How's my breath?
Jun/27/08 06:29 AM Filed in: 7 Education
and Research
One more day like yesterday and we’ll be in an official bear market. Doom and gloom seems to be perpetuating throughout Wall Street. The one good sign is that no one can figure out how anything good will happen. That leaves room for an upside surprise. So until we get surprised or people just give up it’s not going to be much fun.
If June felt particularly painful, that’s because it was the worst June on record for the Dow Jones since the great depression. Don’t forget to smile, the economy grew at a 1 percent annualized rate in the first quarter of 2008.
Important Disclosure
Earth to Global Inflation
Jun/23/08 09:19 AM Filed in: 7 Education
and Research | 3 Globalize
Capital Economic provides us with some research and they sent us an interesting piece on how the resurgence of global inflation is raising fears of a return to the 1970s. They point out that the good news is that, there is little sign of commodity-led inflation becoming embedded in the economy via wage and price-setting behavior. With economic activity weak and labor markets softening, households will find it very hard to secure higher wage increases to compensate for higher prices.
This is good and it should allow the supply and demand responses to eventually bring commodity prices back down to earth.
Important Disclosure
ETF's and why some advisors avoid them
Jun/19/08 08:32 AM Filed in: 7 Education
and Research | 2 Conflicts
of Interest
Exchange Traded Funds (ETFs) have been around since
1993. They are not a new phenomenon in the financial
world, yet they are often overlooked by many of our
peers (other advisors). Oddly enough one of the Yale
Endowment’s biggest positions is an ETF. ETFs may be
a solid investment because of their low costs, tax
efficiency, and stock-like features, so why hasn't
the Investment Advisory community caught on?
It is not the case that investment professionals are unaware of the benefits of investing in ETFs. Many agree that they are one of the most cutting-edge investment tools in quite some time, however the problem seems to be that there are just too many. Investment Advisors are apprehensive about untested indexes and can be overwhelmed by the number of ETFs available, new and old.
Many Investment Advisors market themselves and pride themselves on the idea that they are able to pick the stocks that will perform best. An index, like one used in an ETF, would devalue the research and intelligence that Advisors believe goes into this stock selection.
Also, and perhaps most importantly, it is difficult to charge high fees when selling products that use an index. Another argument is that more and more young people coming out of business school are staying away from the Investment Advisory business and gravitating towards hedge funds and private equity firms. This would mean that Investment Advisory firms tend to be older and older advisors are more likely not to know or care what ETFs are.
Any way you look at it investment advisors have tended to neglect ETFs even though they can be a very advantageous investment tool and have been an important investment tool for university endowments.
Important Disclosure
It is not the case that investment professionals are unaware of the benefits of investing in ETFs. Many agree that they are one of the most cutting-edge investment tools in quite some time, however the problem seems to be that there are just too many. Investment Advisors are apprehensive about untested indexes and can be overwhelmed by the number of ETFs available, new and old.
Many Investment Advisors market themselves and pride themselves on the idea that they are able to pick the stocks that will perform best. An index, like one used in an ETF, would devalue the research and intelligence that Advisors believe goes into this stock selection.
Also, and perhaps most importantly, it is difficult to charge high fees when selling products that use an index. Another argument is that more and more young people coming out of business school are staying away from the Investment Advisory business and gravitating towards hedge funds and private equity firms. This would mean that Investment Advisory firms tend to be older and older advisors are more likely not to know or care what ETFs are.
Any way you look at it investment advisors have tended to neglect ETFs even though they can be a very advantageous investment tool and have been an important investment tool for university endowments.
Important Disclosure
June: Best and Worst Asset Classes of 2008
Jun/15/08 03:56 PM Filed in: 6 Monitor and
Rebalance
What asset classes are
winning in 2008 as of
Tuesday, June 10?
1) +33.24% - Commodities (GSG)
2) +11.89% - Natural Resources (IGE)
2) +3.10% - Domestic Real Estate Investment Trusts (RWR)
What asset classes are losing in 2008 as of Tuesday, June 10?
