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The Fed's Bind: Tapering, Timetables and Turmoil
There are striking parallels between the dramatic recent sell-off in U.S. Treasuries and the Great Bond Crash of 1994. But the summer of volatility now facing financial markets is no doomsday scenario. Instead, it puts the U.S. Federal Reserve in a bind. Higher interest rates will reduce housing affordability, which is especially troublesome since housing is the primary locomotive of U.S. economic growth.
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.
Widening the Search for Income: Beyond Traditional Bonds
by Team of Forward Management,
Multisector bond market strategies may provide an opportunity to capitalize on differences in relative value. A more refined and global approach may generate yield with dividend-paying stocks. Emerging market (EM) corporate bonds feature attractive fundamentals and have increased in popularity as an asset class.
Emerging Markets Debt Remains Fundamentally Strong
Junes massive bond sell-off, prompted by fears that the Federal Reserve would wind down its bond-buying program, has had a negative trickle-down effect on emerging market debt-dedicated assets, which were hit hard as part of the record $14.45 billion in outflows seen in the overall bond market for the week ending June 12.
Record Selling of Bond Funds: $79.8 Billion Pulled from Bond Mutual Funds and Exchange-Traded Funds
by Minyi Chen of AdvisorShares,
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.
Let's Barbecue It...
by Blaine Rollins of 361 Capital,
Equity investors finished June with the first down month in 8 for the S&P500. Bond investors took a Tommy Boy two by four across the face. And yes, it did leave a mark. Two months ago the "Great Rotation" from bonds to equities was nowhere to be seen. Today the panic out of fixed income funds is happening at the highest levels seen since 2008. As we noted last week, inflection points in major rotations are volatile, scary, and unpleasant. This helps to explain the seven 100 basis point moves in the S&P500 in the month of June, which marks the most volatility in 12 months.
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.
The Practical Application of Behavioral Finance
From the Dot-Com bubble onward, traditional investment models have repeatedly disappointed those who relied on them. When compared to mathematically based models, behavioral finance provides a superior foundation. Here is an alternative investment paradigm, grounded in behavioral finance, that is practical and effective over time periods that are relevant for a significant portion of investors.
Consider Convertibles in a Rising Rate Environment
by Walter Stabell III of Invesco Blog,
The recent mass exodus out of bonds in which investors pulled more than $18 billion from funds that invest in bonds over a two-week period ending June 12 may have left you searching for the best opportunities in the bond market.
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.
The Fed's Dirty Little Secret: QE Does Not Work
Today I hope to dispel the myth that the Fed?s massive quantitative easing (QE) policy has driven long-term interest rates lower. I will argue that the opposite is true and demonstrate that the yield on the 10-year Treasury note has actually risen during QE-1, QE-2 and QE-3. This flies in the face of most market commentators.
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.
How Not to Invest in Dividend Stocks: Seven Mistakes Investors Commonly Make
by David Ruff of Forward Management,
While investors may assume that dividend investing is relatively straightforward, they commonly make mistakes that may undercut the potential income and total return of their investments.
Reframing Expectations
by Aaron Reynolds of Baird Advisors,
Even facing headwinds, bonds still serve important roles in a portfolio, including diversification and downside protection potential. As the heavy burden of total return falls on interest income, investors are being pulled toward higher-yield, higher-risk bond types. Investors can still benefit from the segmented bond market and the various strategies that are available. Expectations need to be reframed given the current environment of low yields and potential interest rate increases.
"Fixed" Income Investing Is Broken
Herb Brooks, who coached the 1980 Miracle on Ice U.S. Olympic Hockey Team to its unlikely win over the Soviet Union, included that quote as part of what I consider to be the best motivational speech in sports history. He was talking about his team and their Russian opponents. He might as well have been talking about bond investors on June 20, 2013.
Despite Interest Rate Concerns, Muni Volatility May Offer an Entry Point
by Jack Tierney of Invesco Blog,
As we approach the midway point of 2013, the capital markets have many concerns: the potential end of quantitative easing (QE3), the slow rate of economic growth, the stubbornly high unemployment rate and the sorry state of affairs in both federal and state government finances. I wont speculate on the eventual outcome of these issues, especially where politics is concerned. But I do think its valuable to look past the markets fear and search for areas where smart investors can take clear-eyed action and benefit in uncertain conditions.
Austerity is a Four-Letter French Word
The France that I see as I look out from the bullet train today is far different from the France I see when I survey the economic data. Going from Marseilles to Paris, the countryside is magnificent. The farms are laid out as if by a landscape artist this is not the hurly-burly no-nonsense look of the Texas landscape. The mountains and forests that we glide through are glorious. It is a weekend of special music all over France, and last night in Marseilles the stages were alive and the crowds out in force.
Taking Seniority: Looking to Bank Loans in Uncertain Markets
by Elizabeth (Beth) MacLean of PIMCO,
Bank loans are senior secured loans to non-investment-grade corporations. They are floating rate instruments, secured by the collateral of that company and senior in the capital structure. Bank loans can be a more defensive way for investors to move into the high yield space, due to the collateral and their senior position. While we have seen yield spreads tightening among loans, on a relative basis we do think loan valuations still look attractive. PIMCOs investment process helps us seek these attractive opportunities while managing risk.
