More on Related Themes
2013-05-21 Measuring the Cost of Socially Responsible Investing by Adam Jared Apt (Article)
Quite apart from its motivations, the consequences of socially responsible investing have intrigued analysts. The actual results, as distinct from the desired results, cannot be taken for granted. Mark Kritzman has written about the subject, but his research was little noticed until recently, when SRI achieved renewed prominence in the form of popular demands that institutional portfolios divest themselves of investments in fossil-fuel companies. Kritzman’s point, and the conclusion of his analysis, is that SRI, properly understood, incurs a cost to the portfolio.
2013-04-30 Implementing Behavioral Portfolio Management by C. Thomas Howard, PhD (Article)
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.
2013-04-10 Making It Possible for Investors to Be Secure in Their Later Years by Michael Golub of The Golub Group
Stock investing should be viewed as old-age insurance. Stocks are serious business because, for most of us, how we handle them will determine how we will be able to live in our later years. The challenge of living comfortably for the rest of our lives has become more of a challenge as the Prudential Life Insurance Company has recently pointed out that the first human to live to 150 years old is alive today. The Wall Street Journal reported in its March 19, 2013 issue, that many workers are saving too little to retire.
2013-03-26 Adapting the Yale Model for Clients by C. Thomas Howard, PhD and Lambert Bunker (Article)
The Yale University endowment fund is one of the most successful in the country, with a 10-year return besting the endowment universe average return by 300 basis points and the Wilshire 5000 return by 400 basis points. David Swensen is the architect of this program, and his guiding principles are widely used to manage large endowments. They are equally useful for client portfolios.
2013-03-13 What's Your Advantage? by Bill Smead of Smead Capital Management
In the March 9, 2013 issue of Barron’s, writer Jonathon Laing wrote an excellent piece about Howard Marks. This article provides the base from which we can discuss the main components of investment portfolio composition. These components are information, analysis of information, and decisions made from information and analysis. In doing so, we will bring to light why we believe today’s best opportunity is in long-duration common stock investing.
2013-03-01 Wait for Your Pitch in Today's Market by John West of Research Affiliates
Great hitting in baseball depends in part on waiting for the right pitch. In today's market, most asset classescoming off their impressive 2012 recordare "high and outside" the valuations necessary for future big league returns. Patience is the name of the game today.
2013-02-15 In Defense of Commodity Futures by Seth Masters, Jon Ruff of AllianceBernstein
Several prominent pension funds have slashed their commodity futures investments for delivering poor returns with higher volatility than usual, while failing to diversify equity exposures as expected, The Wall Street Journal recently reported. If inflation rises, they may regret it.
2012-12-26 The Ten Key Benefits of Investment Committees by Bob Veres (Article)
In this first part of a two-part report, I'll identify ten core purposes that investment committees serve in different types of firms, ranking them in order of the number of responses I received. If your investment committee is serving all ten purposes, based on the survey, you're among a select minority - which means that many advisors may find new ways to use this versatile new tool in their RIA practices.
2012-12-04 Economics 101: Little Return without Risk by Bill Smead of Smead Capital Management
A tremendous amount of energy and effort has been expended in the US on behalf of wealthy investors to secure returns while reducing risk. Like any useful endeavor, it started out as a wise thing and reached its stride in the late 1990s as a way to deal with a massive asset misallocation. As Warren Buffett always says, What the wise man does at the beginning, the fool does at the end. It appears to us that the efforts to eliminate risk in the US capital markets have reached the foolish point.
2012-11-29 Are E&Fs Jeopardizing Their Missions? by Seth Masters of AllianceBernstein
Many US endowments and foundations (E&Fs) still plan to spend 5% of their assets each year, despite unusually low expected returns. We think few understand how likely it is that this will limit their ability to fulfill their missions in perpetuity.
2012-11-27 A Critique of Grantham and Gordon: The Prospects for Long-term Growth by Laurence B. Siegel (Article)
The vigorous global economic growth of the last two centuries is over, according to Jeremy Grantham and Robert Gordon. That prediction, if correct, has profound and worrisome implications for investors. And the short-term trend is indeed disquieting: Growth has been close to zero over the last decade in advanced countries. But the most likely outcome is that per capita GDP growth going forward will approximate its U.S. historical average of 1.8%, and it will grow faster in developing markets.
2012-10-02 The Risk in Safety by Greg Nejmeh of HS Management Partners
The "risk on/risk off" sound bite is routinely applied by financial commentators when attempting to explain inexplicable market fluctuations. As the pendulum oscillates between greed (risk on) and fear (risk off), the fulcrum the pivot point where the scale rests in perfect balance can best be characterized as safety. It is from that state of equilibrium that the market begins each trading day...
