All Asset All Access, December 2019
Research Affiliates discusses why they believe value investing is still alive and well and explains how changes to the display of expense ratios seek to enhance clarity for investors.
Sifting Through the Froth
Positive returns across asset classes in 2019 may limit tax loss selling in closed-end funds, but we see potential long term value in select sectors where investors can still buy assets at a discount.
Navigating U.S. Wealth Management: Seven Ideas for Financial Advisors and Individual Investors in 20
We aim to support wealth management firms, advisors, and investors as they assess portfolio strategy and navigate the shifting trends we face in the new year.
Weighing the Week Ahead: All Eyes on Black Friday
The economic calendar is loaded with data and we have a holiday-shortened week. In some circumstances the many economic reports and the Washington stories would dominate. This week the market and economic context suggests a different theme.
Macro Factors and Their Impact on Monetary Policy, the Economy, and Financial Markets
In October the International Monetary Fund (IMF) lowered its 2019 GDP forecast to 3.0% from 3.2% in July. This represents a marked slowing from global growth of 3.8% in 2017. The primary driver of the slowdown has been a retrenchment in global trade and business investment in response to the ratcheting up of trade tariffs since early 2018.
Weighing the Week Ahead: A Time for Investors to Act
The economic calendar is a light one in sharp contrast to last week’s. That was a good time to observe the market reaction to a wide range of news. Now is the time for investors to use the information.
Looking for Cover
Covered call strategies in a closed-end fund may help long-term investors manage short-term volatility.
Asset Allocation Views: Easing Into Slowing Growth
Read our key takeaways from our 2019 Asset Allocation Midyear Update, including how we are positioning multi-asset portfolios in light of our outlooks for the global economy and markets.
War (What is it Good For?)
Economic uncertainty has spiked given the escalating U.S.-China trade war; with increasing risk it weakens the dividing line between the manufacturing and consumer sectors.
Weighing the Week Ahead: Get Out, Hide Out, or Ride It Out?
The economic calendar is normal, featuring housing starts, retail sales, and Michigan sentiment. The CPI will be important someday, but only when it breaks the recent path of gentle increases. With summer vacations in full swing (even Congress is on a five-week recess) the punditry turns to tried and true topics...
Gundlach: Fed will be in "Panic Mode" When a Recession Hits
If the signs of a recession prove true, the Fed will be in panic mode, according to Jeffrey Gundlach. The economy will weaken, rates will go up and the Fed will have to “do something,” to protect against a “spiral” of higher rates feeding and slower growth.
Worried Index-Based Strategies are Distorting the Bond Market? The Data Says You Shouldn’t Be
Despite record inflows into fixed income ETFs, concerns around the growth of these funds leading to an outsized impact on the fixed income market and the distortion of bond prices are still overblown, according to the data.
Investors are not always told the full story before they invest. In this case, we are constantly told that electric vehicles offer the way forward, but evidence is mounting that they are actually polluting more than petrol or diesel cars. The penny just needs to drop as far as our political leadership is concerned.
How to Respond To Complaints about Fees
Fees are the root of most client conflicts. Clients say they are too high and you defend them based on the value being added. An interesting study provides insight for how to handle these (and other) conflicts.
Equity Revival or Economic Slowdown
Is the stock market correct in its optimism that monetary normalization is over and equities have more runway in 2019?
Will Inflation Accelerate This Year?
Inflation has remained muted through the first quarter of 2019. Could the pace pick up later in 2019?
2019 Global Market Outlook Q2 Update: The Pause That Refreshes
Markets are caught between incoming data that point to slower global growth and forward-looking factors that suggest improvement later in the year. With the pause in U.S. Federal Reserve rate hikes, we expect modest recovery in global cycle conditions.
Muni Yield Curve: Flatter but Not Imitation
The municipal and the Treasury yield curves are different. This is never more evident than when the Treasury curve inverts. There have been multiple historical incidences of Treasury 2's to 10's inversion in the last quarter century...
Does Your Website Read Like a Tombstone?
