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Advisor Perspectives
Insights into the world of high- and ultra-high net worth investing
April 14, 2009- Vol 3, Issue 15
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When one of the most brilliant and
provocative thinkers of our times warns that monetary and fiscal policies may not solve the
current crisis, you take notice. That was the message of Woody Brock, who says government should
try to outgrow its rising debt burden. He is not optimistic about our chances for success.
In its quest to provide attractive, risk-adjusted performance, American Century's Equity Income fund relies on
convertible securities to dampen the volatility of its returns and help
limit downside risk. Matt Oldroyd and Shawn Connor of
American Century Investments answer frequently asked questions as they
relate to Equity Income's use of convertibles. We thank American
Century for their sponsorship.
The late economist Hyman Minsky
is widely known for his observation that, over the long-term, "stability leads to instability."
Less recognized is Minsky's explanation for the phenomenon - stable economic systems break down because they
encourage increasingly risky debt financing. PIMCO
Managing Director Paul McCulley explains
the implications of Minsky's theories for the current crisis, and why he
believes the right architecture is in
place to get credit flowing.
Michael Lewitt provides our
readers with the latest edition of his HCM Market Letter. As we noted previously, Lewitt's insights put
his writing in the must-read category,
and this newsletter is no exception.
More articles below...
Dan Richards describes how an
advisor unexpectedly lost a multi-million
dollar account, and the lessons
every advisor should take away from that unfortunate episode.
Account aggregation is a powerful
tool, but it raises important questions for advisors: Will they be considered custodians of
their clients' assets and, if so, what
duties does that impose? Consultant Bill Winterberg explains the
implications of taking custody of assets, and how account aggregation users
can avoid these pitfalls.
Many advisors believed diversified
long-only portfolios would always serve their clients well,
regardless of the market conditions, as certain asset classes would perform
well even as others struggled. Unfortunately, many have learned hard
lessons over the past year and a half, as virtually
all classes have declined in value, causing sizable losses to their
clients' (and their own) portfolios. In this guest contribution, Ron Brounes shows how the Palantir
long-short fund provided a much-needed cushion for its clients.
In a letter to the Editor, Clark Blackman
responds to last week's letter from Ken Solow. Blackman defends his position on strategic asset allocation the role of historical
data in guiding one's asset allocation. In a second
letter, an advisor responds to our article about the Three Legs of the Bull
Market, contending that we neglected to
mention two important legs.
Lastly, we highlight submissions to Advisor
Market Commentaries.
We welcome guest submissions from our readers. For more information, here are our guidelines.
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requesting the "text-only" version.
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in the subject line.
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Government policies are losing their punch, says the noted economist Woody
Brock, and he is not optimistic about the future. Brock spoke at a
recent investment conference and offered his thoughts on the roots of the
current crisis and why the government's policies may fail to provide the
economic boost to lift us out of this recession.
Woody Brock: When Everything is Up
for Grabs
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A
Primer on Equity Income's Use of Convertible Securities
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In its quest to provide attractive, risk-adjusted performance, American
Century's Equity Income fund relies on convertible securities to dampen the
volatility of its returns and help limit downside risk. The portfolio has
held convertibles since its August 1994 inception. While the fund has no
set asset target for its convertibles, the historical range has been 15% to
30% of the portfolio's assets. As of February 28, Equity Income had 24% of
its assets in convertible securities. Here are some frequently asked questions
we receive on Equity Income's use of convertibles...
A Primer on Equity Income's Use of
Convertible Securities
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Paul
McCulley: The Reverse Minsky Journey and the Way Back
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Paul McCulley's
recommended strategy is "global competitive quantitative easing
(QE)," where countries follow the path set by the US
and increase money supplies. Such a policy does not require careful
coordination, he emphasized, since any country not choosing to participate
will face deflation in its domestic economy.
Paul McCulley: The Reverse Minsky
Journey and the Way Back
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"It is going to be virtually impossible for anyone, including the
Chinese who hold our debt or the investors that the government wants to
start taking risk, to regain confidence in American capitalism as long as
the American Congress continues to act like the inmates of Bedlam,"
says Michael Lewitt. Lewitt goes on to provide his thoughts on
monetary and fiscal policies, bailouts, the rating agencies, the
automakers, and whether the current market rally is for real.
Man Up!
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Lessons
from the Loss of a Multi-Million Dollar Account
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In light of 2008 portfolio performance, Dan Richards says it's imperative
that you talk to clients about where they stand. You might lose clients
even if you candidly discuss their investments - but chances are those
clients were going to leave no matter what you did. Failing to have that
conversation only increases the odds of seeing clients defect.
Lessons from the Loss of a
Multi-Million Dollar Account
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Account aggregation tools allow advisors to meet their reporting
obligations efficiently, by automating the collection of data for those
accounts. Advisors' use of client login credentials, however, may
cross the line from having discretion over assets to having custody over
assets.
The Custody Conundrum
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A
Long-Short Approach to Investing
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In this guest contribution, Ron Brounes describes how Palantir Capital
Management attempts to take advantage of opportunities to hedge long
positions while also seeking profits on the short side. In managing
their long-short fund, they make macro calls on the markets and economy,
micro calls on companies they believe are under- or over-valued, and employ
market-neutral arbitrage trades by pairing long and short positions in
similar securities.
A Long-Short Approach to Investing
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Letters
to the Editor: Clark Blackman responds to Ken Solow
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In a letter to the Editor, Clark Blackman responds to last week's letter
from Ken Solow. Blackman defends his position on strategic asset
allocation the role of historical data in guiding one's asset
allocation. In a second letter, an advisor responds to our article
about the Three Legs of the Bull Market, contending that we neglected to
mention two important legs.
Letters to the Editor: Clark
Blackman responds to Ken Solow
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Highlights
from Advisor Market Commentaries
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In his commentary, John Mauldin warns not to mistake the recent stock
market rally for a recovery. We are in for a lot more bad news -
mostly in the form of negative earnings surprises.
Read the commentary
Charles Lieberman of Advisors Capital offers a decidedly more upbeat
message, as he sees more encouraging signs every day.
Read the commentary
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Advisor
Perspectives
Box 380
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