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Must Bond Investors Fear Rising Interest Rates?
by Andy Martin,
Thirty-one years ago, in 1981, the one-year Treasury reached its all time high of 14%. Today it hovers around 0.10%. Never before have interest rates fallen so far. Many economists and investment advisors, seeing nowhere to go but up, expect interest rates to climb from these historic lows. But that would not be the catastrophe that many bond investors fear.
Retail Trades of Municipal Bonds
ecember was a quiet month in the muni markets with no bankruptcies or defaults. Retail demand for individual municipal bonds was relatively strong in December, particularly considering it was the holiday season. Mutual funds had a very strong December, receiving $4.4B in net inflows (according to Investment Company Institute), which was easily the high-water mark for 2011. Median municipal yields fell consistently during December (and prices rose), largely due to the increased demand in the mutual fund market.
Corporate Market Transparency Report: December 2011
December was a relatively calm month on Wall Street, particularly compared to the extreme volatility of 2011. Concerns about Europe surfaced briefly, but by the end of the month all three major U.S. stock indices had recovered their losses. Corporate yields and spreads were essentially flat last month while transaction volumes were down slightly due to the holiday season. Demand for taxable (i.e., corporate) bond funds was moderate during December. According to the Investment Company Institute, mutual funds received $9.3B in net inflows vs. $15.5B during November.
Dennis Gartman Explains His Call on Gold
by Robert Huebscher,
Dennis Gartman has been publishing his daily commentary, The Gartman Letter, since 1987. He's been in the news lately because of a call he made last week on the price of gold. In this interview, he discusses the reasons behind that forecast.
The Credit Research Case for Using Muni Funds
by Team of American Century Investments,
We believe muni market credit quality remains generally high despite continuing changes and challenges, including the demise of the bond insurance industry (which has created a more heterogeneous muni market) and the slow economic recovery, which has put continued pressures on municipal budgets. However, we believe these challenges have made experienced, professional credit analysis more important than ever. One way for investors and advisors to access expert, experienced credit analysis is through the use of established muni mutual funds that have been through multiple market cycles.
Municipal Market Transparency Report: November 2011
by Chris Shayne of BondDesk Group,
Once again, the big muni news last month was another high-profile bankruptcy. Jefferson County, Alabama filed for Chapter 9 protection on November 9. Although this was the second consecutive month with a large municipal bankruptcy announcement, the retail markets were unfazed. In fact, November demand increased substantially over October levels, even with the light trading during Thanksgiving week. And municipal mutual funds also had a strong month, pulling in $2.9B in net inflows.
The Unspoken Truth about Hedge Funds
by Michael Edesess,
The popularity of the endowment model among advisors has been driven by the belief that hedge funds have produced positive risk-adjusted returns. But the basis for that notion has been statistics gleaned from hedge fund databases, and new research shows returns from those databases are even more upwardly biased than previously thought; the supposed alpha never really existed.
A Strategy with a 25-year Record of 25% Returns
by Robert Huebscher,
Indiana-based SBAuer Funds launched its inaugural mutual fund in December of 2007, after having established a successful track record with a separately managed account business. I spoke with Bob Auer, who has employed the same stock selection system used by the fund for the last 25 years, over which time returns have averaged 25% annually.
Municipal Market Transparency Report: October 2011
by Team of BondDesk Group,
The big muni news last month was that Harrisburg, the capital of Pennsylvania, filed for Chapter 9 bankruptcy protection. But the incident didnt have much impact on the retail markets. In fact, trading activity in October recovered from the ultra low levels of August and September, though it was still a relatively quiet month. Mutual funds had a solid October, receiving $1.8B in net inflows according to the Investment Company Institute.
Regulatory Armageddon
by Bob Veres,
Suppose you were somehow able to convince 40 advisors, who are all well-known thought leaders in the profession, to gather in the same room for a six-hour brainstorming session. The goal: to identify the single most important thing that the financial planning profession should be thinking about now. What do you think they'd come up with? Fasten your seat belts, because this may be the most important report you'll read all year.
A Response to Improving on Morningstar Style Boxes
A reader responds to Stephen Dodson's article, Improving on Morningstar Style Boxes, which appeared last week. Taking on the scourge of the active equity mutual fund industry, the style grid, is a laudable goal. I would like to build upon the arguments presented in that article.
Do Low Correlations Favor Active Managers?
There has been much debate regarding the challenges for active managers in market environments with persistently high correlations. Some argue that high correlations hinder active managers seeking to generate alpha through security selection. Indeed, in a recent study, we found that active managers were more likely to succeed in low-correlation environments.
Counterparty Risk in Large Total-Return Funds
by Robert Huebscher,
We can add another to the list of concerns facing advisors: counterparty risk ? a potential loss from the failure of a bank or broker-dealer. Underscoring this threat, DoubleLine's founder and chief investment officer, Jeffrey Gundlach, recently warned advisors to avoid all funds with counterparty risk. Heeding his warning, however, is not easy; it is virtually impossible to gauge the extent of counterparty risk in most funds.
