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On My Radar: “The Rodney Dangerfield Expansion”
"Earnings don't move the overall market; it’s the Federal Reserve board. And whatever you do, focus on the central banks and focus on the movement of liquidity. Most people in the market are looking for earnings and conventional measures. It's liquidity that moves markets." - Stan Druckenmiller
The Importance of Full Market Cycle Returns
A full market cycle can be defined as a peak-to-peak period that contains a price decline of at least 15% from the previous market peak, followed by a rebound that establishes a new, higher peak.1 Few publications or data providers publish, let alone highlight, full market cycle returns, yet we believe understanding them can help the return of your portfolio over the long-term.
Do More Americans Feel Confident About Retirement?
More Americans say they are feeling more confident about their retirement. That’s according to the results of the latest “Retirement Confidence Survey” conducted each year by the non-profit Employee Benefit Research Institute (EBRI). The Washington-based EBRI is the leading source for data on savings, retirement, health and related issues.
U.S. Consumers Gaining Ground
In early 2015 global financial markets continued to be buoyed by a combination of low interest rates, central bank liquidity and positive, albeit modest, economic growth. For some time we have been talking about the "Goldilocks" backdrop of slow growth, low inflation and low interest rates that has been very rewarding for financial assets.
On My Radar: The Speech at Lost Tree Club
You and I are in a tough business. It is based on probabilities and involves imperfection. The mismatch between customer expectations and practical reality is challenging. Art Cashin said, That to survive 50 years in this business, you learn that the first thing you do when you enter a room is look for the exit sign. It is with this thinking that I also share a great piece on investing and risk from Ned Davis.
1Q 2015 Newsletter: Eliminating the Confusion about Active Equity Management
There are a great number of bright mathematicians out there who can explain almost everything in common stock selection and portfolio management. One well-known student of the arena is Michael Mauboussin, a Managing Director at Credit Suisse, who recently published a challenging piece of research seeking to explain how difficult it was last year (2014) for mutual funds to beat the S&P 500 Index. In reviewing his analysis, we are reminded that calling stock picking and portfolio management “active management” has done the investment marketplace a huge disservice.
Second Quarter Market Commentary 2015
Over a year ago in our January 2014 Outlook commentary, we cited European markets as attractively priced relative to the US equity markets. Most market observers at the time were expecting a nascent recovery from the 2012 EU recession to get a boost from the European Central Bank (ECB). We even boosted our non-US developed market (and European-specific) allocation—though cautiously—in anticipation. Please note that we still think these markets are most attractively valued.
Combining Active and Passive: Three Issues to Consider for Risk-Averse Investors
by Clint Harris of Invesco Blog,
I was having a lively due diligence meeting with a retirement consultant the other day, discussing how our team manages Invesco Diversified Dividend Fund, and where we, as a conservative strategy, see opportunities and risks in the market today. Then came a moment of truth. The consultant sat back and said, “I really believe in what you all are doing, but many of my retirement plan committees just want passive index funds to bring down expenses.”
Currencies Are a 2-Way Street
Humans are funny animals. There are many events, experiences, environments, and data points in the world shaping our perception. There is a psychological phenomenon called the recency effect, although it is known in the investment world as recency bias. Without delving into the psychological science as to why this happens, I think you will agree that most people tend to place a greater emphasis on more recent events.
An In-Depth Look at the MFS Value Fund
by Larry Swedroe,
As I continue with my series analyzing the performance of some of the most successful actively managed mutual funds, it's important to acknowledge that I possess the benefit of hindsight; I am selecting funds I know have done well in the past. The question I seek to answer is whether investors should expect that outperformance to continue. With that in mind, today we'll take an in-depth look at the MFS Value Fund (MEIAX).
The Perfect Storm for Risk-Conscious Active Managers
by The Royce Funds,
Principal and Portfolio Manager Steve Lipper discusses three specific conditions that have shaped the current small-cap market and how, after five years, these developments all showed signs of reversing in the latter part of 2014.
On My Radar: Going Forward with Great Purpose!
The Fed tried to talk down the dollar last Wednesday. Essentially firing a warning shot (downgrading estimates for growth, inflation and short-term interest rates). The ultra-low rates in Germany and Japan vs. the U.S. favor the dollar. Anything that points to the Fed raising rates enhances the attractiveness of U.S. bonds and attracts further capital flows.