Help Clients Fill the Income Void
Affluent investors all over the world just arent getting what they want from their income investments, according to Legg Masons recently released Global Income Survey. Yet there is good news: most say they want to become more knowledgeable about income investing, and theyre eager for financial professionals to point out fresh opportunities.
Newsletter June 2013
Do you remember hiding under the sheets listening to radio when your parents thought you were asleep? If so, I have an unbelievable collection of all the old-time radio shows we listened to when we were kids, if you have about six months? spare time. Find your favorite, click on it, and it lists literally hundreds of episodes you can re-live.
Unconstrained Bond Funds Fail to Deliver
by Chris Maxey, Ryan Davis of Fortigent,
There have been an incessant number of articles in the past year addressing a Great Rotation by investors the seismic shift in asset allocation predicted to result from a transition to a rising rate environment. Individual investors spoiled by a 30-year secular decline in interest rates, it is thought, will run to new alternatives in the face of this structural headwind for a significant chunk of their portfolios.
Weekly Market Commentary
by Team of Tuttle Tactical Management,
This past week has been volatile. Fridays jobs number ended up being perfect, not to good, not too bad, causing a big market rally. It has to be noted that the two day rally also came when the market was oversold and was a bounce off of the S&P 500s 50 day moving average.
Getting Better Returns from Dividend Stocks - Look for Growth
While some investors have begun to return to US Equity (funds) there is still a large amount of money on the sidelines. End of year 2012 data shows investors have trillions in money markets and savings accounts. While there is no guarantee all that money will make its way back into the market the matriculation has begun.
What's the Answer to Unprecedented Policies and Ultralow Rates?
So what?s the answer to unprecedented central bank policies that have been driving stocks higher and ultralow rates? I believe investors need to stick to a strategy that includes dividend-paying stocks that offer the opportunity for both income and growth.
Global DC Plans: Similar Destinations, Distinctly Different Paths
DC plans in in the U.S., Australia and the U.K. may benefit from better aligning asset allocation defaults to workers needed outcome: purchasing power in retirement. Focusing on needed outcomes would suggest a higher allocation to real assets, earlier de-risking and consideration of tail risk hedging.
Understanding Gold Market Dynamics
by John Browne of Euro Pacific Capital,
To an extent that reveals a thorough misunderstanding of the market forces, the financial media has failed to consider the different motivations and beliefs that drive the different types of investors who are active in the gold market. By treating the gold market as if it were comprised of just one type of investor, analysts have drawn false conclusions about the recent volatility.
Investors Shun Stocks But Cling To Bonds - Why?
he Halberts are out of town celebrating our sons graduation from college on the sunny beaches of southern Florida. In place of my usual writing, I have chosen to reprint an excellent article from The Wall Street Journals Jason Zweig on investor behavior. The WSJ writer keys in on a new investor survey from Blackwater, Inc., one of the largest money management firms in the world (almost $4 trillion in customer assets). Blackwater surveyed investors that have at least $50,000 in investable assets. The findings are almost sure to surprise you.
Forward-Looking Broad-Market Investing
by Team of AdvisorShares,
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.
Cyprus and the Eurozone...Still Stuck in the Middle
The debt crisis in the Eurozone turned another chapter as Cyprus finally reached the point of requiring a bailout from the European Union. The wisdom of Gerry Raffertys hit song Stuck in the Middle with You which was written in 1973, rings true today as we watch the EU and the European Central Bank navigate the mess in Europe. With each attempt at containment, there appears some plot twist, the proposed Cyprus bank bailout is no exception. While the bailout of Cyprus and its banks is not large in size, only 10 billion, relative to the Cyprus economy, it is significant.
A Cry for Help from Income Investors
Confronted with the stark realities of income investing now, affluent investors all over the world are rethinking their approach, notes Legg Mason’s just-released Global Income Survey. Yet the Survey also found income investors hungry for more knowledge and ideas -- creating opportunities for savvy financial advisors.
Everybody Wants Some: Central Banks and Bond Funds Step up Buying of Stocks
by Liz Ann Sonders of Charles Schwab,
The stock market has broken out of its "triple top" formation, which started in 2000, yet remains reasonably valued. Supply within the stock market has been dwindling thanks to near-record company buybacks. Demand for stocks is coming from some seemingly unlikely sources: global central banks and bond mutual funds.
The Great Capitulation
by Pamela Rosenau of HighTower Advisors,
If you were to browse the virtual bookshelves of Amazon, some of the latest titles do not seem overly optimistic about the future. In Niall Fergusons The Great Degeneration, he examines why civil society is in complete free fall. Another recent pick me up entitled The Great Deformation, by former Reagan budget director David Stockman, discusses the negative impacts of Washingtons political dysfunction to our democracy.