Point & Counterpoint: Value vs. Growth
The debate over which investment philosophy is best will continue with winners promoting their own style and losers rationalizing their losses. Value vs. Growth. In 1996 the now defunct Mutual Funds Magazine invited me to contribute my thoughts in this ongoing debate in a featured article titled Speaking Out. The case for growth would be argued by John D. Gillespie. Since the debate between Value and Growth has continued to this day I am providing you, word for word, our Point and Counterpoint.
An Uncritical Glorification of Hedge Funds
by Michael Edesess,
Sebastian Mallaby's book, More Money than God, sheds some light on interesting events in hedge fund history and is strewn with a few valuable insights. Mostly, though, it is a work of serial hagiography. It seems designed to attract worshipers like those who drive by celebrity homes in Beverly Hills.
The Risks of Exchange-Traded Products
by Dennis Gibb,
Every major financial crisis has been foretold by timely but ultimately ignored warnings. At the end of mania, the rush to secure more fees, investment performance and status trumps common sense. In the last few months, the drumbeats of warnings from financial journals and regulators about exchange-traded funds have been sounding. Few seem to be listening.
An Increased Cost to Mutual Fund Investors that is Worth Every Penny!
Today mutual funds, including ETFs, control over $13 Trillion for more than 40% of all U.S. households who own their shares. With that much money and so many investors I find it amazing that today, as it was when I first entered this business over thirty years ago, almost no mutual fund investor can tell me how much they are paying in commissions and fees, nor can they name any of the investments their fund has invested in on their behalf, let alone if the fund uses derivatives.
The Handicap of Experienced Investors
In the investment business, assets under management are concentrated with the largest and most established firms. Understandably, investors tend to allocate capital to managers after they've established a good track record. Unfortunately, for many, the analysis stops there. By failing to separate good results from identification of what makes a great investment manager, investors are primed for disappointment.
Five Strategies for a Sideways Market
If this slow growth environment coupled with asset price volatility continues for (to steal a quote from Fed Chairman Bernanke) 'an extended period,' what additional portfolio strategies might aid the overall risk/return profile of investor portfolios? More specifically, how do you manage investments in a sideways market?
Why Investors are 'Mad as Hell' ? And what you can do about it
by Dan Richards,
Last Friday, Jason Zweig of the Wall Street Journal wrote about fear and anger as the two dominant attitudes of American investors today ? fear about their future and anger at those they see as responsible for the latest crisis. Today's investor psyche has fundamental implications that will require changes in how you interact with clients. Before getting into how to respond, let?s look at what's driving today's mindset.
Driving Buffalo over a cliff
Who wins from the volatility of last week? High frequency trading firms that can effectively manipulate the markets by placing thousands of one sided trades on individual stocks, or even more effectively on thinly traded ETFs, to force the market one way or the other. There are no uptick rules and no margin requirements preventing these firms from setting up an initial position, manipulating the market in the right direction, and closing out the trades with a profit a few minutes later. Who loses?Pension plans, endowments, mutual funds, individual investors and corporations.
New Insights on the Role of Alternative Investments in High-Net-Worth Portfolios
Trends and developments over the past five years allow greater access to alternative strategies and dictate a different conversation with investors about the purpose and trade-offs of such strategies, as well as appropriate ways to incorporate them into well-diversified portfolios.
Survey Results: Advisor Use of 529 Plans
by Paul Curley, CFA,
With investor sales volume returning to the 529 industry, financial advisors have an opportunity to grow their business. However, they are missing out: Asset growth within the advisor-sold channel has not kept pace with the growth experienced by the direct-sold channel.
Comfort is Rarely Rewarded; Maverick Risk and False Benchmarks
Conventional investment strategies, while affording the investor at least a temporary degree of comfort, are destined to produce mediocre results. Only by distancing themselves from the ordinary approach ? as Jeremy Grantham and Seth Klarman have ? can asset managers achieve superior performance and truly fulfill their fiduciary duties by acting as proper stewards of their clients? capital.
Income Opportunities in Municipal Bonds and Stocks
by Robert Huebscher,
In this interview, Brian McMahon and Chris Ryon of Thornburg Investment Management assess the opportunities for income-oriented investors, particularly in the municipal bond market. They answer questions such as when a separate account is better than a fund, and why a barbell is inferior to a laddered portfolio.
Investing with a View of Significant Inflation
by Bob Kargenian,
Almost all the analysis we read has concluded that, with the Fed seemingly printing money out of nowhere, the inevitable consequence must be significantly higher inflation. We're not convinced, but we have identified which strategies are likely to best protect clients if inflation accelerates.
Reducing Risk through Value-Oriented Tactical Strategies
Conventional wisdom was that the best way to reduce portfolio risk is to adopt a diversified long-term strategic asset allocation. That paradigm was challenged - deservedly so - following the 2008 financial crisis. Fortunately, an improved paradigm has emerged: Investors should combine long-term strategic allocations with a value-oriented tactical rebalancing strategy.
