million. The second largest increase in AUM came in the High Yield ETF category, which rose by about $20.366 million, largely due to creation units. US Equity active ETFs also saw a significant increase in AUM of over $8.68 million. The biggest decreases in AUM came in the Global Bond and Foreign Bond categories, which fell by $58.85 million and $44.3 million respectively.
Commentary
Active ETF Market Share Update & Weekly Market Review
Last week, total AUM in all active ETFs increased by around $38.2 million.As in previous weeks, assets in Short Term Bond active ETFs increased, this time by almost $61.7 million, while AUM in the Global Bond category fell by about $39 million.The Global Bond category had another bad week, ending over $18.3 million below where it began.The Alternative Income category increased again but by less than in previous weeks; AUM increased by nearly $4.26 million. The Alternative active ETF categorys AUM rose by approximately
Commentary
Underwriters Lose No Time Pumping Out New Shares after Labor Day
The monthly flows of Mutual Fund and ETF volatility continued as a roller coaster trend was apparent in the last three months. Read this investor insight by Minyi Chen, CFA, Chief Operating Officer of TrimTabs Investment Research and Portfolio Manager of AdvisorShares TrimTabs Float Shrink ETF (NYSE Arca: TTFS) to learn about the variable trend flows.
Commentary
Weekly Market Review
The major US stock indexes fell once again last week, capping off the worst monthly performance of the S&P 500 in over a year. However, the index is only 4.69% below its all-time intraday high reached on August 2nd. While fear that the Fed would vote to start ending extraordinary stimulus measures at the next meeting late in September was the main reason cited for the decline, thin trading volume in August and especially the week before Labor day may have made led to increased volatility and price declines.
Commentary
Float Research: Fund Flows Swing Wildly for Third Consecutive Month
The monthly flows of Mutual Fund and ETF volatility continued as a roller coaster trend was apparent in the last three months. Read this investor insight by Minyi Chen, CFA, Chief Operating Officer of TrimTabs Investment Research and Portfolio Manager of AdvisorShares TrimTabs Float Shrink ETF (NYSE Arca: TTFS) to learn about the variable trend flows.
Commentary
Active ETF Market Share Update & Weekly Market Review
Last week, total AUM in all active ETFs increased by over $69 million. As in previous weeks, assets in Short Term Bond active ETFs increased, this time by almost $64.6 million. AUM in the Foreign Bond category fell by nearly $58 million both because of falling values for ETFs in the category and because redemption units in certain ETFs. The Global Bond category had another bad week, ending over $18.3 million below where it began.
Commentary
Float Research: Is Fed Starting to Lose Control of Bond Market?
Bond yields hit two-year highs as investors pull an additional $19.7 billion from bond funds in August. Read this investor insight by Minyi Chen, CFA, Chief Operating Officer of TrimTabs Investment Research and Portfolio Manager of AdvisorShares TrimTabs Float Shrink ETF (NYSE Arca: TTFS) to learn what concerns may arise in the coming months if this trend continues.
Commentary
Float Research: Fund Outflows Surge Amid Bond Market Anxieties
Stock and bond funds have given up a net $32.4 billion in August thanks to strong outflows from ETFs and mutual finds alike. Read this investor insight by Minyi Chen, CFA, Chief Operating Officer of TrimTabs Investment Research and Portfolio Manager of AdvisorShares TrimTabs Float Shrink ETF (NYSE Arca: TTFS) to learn about the recent fund flow trends.
Commentary
Active ETF Market Share Update & Weekly Market Review
Last week, total AUM in all active ETFs fell by over $60.5 million. AUM in the Global Bond category fell by nearly $89 million both because of falling values for ETFs in the category and redemptions in certain ETFs. The Foreign Bond category had another bad week, ending almost $36 million below where it began. As in previous weeks, assets in Short Term Bond active ETFs increased, this time by almost $36.5 million.
Commentary
Active ETF Market Share Update & Weekly Market Review
Overall the total AUM in all active ETFs declined by $1.2 million last week, an insignificant amount for the $14.4 billion space. Short Term Bond increased by almost $29.3 million, while Global Bond fell by around $15.8 million. Foreign Bond had another bad week, ending almost $34 million lower than where it began, as did the Currency category which declined by more than $8.7 million.
Commentary
Real-Time Tax Data Indicates U.S. Economy Rapidly Losing Steam
The U.S. economy real growth is slowing even more now than in July as signs indicate an even weaker economy than we think. Read this investor insight by TrimTabs Asset Management to learn what tax withholdings and recent fund flows may be foretelling.
Commentary
Active ETF Market Share Update & Weekly Market Review
Overall the total AUM in all active ETFs declined by $2.5 million last week, an insignificant amount for the $14 billion space. The biggest change of the week was the Short Term Bond category overtaking the Global Bond to become the largest category in active ETF space.
Commentary
Thoughts on the Long/Short Space
This insight from Kurt Voldeng highlights performance in the long/short fund universe.
Commentary
Far More Money Pulled out of Bonds Flows into Cash Than into Equities
Investors Pull Record $87.8 Billion out of Bond Funds in June and July, Breaking String of 21 Consecutive Monthly Inflows. Far More Money Pulled out of Bonds Flows into Cash Than into Equities.