Tombstone ads are announcements of a public offering placed by investment bankers. The ads are intentionally mind-numbing. Your website may fit into the same category.
Gundlach: We Are on the Road to a Large Debt Problem
When Donald Trump was campaigning, he said he would eliminate the national debt in eight years. But it has increased by $2 trillion in the first two years of his presidency, leading Jeffrey Gundlach to conclude that we are “on the road to a large debt problem.”
Sacagawea lived from May 1788 to December 1812. She was a Lemhi Shoshone woman who is best known for her help guiding the Lewis and Clark Expedition in achieving their mission objectives by exploring thousands of miles from North Dakota to the Pacific Ocean.
Muni Bond Sales Surge as Issuers Ride Demand Wave
Caveat emptor: current technical supply and demand flows favor issuers more than buyers. But diligent, disciplined investors can always find attractively priced, fundamentally sound bonds.
Volatility Breeds Opportunity: Closed-End Fund Income Ideas at a Discount
Recent volatility has created opportunities to invest in high yielding leveraged credit closed-end funds trading at a discount to net asset value.
No Quarter: Could 1Q19 Bring Negative Earnings?
Although 4Q18 earnings season is capping a very strong calendar year for earnings; the outlook for 2019 is decidedly murkier, with 1Q19 already in negative territory.
Getting the First Meeting with a Female Client
Industry leaders tell us what not to say with female clients and what women want in an advisor. What is virtually unanswered, though, is how advisors can meet female prospects. From the perspective of someone who is female and was an advisor, here’s what I would do.
Using the Muni Bond Calendar to Help Clients
Keeping an eye on how the municipal bond calendar will influence new issues and investing opportunities is wise advice. With the muni market expected to remain robust in 2019, investors and their advisors need to watch the calendar for new issues that best meet their specific financial goals and investment strategies.
The Grinch Comes to Loanland, but Expect a Short Visit
Just seven short weeks ago, the floating-rate loan market was standing tall with a 4.0% year-to-date return through October. Not only were loans on pace for the 5%+ calendar year mark that many anticipated, they had performed with remarkably low volatility and a performance profile that trumped all major asset classes.
Don't Ride Out the Storm: Why You Can and Should Time Volatility
What should investors do when confronted with market volatility? The conventional wisdom couldn’t be clearer: Ignore it. But new research says that is wrong and that investors should instead decrease their equity exposure.
California Wildfires Rage, Muni Impacts Limited
California is currently battling two devastating wildfires in California. The Camp Fire, located in Butte County (north of Sacramento) has so far burned 135,000 acres, destroyed 7,600 residences and caused 71 fatalities, making it the deadliest wildfire in California's history.
Opinions Abound on Floating-Rate Loan Credit Health
We've managed client assets in floating-rate corporate loan strategies since 1989. Our longest-running fund will surpass its 30-year mark in 2019. Along the way, we've developed deep expertise in this asset class. Today we manage more than $45 billion in floating-rate corporate loan assets, for clients all around the globe and in every discernible delivery format.
How Tax Reform Is Impacting Advisors' 2019 Strategy
The sweeping tax overhaul signed by President Donald Trump this year has many positive aspects for investors, while also creating both opportunities and challenges for financial advisors who use tax-efficient strategies.
Are You Paying for Liquidity You Don't Need?
Advisors should look more closely at their clients’ investments as well as portfolio design from a liquidity perspective. Investors, particularly those with long-term goals, may be paying for daily liquidity they don’t need. By ignoring liquidity premiums, advisors are not maximizing the funds of their clients.
GMO's 7-Year Asset Class Forecasts Still Favor Emerging Markets Over U.S. Stocks
Our forecasts continue to favor emerging markets in both the equity and credit markets, says GMO Asset Allocation team member John Thorndike. As of the end of September, the spread between our forecasts for emerging markets equities and large cap U.S. stocks was nearly 8.5%. You have to go back to 2003 to find a wider spread in favor of EM.