Changing Face of High Yield
High yield has been on a tear. A series of fortunate events have made this one of the best asset classes in recent years. It has outperformed the S&P[1] nine out of the last thirteen years. In those that it lagged, underperformance averaged 1.9%. Outperformance averaged 9.7%. From 1985 to 2012, high yield had five down years averaging (-8.8%). The S&P had five down years averaging (-16.6%). Over the entire period, high yield underperformed the S&P by around 180bp but with about half the risk and a 0.58 correlation.
2013 US Financial Markets: Part 2 - The TINA Hypothesis
Contrary to the Bernanke Illusion (money market funds are a zero return investment), history indicates that money market funds are likely to provide investors with returns approximating inflation over the next decade. As I pointed out in our last letter, the markets are pricing in inflation levels significantly higher than the prospective total returns of 10 year TBonds. The small additional return achieved by corporate bonds or US stocks (at current prices) is unlikely to compensate a buy and hold investor with sufficient gains to justify the interim risks.
6.7 Million Missing Workers Where Did They Go?
Today we will touch several bases. We begin with last Fridays unemployment report which was hailed by the mainstream media, but had a lot of bad news to go with the good. From there we look at the estimated 6.7 million missing workers in this economy and ponder if theyre permanently gone from the employment rolls.
How to Construct a Low-Cost Conservative Portfolio
by Geoff Considine,
One of the greatest challenges for investors today is constructing low-risk portfolios that provide the best returns using low-cost funds or ETFs. Doing so requires advisors to define risk as the potential for retirees to fail to achieve their financial goals, instead of as volatility, as it is traditionally measured. I will show how to construct a low-cost portfolio that minimizes this definition of risk while generating a reasonable real return.
Mutual Fund Companies Need to Prepare for a Changing Environment Fund Industry Turbulence Ahead
by Paul Franchi,
The mutual fund industry grew explosively from the 1980s on a rare tonic of a low-inflation credit expansion powered indirectly by international trade flows. That run reached a peak in 2008 when the application of quantitative easing (QE) served to prevent industry collapse with a softer form of transition, which continues today but must end when inflation returns.
The Best Solution for Protecting Retirement Portfolios: Put and Call Options versus GLWBs
by Joe Tomlinson,
Retirees cannot be exposed to severe ? or even modest ? market losses. They need to protect their savings in a cost-effective manner. I will compare the projected outcomes for two types of strategies: options, which can reduce volatility, and products that guarantee lifetime income, such as variable annuities with guaranteed lifetime withdrawal benefits.
Implementing Behavioral Portfolio Management
Behavioral portfolio management is based on the notion that if the advisor can redirect his or her emotions and mitigate the impact of client emotions, it is possible to build superior portfolios by harnessing market emotions. This article describes how this can be done and presents evidence of the superiority of focusing on investor behavior when constructing and managing portfolios.
The Most Underappreciated Threat to the Advisory Business
by Bob Veres,
Financial advisors have often heard the warning that their investment management services are going to become commoditized ? so often, in fact, that you can forgive them for ceasing to pay attention. But if you dont believe that an online algorithm can replace the sophisticated advice offered by a flesh-and-blood advisor, then check out the Wealthfront USA website.
Value Investing and the Philosopher's Stone
When J.K. Rowling finished her first manuscript of Harry Potter and the Philosophers Stone in 1995, she submitted it to 12 publishers, who all rejected the book. In time, those publishers would regret missing the chance to back an unknown author who would later take the world by storm. Like the publishers who passed over Harry Potter, we believe that many investors today risk missing a historic opportunity to invest against the grain in attractively valued stocks across the globe.
Surf's Up!
by Jeffrey Saut of Raymond James,
Last month I was reminded of Surfs Up! while rereading said report from my departed friend Stan Salvigsen of Comstock Partners fame. While that is the organization Stan, Michael Aronstein, and Charles Minter formed in the late 1980s, Stans investment career actually began in 1964 as an analyst with the Value Line Investment Survey. Subsequently, he was an equity strategist at a succession of firms, including Dreyfus, Oppenheimer, C. J. Lawrence, and Merrill Lynch.
The 5% Problem: Double Jeopardy for Traditional Bond Investors
by Nathan Rowader of Forward Management,
Investors have suffered with low yields, but profited from rising bond values during the 30-year bull market for bonds. We believe the bond market is moving into a bearish phase, putting the value of existing bond holdings at risk. A variety of income-producing options are available for those who want to diversify bond portfolios and seek better yields. Historical analysis shows that a diversified portfolio would have outperformed traditional bonds during the last bear bond market and in periods of rising interest rates.
Investment Risk is the Chance of Underperformance
The measures currently used within the investment industry to capture investment risk are really mostly measures of emotion. In order to deal with what is really important, lets redefine investment risk as the chance of underperformance. As Warren Buffett has said, focus on the final outcome and not on the path travelled to get there.
The Lure of Hedge Funds
by John West of Research Affiliates,
Investors often buy what they think is exciting, sophisticated, and complex with the embedded assumption that all of these attributes will lead to greater returns. We see this today where we witness the continued explosive growth of hedge funds. But, a careful examination of the data reveals that these fancy lures fail to hook as much in excess, after-fee returns as more time tested strategies.
Results 3,001–3,050
of 3,303 found.