Commentary
Active ETF Market Share Update & Weekly Market Review
Last week total AUM in all Active ETFs fell by almost $20 million. This was almost entirely due to redemptions in Foreign Bond Active ETFs. The Short Term Bond category continues to gain assets and increased by $38 million just last week. Total AUM in this category could possibly surpass the Global Bond category in the coming months in trends continue.
Commentary
Investors Pull $17.5 Billion from Bond Mutual Funds in July
Investors keeping socking money into U.S. Equities while outflows from bond mutual funds continue. Read this investor insight by TrimTabs Asset Management to learn more about the recent fund flows and what other activity may be foretelling.
Commentary
What's Wrong With Indexes?
It has been more than 35 years since the first broad market index funds debuted. At the time, they were a cutting edge strategy for core equity allocation. Today, index funds are a major part of 401(k) and other retirement plans, particularly ones tracking the Standard & Poors 500. But they have deep flaws.
Commentary
Funds Get All-Time Record $36.8 Billion in July
As Wall Street rejoiced at the succession of record highs with the S&P 500 on Monday, our demand indicators continue to turn less favorable. Traders who are still aggressively long should definitely consider paring their long positions.
Commentary
Active ETF Market Share Update & Weekly Market Review
This past week, total assets in the active ETF space increased by over $60 million. The top 3 categories (Global Bond, Short Term Bond and Foreign Bond) all saw increases in AUM. The Alternative Income category fell in AUM, after weeks of only going up.
Commentary
U.S. Equity Fund Inflow in July Seventh-Highest Monthly Inflow
Investors are piling into U.S. Stocks with July only a little half over. Read this investor insight by TrimTabs Asset Management to learn more about the recent uptick in U.S. Equities and other detailed supply and demand activity with the stock market at the start of Q3.
Commentary
Submissions from Advisor Shares
Two submissions from the AdvisorShares team this week: Money Flowing into Savings Deposits and Money Market Funds by TrimTabs Asset Management and AdvisorShares Active ETF Market Share Update.
Commentary
AdvisorShares Weekly Market Review
The market increased again last week and both the S&P 500 and the Dow Jones Industrial Average reached record highs by the end of the week. The Nasdaq Composite Index also rose significantly, hitting a 12 year high.
Commentary
Weekly Market Review-Highlights of the Prior week
Stocks moved higher but volume was notably low over the holiday shortened trading week. This week for a change, positive economic data, not speculation about the Federal Reserves tapering of Quantitative Easing drove the market in the US.
Commentary
Record Selling of Bond Funds: $79.8 Billion Pulled from Bond Mutual Funds and Exchange-Traded Funds
The biggest liquidity story is unfolding in the bond market, not the stock market. Investors are pulling record sums out of bond funds. Read this investor insight by TrimTabs Asset Management to learn more about the central banks influence on the markets as well as supply and demand activity with the stock market.
Commentary
AdvisorShares Active ETF Market Share Update Week Ending 6/28/2013
Total AUM for Global Bond ETFs fell again last week by over $200 million, but Short-Term Bond Active ETFs continue to gain assets and passed the $4 billion mark this past week. AUM has also been shrinking in the US Bond and Currency categories, while it has risen in the Alternative and Alternative Income categories.
Commentary
Record Selling of Bond Funds: $79.8 Billion Pulled from Bond Mutual Funds and Exchange-Traded Funds
The biggest liquidity story is unfolding in the bond market, not the stock market. Investors are pulling record sums out of bond funds. Read this investor insight by TrimTabs Asset Management to learn more about the central banks influence on the markets as well as supply and demand activity with the stock market.
Commentary
AdvisorShares Weekly Market Review
Markets went higher last week after central bankers around the world reassured investors that they would not kill the economic recovery with higher interest rates. More volatile small and mid-cap stock indices performed even better than the S&P 500.
Commentary
Investors Dump Emerging Markets Stocks
Investors sold off bond mutual funds and ETFs at a record pace in June, while equity sell-offs were much more limited, with almost all of the selling occurring in the emerging market space. Surprisingly, despite a decline in price, US and developed equity ETFs had inflows in June. And investors in leveraged ETFs turned aggressively bullish last week, despite the recent sell-off. Read this investor insight by TrimTabs Asset Management to learn why these signs should be unsettling for contrarians.
Commentary
All-Time Record Outflows from Bonds
Outflows of bonds arent just catching attention, they are setting new highs not seen since 2008. In contrast, stock buybacks are practically unchanged from the previous quarter. Read this investor insight by TrimTabs Asset Management to review timely fund flow activity that has taken place in the marketplace.
Commentary
The Global Insider Country Focus: Turkey
As the antigovernment protests in Turkey continue, whats next economically for a country that relies heavily on foreign investors and tourism, especially with summer approaching, the traditional tourist high season? Accuvest Global Advisors, a firm founded on the principle of thinking globally and investing globally, has prepared the following focused country review on Turkey, which analyzes current risks with Turkey and potential next steps in the crisis.