Inside Litman Gregory’s High Income Alternatives Fund
Jeremy DeGroot, CFA, is a principal and the chief investment officer of Litman Gregory, a boutique wealth management firm based in the San Francisco Bay Area. In this interview, he discusses the Litman Gregory Masters High Income Alternatives Fund, which seeks to generate a high level of current income from diverse sources, consistent with the goal of capital preservation over time. It was launched on September 28, 2018.
Stop by booth #610 at Schwab IMPACT® to learn more about the Litman Gregory Masters High Income Alternatives Fund (MAHIX).
Title: How Muni Ladders May Reduce the Sting of Rising Rates
It might feel like a different landscape for investors in municipal bonds after the big moves in yields and prices this past month. Thankfully, they are historically rare. But like the "taper tantrum" of 2013, they can be unnerving when they do happen.
Infographic: Midterm elections 2018
As major U.S. stock indices hit new all-time highs, one of the key uncertainties is whether the House, the Senate, or both could flip to the Democrats on Nov. 6. The infographic below takes a look at what's up for grabs, the current forecasts, and what history offers us on midterm elections and the stock market.
Muni Floating-Rate Notes and Rising Rates
As short-term rates move higher and the Treasury yield curve flattens, many investors are thinking about how to earn income while also protecting themselves against rising rates. In this post, we'll discuss why municipal floating-rate notes -- an often-overlooked part of the market -- may be an attractive option for these investors.
Weighing the Week Ahead: Inflation Watch
There is a big economic calendar competing with mid-term election campaign stories. The increase in hourly wages in the employment report offset some market enthusiasm about continuing job market strength. With inflation concerns on a hair trigger, expect special focus on this week’s PPI and CPI. The Beige Book and JOLTS report will also get pundit scrutiny.
Private Credit Demystified
60% allocated to equities and 40% to bonds has been an extraordinarily successful investment strategy for most of the past 40 years, but I believe the show is now largely over. In this month's Absolute Return Letter, I focus on the 40%, and I argue that, although I don't expect 10-year government bonds to deliver more than 0-2% annual inflation-adjusted returns in the years to come, there are indeed things you can do to earn higher returns.
Iran Sanctions and Potential Responses: Part III
The Trump administration withdrew from the Iranian nuclear deal and plans to implement sanctions on the country in two phases. In Part I, we introduced this topic and covered the first two potential responses from Iran, which were restarting the nuclear program and projecting power. Last week, we covered the threat to the Strait of Hormuz.
The Case for Leveraged U.S. Treasury Bonds
For three important reasons, leveraged U.S. Treasury bonds make sense as an ordinary investment.
The Problem with Focusing on Expense Ratios
Most investors believe that all passively managed funds in the same asset class are virtual substitutes for one another. The result is that, when choosing a specific fund, their sole focus is on its expense ratio. That is a mistake for a wide variety of reasons. The first is that expense ratios are not a mutual fund’s only expense.
Rising Inflation Is Part of the New Bond-Investing Playbook
The decade after the financial crisis has been marked by low inflation and investment spending, lagging income growth and a strong U.S. dollar. We expect these trends to reverse direction and potentially surprise investors who aren't prepared.
Treasury Bonds Are the Only Bonds You Need
This article compares the performance of the premier investment-grade bond index, the AGG, to the performance of its subset U.S. Treasury index. Surprisingly, the long-term performance of the Treasury index is nearly that of the AGG, and outperformed it in several crucial periods.
How to Finance a Succession Plan
The aging financial advisor population is driving the need for succession planning. For most advisors, this is the most important financial decision they will make. It comes with a myriad of questions. What are the benefits of selling to a third party versus a junior advisor? How do you get the timing right?
Yesterday, someone threw in the towel on EM bonds. The Van Eck JP Morgan Emerging Market Local Currency Debt ETF (EMLC) is the largest and most liquid vehicle to invest in emerging market local currency bonds.
GO GOLD! Inflationary Tariffs Could Supercharge the Yellow Metal
Prices will rise—for producers and consumers alike—which is good for gold but a headwind for continued economic growth.