1) -10.97% International Real Estate (RWX)
2) -10.64% International Listed Private Equity (PFP)
3) -9.31% Domestic Listed Private Equity (PSP)
How are the broad markets as of Tuesday, June 10?
Domestic Stocks (SPY): -7.00%
Domestic Bonds (AGG): -1.22%
International Stocks (EFA): -7.01%
International Bonds (BWX): +0.82%
Emerging Market Stocks (EEM): -6.17%
Emerging Market Bonds (PCY): -0.32%
Our Comments: In the last 30 days we have seen the return of volatility to the markets. Oddly enough, there has been strength from micro cap (FDM). Since our last email it's only down -0.24% and considering the S&P 500 (SPY) has fallen -4.62% during this same period, that's quite remarkable. Historically micro cap and small cap has led us out of recessions, so if we are in a recession those are the asset classes that may signal a recovery.
If you go back 10 years (June 6th 1998) and take a look at the S&P 500 (SPY), the market appreciation is only 24%. That's an average annual return of 1.89% over that 10 year period. With S&P 500 having a long term annualized return of 10% to 12%, we've got a significant deviation from the mean return. So what does this mean? We feel that US stocks are due for a rally in the next few years.
Just as the emerging markets quietly started their charge towards the tail-end of the dot com boom, we feel that towards the tail-end of this commodity boom US stocks will start their next upward move. In the last week, almost every asset class has gotten killed. However, there has been surprising relative strength from the S&P 500, which is a rare occurrence. We'll be watching for a consistent trend change.
What do we do with this information? For one, we don't try to anticipate what's going to happen in the short run. Our firm studies very long-term trends and tries to build portfolios that do well through them all. Currently, our average University Endowment Styled Portfolio is up in 2008 (0.84% after fees). Our portfolios are generally globally diversified so we just need one of the markets to improve for performance to kick up. We are constantly researching how to make our portfolios more stable without sacrificing return. Our historical research is designed to help us understand how to make those improvements.
Important Disclosure
1) +33.24% - Commodities (GSG)
2) +11.89% - Natural Resources (IGE)
2) +3.10% - Domestic Real Estate Investment Trusts (RWR)
What asset classes are losing in 2008 as of Tuesday, June 10?
1) -10.97% International Real Estate (RWX)
2) -10.64% International Listed Private Equity (PFP)
3) -9.31% Domestic Listed Private Equity (PSP)
How are the broad markets as of Tuesday, June 10?
Domestic Stocks (SPY): -7.00%
Domestic Bonds (AGG): -1.22%
International Stocks (EFA): -7.01%
International Bonds (BWX): +0.82%
Emerging Market Stocks (EEM): -6.17%
Emerging Market Bonds (PCY): -0.32%
Our Comments: In the last 30 days we have seen the return of volatility to the markets. Oddly enough, there has been strength from micro cap (FDM). Since our last email it's only down -0.24% and considering the S&P 500 (SPY) has fallen -4.62% during this same period, that's quite remarkable. Historically micro cap and small cap has led us out of recessions, so if we are in a recession those are the asset classes that may signal a recovery.
If you go back 10 years (June 6th 1998) and take a look at the S&P 500 (SPY), the market appreciation is only 24%. That's an average annual return of 1.89% over that 10 year period. With S&P 500 having a long term annualized return of 10% to 12%, we've got a significant deviation from the mean return. So what does this mean? We feel that US stocks are due for a rally in the next few years.
Just as the emerging markets quietly started their charge towards the tail-end of the dot com boom, we feel that towards the tail-end of this commodity boom US stocks will start their next upward move. In the last week, almost every asset class has gotten killed. However, there has been surprising relative strength from the S&P 500, which is a rare occurrence. We'll be watching for a consistent trend change.
What do we do with this information? For one, we don't try to anticipate what's going to happen in the short run. Our firm studies very long-term trends and tries to build portfolios that do well through them all. Currently, our average University Endowment Styled Portfolio is up in 2008 (0.84% after fees). Our portfolios are generally globally diversified so we just need one of the markets to improve for performance to kick up. We are constantly researching how to make our portfolios more stable without sacrificing return. Our historical research is designed to help us understand how to make those improvements.
Important Disclosure