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April 20, 2010 - Vol 4, Issue 16
Dear Reader,
If you have not yet had a chance to complete the Outsourcing
Investment Management survey, please take a moment and do so here. The results will be shared in
Advisor Perspectives, please stay tuned.
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The Yale endowment's performance during the financial crisis
was worse than what would be mathematically expected, but not
significantly enough to question the endowment model's tenets. Moreover,
Yale's performance and philosophy suggest two very important
lessons for advisors and investors- to diversify beyond equities
and fixed income, and that some illiquid asset classes can be an
important source of alpha.
Government
intervention has stabilized the economy, but
policymakers must be careful to draw down their interventions before inflation
occurs. Although residential real estate has seen its worst days, a
wave of high-yield bonds and loans will soon mature, and the banking
system must rebound enough to absorb that bubble. Despite these
uncertainties, the range of yields and total annual returns among
fixed-income sectors provide investors with multiple opportunities.
We thank BlackRock for their sponsorship.
Whether or not the fiduciary standard is expanded to
include registered reps, the media has focused attention on the range
of criteria that applies to individuals who offer some kind of
investment advice. Perhaps more important than legislation, the public,
supported by the media, is
demanding more transparency from financial advisory professionals.
Envestnet sees a fiduciary opportunity for advisors. We thank
them for their sponsorship.
As
a Treasury bond bear of modest conviction, advisor Martin Weil read
with interest Gluskin Sheff's David Rosenberg's piece in our
April 12 issue. Though providing little data to support his
thesis, Rosenberg makes a solid argument for why it is inflation,
not supply and demand, that drives Treasury prices and yields. In
taking this position, he pits himself against, among others, Jim
Grant, with whom he has been carrying on a running debate.
To optimize portfolios, the investment and wealth management industry
still assumes a random walk of prices when running long-term
simulations of equity portfolios, despite plenty of existing
research pointing to serial dependency in returns, writes Manish
Malhorta in this guest contribution. The random walk assumption
for equities gives results that are counterintuitive and
unobservable in practice. He recommends against using it.
Many advisors struggle to get everything done that needs doing. If
you're in that category, consider following the example of one
successful advisor Dan Richardstalked to recently ... and put
a dollar value on every hour of your time.
"Few macroeconomic prognosticators have been as publicly
right as Yale's Robert Shiller,whose first and second editions
of the book Irrational Exuberance laid bare, with remarkable timing,
the speculative bubbles forming first in the Internet-crazed stock
market and next in residential real estate," writes the highly
regarded newsletter Value Investor Insight in its preface to this interview
with Shiller and excerpt from his latest book. Value
Investor Insight, which bills itself as the "Leading Authority
on Value Investing, offers a no-obligation, one-month free trial
subscription. For more information, go here.
When it comes to evaluating an investment opportunity, sometimes
what you don't see can be the most telling. Mariko Gordon's
recent experience attending a "Lakers Fan Jam" on the left
coast reminded her of this important truth.
Fixed income investors should consider a short-term buying
opportunity for Treasury Inflation Protected Securities (TIPS) with
maturities of ten or more years, writes Michael Brennan in this guest
contribution. The 10-year TIPS should have a total return
anywhere from 30 to 40 basis points greater than the comparable
nominal Treasury bond.
Lastly, we highlight submissions to Advisor Market Commentaries.
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information, here are our guidelines.
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