Gundlach Defends Technical Analysis
Criticism of technical analysis ranges from bemused skepticism to claims of harebrained alchemy. Few investors as well-respected as Jeffrey Gundlach admit to using it. But yesterday, he explained why he relies on technical analysis under certain conditions.
Weighing the Week Ahead: Will Higher Interest Rates Lead to Lower Stock Prices?
The economic calendar is light, and the market week will be shortened. There is no holiday this week, but expect many participants to take off early for a long weekend. If interest remain above 3% on the ten-year note, that will be the focus.
Blockchain Will Completely Revolutionize How We Mine Gold and Precious Metals
This week I had the pleasure to attend Consensus 2018 in New York, the premiere gathering for the who’s who in blockchain, bitcoin and cryptocurrencies. Attendance doubled from last year to an estimated 8,500 people, all of them packed in a Hilton built for only 3,000. Ticket sales alone pulled in a whopping $17 million, while event booths—the largest of which belonged to Microsoft and IBM—generated untold millions more.
High-Yield and Bank Loan Outlook
As the Federal Reserve (Fed) tightens monetary policy further, we expect to see default rates higher next year. Loan recovery rates averaged 70 percent between 1990 and 2017 as a result of their secured status and seniority in the capital structure. Senior secured bond recovery rates averaged 58 percent over the same period, while senior unsecured bond recovery rates averaged 43 percent. We are concerned about distressed exchanges as the risk of re-default is high. About 7 percent of high-yield corporate bond issuers have defaulted in the past.
Macro Factors and their impact on Monetary Policy, the Economy, and Financial Markets
GDP growth slowed in the fourth quarter to 1.9% down from 3.5% in the third quarter. Both numbers were skewed by trade data. Third quarter GDP was lifted by .7% from the export of soybeans to South America, while imports shaved -1.7% from fourth quarter GDP.
Prospects for closed-end funds remain “fairly strong” in 2018, says Alex Reiss of Stifel, who anticipates a potential increase in new issuance.
Weighing the Week Ahead: Should Investors Start Worrying About Inflation?
The economic calendar is about normal, with market participants back from holiday vacations (but perhaps fighting the snow). The key reports are the PPI and CPI. Inflation is the key 2018 worry for many, so these reports will get more attention. Especially if the numbers are a little hot, I expect the punditry to be asking: How worried should we be about inflation?
So You Have a Donor Advised Fund. Now what?
You can’t take your material possessions with you to your grave. Here’s how to use donor-advised funds to help clients use their wealth in the most meaningful way.
Heading into 2018, International Assets Are Positioned for Outperformance
Heading into 2018, we remain positive on global equities and believe the outperformance of international risk assets can continue. In the years following the Global Financial Crisis, uneven global growth created headwinds for risk assets outside the US. Typically, one or two regions would show improvement, while other regions decelerated.
A Wall Street Walk Through Time
Robert Penn Warren (April 1905 – September 1989) was an American poet, novelist, and literary critic who once said, “History cannot give us a program for the future, but it can give us a fuller understanding of ourselves, and of our common humanity, so that we can better face the future.”
Closed-end funds have a long history in the United States and continue to attract investors in pursuit of income, says Rennie McConnochie of Aberdeen.
Navigating U.S. Wealth Management: Five Key Themes for Financial Advisors and Individual Investors
Unprecedented changes are reshaping the financial advice industry and affecting portfolio construction for individual investors. New regulation, technological innovation, capital market trends and the prospect of lower future returns are all exerting profound effects.
Closed-end fund discounts have narrowed, but opportunities may remain in certain areas of the market, CEF industry pros say.
Shifting Currents in the US Treasury Market
Employing basic bond math, we can decompose the US Treasury bond into two pieces: real rates and break-even inflation expectations. Because real rates (TIPS) and nominal rates (US Treasuries) are directly observable, break-even inflation is relatively easy to determine.