Commentary
AdvisorShares Weekly Market Review
Once again, US stock indexes declined last week based on investors fears of rising interest rates. While markets were rising at the beginning of the week, on Wednesday, Federal Open Market Committee Chairman Ben Bernanke said that if the economy continued on its current growth path, the Fed would scale back on asset purchases by the end of the year and attempt to end the extraordinary measures by the middle of 2014.
Commentary
June 2013 Float Shrink Review
Sharing some commentary from our friends at TrimTabs, which summarizes a few changes in the investment landscape that may give you an indication of what to expect following Mays sell in May and go away trading adage. TrimTabs research focuses on fund flows and float shrink. They believe the market is heavily influenced by what people and institutions are doing with their dollars. You can read more about the research behind float shrink at AdvisorShares.com.
Commentary
AdvisorShares Weekly Market Review
The major indexes finished lower after experienced another volatile week. While no major statements came out of the Federal Reserve, speculation about what the Fed chairman might after say its next meeting ends on June 19 drove a lot of market price movements early in the week.
Commentary
Active ETF Market Share Update
Total AUM in all active ETFs fell from $14.552 billion to $14.416 billion over the course of the week. Just like the previous week, ETFs with longer term fixed income investments are facing redemptions, while Short-Term Bond ETFs are rapidly expanding their asset base. AUM for active ETFs in the Global Bond category fell below the $5 billion dollar level.
Commentary
Every Major Asset Class In The World Is Overpriced
We wanted to share a part of a report that TrimTabs sent out over last weekend that received some attention on CNBC on June 10, 2013. Please let us know if you would like to receive a full copy of the report. TrimTabs research focuses on fund flows and float shrink. As you know, they believe the market is heavily influenced by what people and institutions are doing with their dollars. You can read more about the research behind float shrink at AdvisorShares.com.
Commentary
AdvisorShares Active ETF Market Share Update
So far this month, money has flown into short-term bond active ETFs and funds in the alternative income category. There has also been a shift out of funds investing in longer-term bonds and emerging market debt, probably in response to rising interest rates and a strengthening US dollar. There was also a big increase in the smallest category of sustainable active ETFs, which is comprised of funds investing in companies that make efforts to improve their impact on the environment.
Commentary
More Than a Feeling
Tangible signs of fundamental weakness are appearing everywhere, yet financial market participants are simply choosing to ignore these signs. There remains a significant disconnect between the real economy and financial markets. Read this paper by Peritus Asset Management to learn how to navigate the weak fundamental picture in what they believe to be the beginning of a 15-20 year positive technical backdrop, which will put yield generating assets, such as high yield bonds, in the sweet spot.
Commentary
Certainty, Rates and the Year Ahead
The government tells us not to worry, as the Federal Reserve comes to rescue with QE-Forever. Certainty with fiscal policy doesnt seem to change the demand equation and cheapened money doesnt do anything if demand isnt present. Treasury rates remain at 0% for the foreseeable future making yield hard to find. Read this position paper by Peritus Asset Management scrutinizing how all this has come to pass and what indicators are foretelling the near future effects on the high yield asset class.
Commentary
Forward-Looking Broad-Market Investing
The following is a research study that provides compelling data on a more efficient way to invest in broad markets. Many people have called the equity market of the last 10 years the lost decade due to its lack of net change. Madrona Funds research shows that it would have been possible to have profited by over 200% over the last decade by using their forward looking methodology, which is based on future expected earnings, not past performance.
Commentary
The Benefits of Diversifying the Funding of a Gold Position
The recent sell off in gold has sharpened the focus of even the most committed gold bugs, and has highlighted one of the key risks that many investors face when they access the gold market. Do you purchase Gold in dollar terms or something else? How do you look at Gold, as a currency or something else? For the purposes of this analysis, Treesdale Partners took a look at a gold transaction in foreign exchange terms.
Commentary
Pring Turner Approach to Business Cycle Investing
Like the seasons of the year, the environment for bonds, stocks, and commodities progress in a repeatable and sequential fashion. A gardener understands it is difficult to plant in the winter because nothing grows. The same is true for the financial seasons in the business cycle, where investors can use knowledge of the sequence to create a financial market roadmap. This paper from Pring Turner Capital Group, one of our valued sub-advisors, takes you through the six-stages of the business cycle.
Commentary
High Yield in a Rising Rate Environment
We have all witnessed a major move in Treasury rates over the last couple months, causing concern for many that we may be in the early stages of a rising interest rate environment. The traditional thought is that as interest rates rise, bond prices fall. But looking at history, the high yield market has defied this widely held notion. This paper from Peritus Asset Management examines the main reasons why high yield bonds have historically performed well during times of rising interest rates.
Commentary
Instant Pudding
We are in the midst of a prolonged stagnant economy and Europe is facing mounting issueshowever we believe the end result is a resetting of expectations and re-pricing of global equity markets rather than anything economically devastating. Credit bubbles, and the resulting deleveraging, take a great deal of time to heal and this time is no different. There is no instant fix. But with the transfer of debt to public balance sheets from private ones (thanks to QEs 1 and 2), we see corporate credit as more desirable than Government paper.