The Dollar Isn't the Peso Anymore (Part II)
by Richard Bernstein of Eaton Vance,
In May 2013, Richard wrote a report titled “The Dollar isn’t the Peso anymore.” He rebutted the argument that the U.S. dollar (USD) was weak. The data showed that the USD had actually troughed in the spring of 2008. For seven years now, the USD has been gaining strength and is today a standout among the world’s currencies.
An In-Depth Look at Fidelity's Contrafund
by Larry Swedroe,
Fidelity's largest actively managed fund is the Contrafund (FCNTX). It's also among Fidelity's top performers, making it their flagship fund, a status previously accorded to the Magellan Fund under Peter Lynch. Will Contrafund investors continue to enjoy outperformance or will they face flagging returns like Magellan's investors did following Lynch's departure?
On My Radar: Investors Behaving Badly
There were several charts that caught my eye this week. The first is a chart that tells us the likely annual return for the S&P 500 Index will average just 2.25% over the next ten years. Many valuation measurements support a period of probable low future returns, but this particular data is different – it looks at the percentage of household equity ownership.
How Should Advisors Evaluate Alternative Strategies?
Because modern portfolio theory emphasizes the value of holding instruments having low cross-correlations, we’ve heard many advisors describe the search for alternative investments as a search for assets with low correlations to either equities or bonds. This leads advisors too often to consider nontraditional assets over alternative strategies. We believe that perspective is too narrow and misses the larger point. It is our opinion that clients primarily desire reasonable returns with low volatility, and that there are many ways to achieve that goal.
Muni market – Favorable environment remains in place
Municipal bond market volatility in early '15 may have investors wondering if they should sell today and lock in their gains from 2014. After 13 consecutive months of positive returns, the muni market turned negative in February and the first two weeks of March as interest rates rose. After such a long and strong run, it is not surprising that the muni market has taken a step backward. That said, we do not see reason to panic and continue to believe that the muni market remains on sound footing due to supportive market fundamentals and technicals, as well as our entrenched high tax environment
How Advisors Are Positioning Fixed-Income Portfolios
by Bob Veres,
I asked the readers of my Inside Information newsletter service to tell me how they're preparing for an impending Fed rate hike. To date, I've received 178 pages of responses from advisors all over the country and across the spectrum, from indexers to fervent believers in active management, representing large and small firms investing on behalf of wealthy or middle-income clients.
Do Liquid Alts Justify Their Costs?
Liquid alts are complex and expensive, so it is natural for advisors to ask if they worth the time and trouble. In this article, I answer this question. I evaluate returns with special emphasis on 2014, when managed futures (notably the AQR Managed Futures Strategy Fund - AQMIX) soared and the largest global macro fund, MainStay Marketfield (MFLDX), stumbled.
On My Radar: Rate Hike Ahead, Bond Model Says Sell
I wrote a piece in Forbes this week titled “Rate Hike Ahead, Bond Model Says Sell”. The gist of the piece is about a tug of war between opposing views on the direction of interest rates. The outcome of this contest will enrich some and demoralize others.
Optimal Diversification Portfolio for Upcoming Interest Rate Environment
by Chuck Self of iSectors,
Historical patterns in interest rates leading to the current trend; Macroeconomic activity supporting future rising interest rates; Recommendations for optimizing client portfolios in such an environment
On My Radar: Rut Ro Rastro
At the beginning of each month, I like to look at a series of valuation metrics: Median PE, Price to Sales and Price to Operating Earnings. Let’s look at them today. The logic, of course, is simple. When expensively priced, reduce exposure and reduce return expectations. When inexpensively priced, overweight exposure and increase return expectations. Let’s also take a look at what has been driving the market higher. Some argue that individual investors are still on the sidelines. I don’t think so and I show evidence that they are almost as fully invested as they were at the 2000 and
An Overview of Alternative Investments
If you have been thinking about adding alternative investments to your clients’ portfolios, it’s important to step back and analyze the various types of investments available to you—which, despite being lumped together in the same category, have become increasingly varied.