2012-08-07 Robert Shiller on the Social Benefits of Finance by Laurence B. Siegel (Article)
It's a bad sign for the finance industry that one of its leading minds - the distinguished Yale economist Robert Shiller - has felt compelled to write a book in order to defend the idea that finance itself is a constructive pursuit, worthwhile to modern society. Have things really gotten that bad?
2012-05-31 Institutionalizing Courage by Robert Arnott of Research Affiliates
Most investors measure wealth in terms of the value of their portfolio. We believe it is better to measure wealth in terms of the portfolios ability to support sustainable spending. This months Fundamentals explores why this approach requires courage.
2012-04-24 The Number One Priority for Advisors by Dan Richards (Article)
What's the single most critical need for advisors to succeed? There are lots of candidates – investment knowledge, communication skills, the ability to sell, and attracting and motivating a strong team.
2012-03-15 Investment Management with a Conscience by Douglas Hodge of PIMCO
Earlier this year the Financial Times ran a series of editorials under the title Capitalism in Crisis. Contributors ranged from Bill Clinton and Alan Greenspan to FT editors Martin Wolf and John Kay. There was also a submission with the byline, Occupy London. While I am admittedly unable to add much to their collective wisdom, I think a sound analysis of capitalism requires an understanding of the role of the investment management industry within the financial services ecosystem."
2012-02-17 Assessing Performance Records A Case Study by Howard Marks of Oaktree Capital
What are the non-negotiable requirements for accurately assessing investment performance? Id say: a record spanning a significant number of years, a period that includes both good years, and a benchmark or peer universe that makes for a relevant comparison. The other day, at an event for alumni and other constituents of the University of Pennsylvania, president Amy Gutmann reviewed the performance of the university during the financial crisis. Thinking about it afterward, I realized that I should share with you the story of Penns endowment and its lessons.
2012-02-16 Weekly Market Update: Introduction to Alternative Investments by Team of American Century Investments
Alternative investments (or alts as they are commonly known) have exploded in popularity in recent years. What began as specialty investment strategies utilized by only the most sophisticated institutional investorssuch as pension plans and university endowmentsare now readily available to retail investors through a number of mutual funds and exchange-traded funds. Here we try to explain alts appeal in broad terms, discussing how these strategies are used and what role alts may play in an individual investors portfolio.
2012-02-14 Boosting the Liquidity of the Market Engine: Horsepower vs. Torque by Robert A. Jaeger, Ph.D. (Article)
Everything you need to know about market liquidity you can learn from the engine of your car. Liquidity is often viewed as market lubrication, but lubrication isn't everything, and, even more importantly, horsepower is different from torque. This fact leads us to appreciate the importance of contrarian investing and enables us to think more clearly about the impact of potential regulatory changes, such as the Volcker Rule and the Tobin Tax.
2012-02-09 Private Equity: Fact, Fiction and What Lies in Between by Team of Knowledge @ Wharton
What good is private equity, anyway? Critics say these investment pools make money the wrong way -- buying "target companies," slashing jobs, piling on debt and selling the remnants, which by then are doomed to fail. Defenders say PE is a strong creator of jobs and value, and a vital source of outsized returns for pension funds, university endowments and other investment pools that serve ordinary people. Who's right?
2012-01-12 Nero (Iran) Fiddles While Rome (China) Burns by Bill Smead of Smead Capital Management
What is required for a whopper of a secular bear market is for most market participants to believe the positive side of the story all the way down. We believe that all the pieces are in place for commodities to suffer a multi-year bear market which will wipe out up to 70% of peak prices on most major commodities. We want to make sure everyone sees the potential for a massive reversion to the mean. In our opinion, the recession coming in Chinas economy will break the back of oil prices for decades. Lower oil prices could strip the economic relevance of Iran, Saudi Arabia, Syria and Yemen.
2011-11-17 Its All Very Taxing by Howard Marks of Oaktree Capital
But what is the fair share? How is it to be determined, and by whom? When Senator Reid says, its time for millionaires and billionaires to pay their fair share, he implies they havent been doing so thus far. How does he know? Whats the standard? If theres an objective standard for ones fair share, why does it only seem to be those from the left side of the political spectrum who say its not being paid? And if there isnt an objective standard, how can the fair share be determined? The truth is, fairness is almost entirely in the eye of the beholder.