Investing Based on Jeremy Grantham's Forecast for Diminishing Resources
by Robert Huebscher,
In his most recent commentary, Jeremy Grantham became one of the first mainstream investment professionals to publicly forecast a world economy threatened by diminishing natural resources. A survey of our readers showed that an overwhelming majority agree with Grantham's views. But constructing a portfolio positioned to capitalize on those themes is exceedingly difficult.
Bruce Berkowitz - Ignoring the Crowd on Financials
by Sam Parl,
Bruce Berkowitz has said that his deep value and contrarian investing style will not guarantee short-term results, but he promises his shareholders will be rewarded for their patience over the long term. Last week, he explained why some of his positions - especially those in the financial services sector - are among the best opportunities in the market.
What is conservative about Absolute Return, Market Neutral or Long/Short Mutual Funds?
The machine of Wall Street has convinced many individuals who believe they are prudent, conservative, investors that a mutual fund whose name or objective includes the terms Absolute Return, Market Neutral, Long/Short or hedged, will never lose your money. An individual whose fear of losing again from common stocks just can?t bear sitting on cash and earning a nickel of interest every three months 1k. The desire to increase returns is just too great. Before you fall for the hype there are a few things you should know. The most important item you should remember is that there is no guarantee.
The Smooth Illusion
by Michael Lewitt,
In retrospect, the Federal Reserve's interminable zero-interest policy and its quantitative easing programs are likely to be seen not only as ineffective but damaging to the prospects for sustainable long-term economic growth. A number of asset classes are beginning to exhibit bubble-like behavior, something that would be far less likely to occur were interest rates normalized.
Ten Trends that will Reshape the Fund Industry
by Robert Huebscher,
For advisors scouring among thousands of mutual funds, bargains and inefficiencies will be harder to find in coming years. Intense competition among funds for shelf space will not translate to lower fees, and the new class of broad asset allocation funds is unlikely to live up to its marketing promises. Those were among the surprising forecasts from Geoff Bobroff, with whom I met last week.
Dumb, Dumber and Dumbest
The two stupidest characters ever to grace the big screen - Lloyd Christmas and Harry Dunne - were first introduced to the world in Jim Carrey's 1994 movie, Dumb and Dumber. If that movie were made today, its leading characters could easily be our government and the supposedly independent Federal Reserve Bank. Both of these institutions have foisted their misguided policies on the American public, who, in their passive acceptance, have proven themselves to be the dumbest of all.
Weekly Market Update
by Team of American Century Investments,
?Dodd-Frank? is shorthand for the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The main focus of the legislation is on increasing regulation/supervision of banks and other major players in derivatives, lending, and securitization businesses. Few of the law?s provisions are aimed directly at the registered fund industry, likely reflecting the industry?s distance from the 2008 financial crisis and general effectiveness of the framework already in place. Nevertheless, a number of provisions could affect mutual funds and their investment advisers in meaningful ways.
Letters to the Editor: GMWBs and the Permanent Portfolio
by Various,
A reader responds to our article, Understanding Variable Annuities with GMWBs, which appeared on March 1 and another reader responds to Geoff Considine's article, What Investors Should Fear in the Permanent Portfolio, which appeared on March 22.
What Investors Should Fear in the Permanent Portfolio
Over the last decade, the assets of the fund PRPFX have swelled from $50 million to more than $10 billion. The concept underlying that fund, Harry Browne's Permanent Portfolio (PP), has rewarded PRPFX investors with attractive risk-adjusted returns. Those investors, however, may want to rethink their exposure - especially if PRPFX is the core of a retirement-oriented strategy.
Mason Hawkins and Staley Cates on Today?s Opportunities for Value Investors
by Robert Huebscher,
Southeastern Asset Management's Mason Hawkins and Staley Cates, two of today's most respected value investors, discuss their portfolio and the principles behind their Graham and Dodd methodology. They explain why they like certain commodity-based companies and why they disagree with Bruce Berkowitz on the opportunities in the financial sector.
The Secular Case for Convertible Securities
by David King of Columbia Management,
The most common question from potential investors in convertible mutual funds goes something like this: ?Is now a good time to get into convertibles?? The question is sincere and seems very relevant. The usual answer is: ?It?s a pretty good time.? In the end, the usual result of this usual exchange is that most investors think about convertibles for a moment, and take no action. Behind any timing question about convertibles is the assumption that equities and traditional fixed income instruments are the core of a good portfolio and everything else is alternative.
Bruce Berkowitz on the Exceptional Value in the Financial Sector
by Robert Huebscher,
Fairholme's Bruce Berkowtiz, US stock-fund manager of the decade, discusses his large position in the financial sector and why he believes the big bets he is making do not amount to Russian roulette. He also comments on his recent nomination of former Florida Governor Charlie Crist to the board of St. Joes.
Undoing Meredith Whitney's Damage
Meredith Whitney did the municipal bond market an immense disservice with her misguided comments on 60 Minutes when she predicted massive defaults. Two recent articles in this publication provided accurate rebuttals to her analysis, but they failed to clarify important reasons why muni bond investors do not face the imminent peril that Whitney predicted.
Results 3,201–3,250
of 3,332 found.