After a Dismal 2014 Business Development Companies Poised to Outperform in the New Year
After a dismal performance in 2014 business development companies are enjoying a reversal of fortune, floating to the top of the leaderboard in the New Year. They’re outpacing their interest-rate sensitive brethren, utilities and REITs, bonds and the S&P 500 alike amid widespread anticipation that the Federal Reserve will lift interest rates mid year. As the stock market grows ever more expensive and profit margins are reaching record highs, the catalysts that should drive outperformance in BDCs grow stronger and stronger considering that most BDCs are trading at single-digit multiples.
Opportunities in Global Financial Disintermediation
Increasing financial disintermediation is a strong secular theme providing tailwinds in several financial industries, but a likely arduous and complicated process warrants the need for a disciplined focus on both risk and reward. The financial system essentially performs one basic function—the direct or indirect movement of funds from savers to borrowers or investors. Although financial disintermediation is formally defined as the shifting of funds from indirect to direct financing, the term is more commonly used to describe the increasing role of non-bank intermediaries.
Another Bubble?
by Burt White of LPL Financial,
The Nasdaq Composite just hit 5000 today as this report was going to press and is nearing its all-time record closing high of 5048. Even with the Nasdaq at 5000, we do not believe stocks have reached bubble territory. The Nasdaq has a much stronger foundation today of valuations, profits, and sentiment.
On My Radar: Equity Valuations, Recessions and Market Declines
Today let’s take a look at the hard evidence signaling slowdown. My personal view is that slowdown would not be as much of a problem if valuation measures were low. They’re not: by just about every measure the market is overpriced, overbought and over believed. What can you do? I share a simple and disciplined rules based way for you to stay invested in the market’s primary trend.
The Fat Pitch Weekly Market Summary
by Urban Carmel of The Fat Pitch,
When SPY has risen 3 weeks in a row, it most often rises further for at least one more week. SPY has been up 3 weeks in a row 19 times in the past 4 years. In 17 of those 19 times (89%), it continued up at least one more week. In one of those 19 instances, SPY gave back half its gains before going higher (yellow arrow); and in just one instance, SPY gave back 100% of its gains (red arrow).
Gathering Thin Reeds?
by Jeffrey Saut of Raymond James,
Many of you know that I spend time gathering “thin reeds” and try to weave them into a favorable “investment bouquet.” This is a strategy Fidelity’s Peter Lynch took to its zenith in an era gone by. Recall the story Peter told about how he stumbled into Magellan Fund’s (FMAGX/$96.12) investment in Hanes, when he first heard his wife rave about a new product called pantyhose.
An In-Depth Look at the Sequoia Fund
by Larry Swedroe,
Looking at its 35-year track record, some now consider the Sequoia Fund (SEQUX) an anomaly; it is an actively managed fund that has persistently generated positive risk-adjusted returns, outperforming its peers and its benchmark. Should investors expect this outperformance to persist?
On My Radar: A $9 Trillion Dollar Crisis
Here is the main point of today’s OMR: According to the Bank of International Settlements, non-bank borrowers outside the U.S. have borrowed, in dollars, $9 trillion. This is an increase of $4.5 trillion since the financial crisis and it places that $9 trillion on the wrong side of the dollar bet. The dollar debt is an example of how the Fed’s tightening will impact the world economy. This is a pressure cooker and the pot is starting to boil.
Weighing the Week Ahead: Help for the Economy from Housing?
The economic calendar includes much more housing data than we normally see in a single week. With Fed Chair Yellen’s Congressional testimony and the GDP revisions also on tap, I expect many observers to be linking these topics. They will ask:
When Volatility Rises, So Have Active Management Results
by Team of The Royce Funds,
For many investors, volatility is often synonymous with risk. We as value investors (and risk managers), on the other hand, have always viewed volatility as a crucial component of active stock selection. In our latest Royce Research piece, we explore the relationship between low- and high-volatility environments and the relative performance of active managers versus their respective benchmarks during these periods. This deep dive is especially important in a market that has recently seen more volatility and its largest correction in almost three years.
Loan Fund Primer
by Roger Nusbaum of AdvisorShares,
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.
On My Radar: Schumpeter’s Creative Destruction
This week let’s take a look at debt around the globe. I share a great piece from McKinsey & Company that shows just how much more debt, county by country, has been piled on since the 2007 debt induced financial crisis. Evidence is apparent in the commodity market and I also share a few ideas how you may risk manage those allocations.
Results 2,601–2,650
of 3,332 found.