2011-10-27 Is It Time for a Trading Tax? by Team of Knowledge @ Wharton
To its advocates, the idea is a no-brainer: Charge a tiny tax on each stock, bond or derivative trade to raise badly needed revenue, discourage dangerous short-term speculation and make Wall Street help clean up its own mess. But critics of the financial transaction tax concept say that it would actually make the financial markets less efficient, hurting ordinary investors by raising costs. Wharton faculty and investment experts weigh in.
2011-10-25 On Market Timing and Whiskey by J.J. Abodeely (Article)
Noah S. 'Soggy' Sweat, Jr. a Mississippi legislator, gave a famous speech addressing the controversial subject of prohibition. The consummate politician, Soggy tried to appeal to advocates on both sides of the issue, illustrating a lesson that advisors today will surely appreciate: In order to get at the substance of a contentious issue, sometimes you have reframe the question.
2011-10-17 Connecting the Dots by Pamela Rosenau of HighTower Advisors
The efficient frontier provides the optimal expected return for a portfolio for a given level of risk, or the lowest level of risk needed to achieve the optimal expected return. Over the years, investors have come to perceive that certain asset classes with higher risk premiums are more risky than others. We believe what many view as traditional asset allocation may be vulnerable going forward. In short, it is dynamic, not static. In todays negative real interest rate environment, investors will be well served by investing in certain asset classes perceived to be more risky.
2011-10-03 Recession, Restructuring, and the Ring Fence by John P. Hussman of Hussman Funds
We are headed toward a recession because our policy makers never addressed the underlying problem in the first place, which was, and remains, the need for debt restructuring. This is an issue that I suspect will re-emerge to the forefront of public debate in the next year. Hopefully, the response of our policymakers will be at different. In Europe the only real option is to allow peripheral defaults; to allow distressed and insolvent countries to exit the euro; and then for those countries to redenominate their own national currencies and peg them to the euro at a gradually depreciated level.
2011-08-15 Driving Buffalo over a cliff by David Edwards of Heron Financial Group
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.
2011-07-27 From Asset Allocation Nirvana to Asset Allocation Nightmare by Bill Smead of Smead Capital Management
We believe the next 10 years will be about money moving back into non-cyclical US large cap stocks and domestic companies which enjoy lower commodity prices and the repatriation of money from highly risky asset classes with poor odds. Being widely asset allocated today prepares folks for an under-performance nightmare In our opinion, bonds are expensive, commodities are outlandish, small caps trade at a huge premium and as Chinas economic contraction occurs, the crowd will flee emerging markets.
2011-06-28 Reducing Risk through Value-Oriented Tactical Strategies by Mark E. Ricardo, JD, LLM, AAMS (Article)
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.
2011-06-07 Low Volatility Equity Solutions – Is Now The Time? by K.Sean Clark of Clark Capital Management Group
Correlations converging amid the market declines of 2008 called attention to the limits of relying on diversification between assets for portfolio protection. The desire for non-correlated returns among assets had led to a significant reduction in U.S. equity exposures and accelerated flows into non-U.S. equities and alternative strategies. But the correlations of these uncorrelated assets spiked under the extreme market stress of 2007 and 2008. This shows that for downside protection, buying assets with many different risk profiles is not a substitute for buying volatility to manage risk.
2011-05-26 In Good Company – Institutional ETF Usage Trends by Kevin Feldman of BlackRock Investment Management
More institutional investors are making ETFs part of their portfolio strategy, and that’s good news for retail investors. With many innovations, institutional investors are often the first in. Later the retail investors follow. ETFs, however, have shown a slightly different pattern. After 1993, when the first ETF was introduced in this country, ETFs were primarily of interest to institutional investors. At first, their main use was as a place to hold cash before investing in a new asset class, but institutions soon began using them for other purposes, such as tactical allocations and hedges.
2011-05-13 The Institutional Gold Rush by Peter Schiff of Euro Pacific Capital
I've worked on Wall Street my entire life, and one thing I've learned is that large institutional investors, like pension funds and endowments, rarely veer from the herd. They manage too much of other people's money to stick their necks out alone-if their investments go bad, at least they can point to everyone else who fared just as poorly. For this reason, these funds are often lagging in their perception of crucial market changes. While many of us are buying precious metals to hedge against the collapse of the dollar, gold and silver have been taboo investments on Wall Street for years.
2011-05-13 Bernanke Double Talk Creates Opportunity by John Browne of Euro Pacific Capital
Fed Chairman Bernanke’s remarks at his historic first press conference were met by a tidal wave of skepticism. Although many of the mainstream outlets characterized his performance as “serious” and “masterful," most rank-and-file Americans were left with a very different impression. Any casual glance at the broad internet coverage of the event shows that the public is deeply skeptical of Mr. Bernanke and the actions he is taking. If that skepticism runs more than skin-deep, it could herald a fundamental change in American politics and a restoration of sound finance in America.
2011-05-09 The Menu by John P. Hussman of Hussman Funds
One of the ways investors can think about prospective return and risk is from the standpoint of the Capital Market Line, which lays out a menu of investment possibilities at various levels of return and risk. In theory, investors like to believe that this menu is always a nice, positively sloped line, where greater risk is associated with greater prospective return. And somehow, regardless of where market valuations are, investors often seem to believe that 10% is 'about right' for the prospective return on stocks. As it happens, valuations exert an enormous effect on the prospective returns
2011-03-29 The Biggest Urban Legend in Finance by Rob Arnott of Research Affiliates
Stocks ought to produce higher returns than bonds in order for the capital markets to “work.” Otherwise, stockholders would not be paid for the additional risk they take for being lower down the capital structure. It comes as no surprise, therefore, that stockholders have enjoyed outsized returns for their efforts for most - but not all - long time periods.
2011-03-21 Japan, by Brian S. Wesbury and Robert Stein of First Trust Advisors
While the news coverage of problems at Japan’s nuclear power plants was sensationalized and misleading, the death toll from the Japanese earthquake and tsunami is horrendous. Moreover, the economic damage to the affected areas is substantial and will require a large re-direction of resources. Japan’s economy will not gain from this shift in resources because the cost of repair only replaces what was lost. That said, after the initial economic blow is fully absorbed, Japan’s economy may accelerate for a time because people change their labor-leisure trade-off.
2011-02-23 2011 Outlook: Private Equity by NB Alternatives private equity team of Neuberger Berman
As a result of the financial crisis, for the latter part of 2008 and all of 2009, very few new private equity transactions were completed and portfolio company monetization was minimal. However, the operating performance of existing private-equity portfolio companies was better than generally expected and investment returns were superior to public equity benchmarks. Although some of this outperformance can be attributed to the resistance of some private equity firms, we believe the majority of the outperformance was the result of effective cost cutting, cash conservation and debt reduction.
2011-02-22 John Campbell on the Proposed Squam Lake Reforms by Dan Richards (Article)
In this interview, John Campbell, chairman of the economics department at Harvard, discusses his research into the underlying drivers of securities prices, and the key recommendations for reforming the financial system, based on his participation in the Squam Lake Group. This is a transcript of the interview.
2011-02-08 The Downside to Venture Investing (like Facebook?) by Dan Richards (Article)
In this interview, Harvard Business School professor Josh Lerner discusses the dangers of venture capital investing and the basis behind Facebook's valuation. This is a transcript of the interview.
2011-01-25 Demand Transparency in an Opaque Mutual Fund World by Andy Rachleff (Article)
Too many investors will end up in actively managed funds that fail in their mission to outperform a passive benchmark. And investors won't know until it's too late because they lack the information to evaluate which funds might consistently outperform the market.
2010-12-28 The Ten Best Articles You Probably Missed by Robert Huebscher (Article)
Great articles don't always get the readership they deserve. Here are 10 articles that you might have missed, but we believe merit reading.
2010-08-23 Markets Are Pricing in the 'New Normal' by Charles Gave of GaveKal
Either the upcoming U.S. elections, in a repeat of 1994, will bring about a Congress able to reduce the pace of government spending, thus triggering a massive sell-off in government bonds and a significant rally in equity markets, or the expansion of the U.S. government will continue, in which case investors in U.S. government bond markets will likely thrive in a repeat of what happened in Japan over the past two decades. You can guess which outcome the biggest fixed income investment houses are rooting for.
2010-08-10 Public Pension Showdown: Actuaries vs. Economists by Charlie Curnow (Article)
Public pensions are severely underfunded, at least according to the economists. Actuaries disagree, and at stake is nearly $2 trillion. We look at why these groups arrive at such different valuations, and which one is likely to be correct.
2010-08-02 The Bubble In Bonds vs. Cheap Stocks by Charles Lieberman of Advisors Capital Management
It is disputed in a few corners, but more analysts and strategists view bonds as severely overvalued and stocks as symmetrically cheap. Advisors Capital Management shares this judgment and points to assorted different ways to reach this conclusion. Investors should be trying to inoculate their bonds holdings from losing value at some point and taking advantage of the upside potential in equities. The 'lost decade' in stocks could easily be followed by a lost decade in bonds, while stocks recover.
2010-07-20 Cash Investing: Considerations for Investing in a Low Interest-Rate Environment by Northern Trust Investments (Article)
Northern Trust's chief economist, Paul Kasriel, forecasts that interest rates will remain low for the remainder of 2010. Investors are looking for guidance on how they should best position their cash and fixed income portfolios to take this environment into consideration, and should consider the tradeoff between liquidity and yield. We thank Northern Trust for their sponsorship.
2010-07-09 July 2010 Newsletter by Harold Evensky of Evensky & Katz
Evensky & Katz president Harold Evensky doesn't know about you, but he's getting tired of living in interesting times. Unfortunately the market gods don't much care for his opinion. So, given the reality that the markets have been a tad exciting lately, in addition to his regular meandering tidbits, he's included a number of items that he thought might provide a little perspective on the ranting of the financial talking heads.
2010-07-02 The Art of Outperformance by Niels C. Jensen of Absolute Return Partners
This month's letter is different. Our usual ramblings about the dire outlook for the global economy have been put aside for a while. Instead we focus on a couple of ideas for equity investors who have grown frustrated trying to beat the market - which is very difficult indeed. We do make some rather unflattering comments about active managers, but please note that these are specific to the equity space. In other, less efficient, asset classes, active managers often do much better than is the case in the equity world.
2010-06-04 The Parable of the Lifeboat by David Edwards of Heron Financial Group
Many investors are hesitant to add to their stock allocations due to negative returns over the past decade. The problem is that alternative investments have performed just as badly, if not worse. Ten thousand appears to be a hard floor for the Dow, despite investors' fears. Markets are thinner and more easily manipulated during the summer time, but July earnings reports should paint a rosy picture. NASDAQ is implementing expanded 'circuit breakers' to sideline stocks with unusually large moves - anything to reduce volatility and get investors interested in stocks again.
2010-04-19 playing in the street by tom brakke of the research puzzle
At one time there was a quaint notion that if your clients did well over time, you'd do well over time, especially if they thought you helped quite a bit along the way. Instead of maximizing the long-term value of their businesses, the goal of Goldman Sachs and other firms has become the production of short-term profits (and the accompanying compensation) at any cost. The firms act as if there is an inexhaustible supply of gullible clients, and for too long investors (and citizens, given that 'too big to fail' is still the way of the world) have proven them right.
2010-03-23 Game On! by Lance Paddock (Article)
Advisor Lance Paddock comments on the exchange between Wealthcare's Dave Loeper and SCM's Roger Schreiner. Paddock lauds Loeper's focus on managing assets based on client goals, but says Schreiner's challenge is nonetheless fair, and urges Loeper to accept Schreiner's terms.
2009-12-29 The Top 10 Articles You Didn’t Read (But Should Have) by Robert Huebscher (Article)
We closely monitor which articles draw the most readership. This allows us to fine-tune our content to the preferences of our audience. Reflecting on those articles that were most popular over the last year, however, we believe other articles also deserved your attention. We provide the "Top 10" articles you didn't read - but should have.
2009-09-15 Mohammed El-Erian: We Have Not Reached Escape Velocity by Robert Huebscher (Article)
Kicking off this year's Schwab Impact conference in San Diego, Mohammed El-Erian told an audience of nearly 1,000 advisors on Sunday night that the US financial system has not fully emerged from the financial crisis. El-Erian and his co-presenter, Larry Fink of Blackrock, addressed a range of topics, including the safety of the financial system, the future of regulation, and the outlook for inflation.
2009-06-16 Seth Klarman: Why Most Investment Managers Have It Backwards by Robert Huebscher (Article)
In his keynote speech last week to the Boston Security Analysts Society, Seth Klarman discussed how he repositioned his portfolio last fall to capture opportunities created in the wake of the financial crisis. Klarman is the lead editor of the sixth edition of Graham and Dodd's Securities Analysis, and his fund, The Baupost Group, is among the top performing hedge funds over its 27 year history.
2009-06-02 Jeremy Grantham's Warnings to Investors by Robert Huebscher (Article)
Of the thousands of investment letters penned in the industry, only one draws as much readership as Warren Buffet's annual letter to his shareholders: The quarterly commentary written by Jeremy Grantham. Grantham, the Chairman of the Boston-based investment firm Grantham Mayo Van Otterloo, was a featured speaker at Morningstar's Investor Conference last week, and he spoke at two breakout sessions. Those who, like me, attended both were richly rewarded, as he gave two distinctly different talks, addressing many subjects not covered in his commentaries.