Income Opportunities in CEFs and Emerging Markets
Closed-end funds and emerging-market debt offer opportunities for income investors. We also look at Vanguard’s most recent announcement about its bond ETF and what to expect from the FOMC this month.
Investing in Gold for RICs
For retail investors, there are a few vehicles for exposure to gold. The SPDR Gold ETF (GLD) and the iShares Gold ETF (IAU) are the biggest, lowest cost funds for retail investors. Below are charts of the GLD and the IAU, with price and USD volume overlay to illustrate the liquidity.
Reflections on Nationalism: Part II
Last week began our series on nationalism. We discussed social contract theory before/after the Enlightenment, examining three social contract theorists. This week, we recount Western history from the American and French Revolutions into WWII.
Income-Investing Strategies for a Rising-Rate Environment
With uncertain market conditions, income investors can look to dividend investing as a strategy for different market conditions. This week’s news also looks at how income investors can deal with increasing interest rates.
Is it Time for New Leadership?
What worries me…Lack of compromise in government. Many believe that gridlock is good. Not so. We will need bi-partisan compromise to deal with the big issues like growing government debt and entitlement programs. Growing tension with Russia, and within Russia.
Can Smart Beta think (twice)?
Recent introductions of multi-factor Smart Beta products demonstrate causality among its components and an ability to replicate past future pricing. Unclear is the extent to which Smart Beta adequately discerns the directional value of securities at points of inflection to consistently outperform allocated Beta, Index-plus or Alpha portfolio strategies.
The Benefits of Active Municipal Bond Management
Robert DiMella is an executive managing director and co-head of MacKay Municipal Managers team, overseeing approximately $20 billion in municipal bond assets. In this interview, he discusses the opportunities for muni bond investors and the outlook for the coming year.
Gundlach: When to Avoid Closed-End Funds
Fixed-income closed-end funds (CEFs) should perform poorly when the yield curve flattens, according to Jeffrey Gundlach, because those funds borrow short and lend long. But DoubleLine’s CEFs have more than withstood the flattening of the yield curve over the last six years.
Avoiding Groupthink Yield Chasing
There was news Tuesday that a one-time dividend investor favorite Seadrill (NYSE: SDRL) was warning shareholders that they should expect to “receive minimal recovery for their existing shares” as concerns have escalated to whether it can continue as a going concern.
Lines in the Sand
In my 2016 year-end review, which went only to clients, I included a discussion of the use of subscription lines by closed-end funds in areas such as private equity, real estate, distressed debt and private credit. It’s my impression that their use has become fairly pervasive in recent years, and in response to clients’ requests and market trends, Oaktree has utilized subscription lines in some of its newer funds.
Bond Yields Break Below Important Support as Econ Data Notches South
After testing and bouncing off the important 2.32% level four times so far in 2017, the US 10-year bond finally broke below that important threshold. The phenomenon has gone basically unnoticed by the financial commentators, but it occurs just as US economic data begins to wane following the bounce that started in the second half of 2016.
Gold Finds Strong Support from Negative Real Rates
In case you haven’t already noticed, inflation has been steadily creeping up since July. In February, the most recent month of available data, consumer prices advanced at their fastest pace in five years, hitting 2.7 percent year-over-year.
A Small-Cap Pause That Refreshes?
Co-CIO Francis Gannon analyzes the cross-currents and reversals in 1Q17 and details why the small-cap rally has room to run.
How to Educate Clients about Alternative Investing – and other alts-related news
With new data emerging showing consumers lack an understanding of alternative investments, we explore different alternative strategies investors can use to help educate their clients.
The Secret to the 10-Minute (or Less) Keynote Presentation
Most keynotes speeches are 30 minutes or more, leaving time for only a few questions. That is the wrong approach, especially if your goals are to engage the audience, have them remember what you said and get invited to speak again.
USD is Overvalued Against CAD, EUR, JPY, NOK, KRW, SEK, CHF & GBP
The stronger dollar is flowing through into our purchasing power parity (PPP) CPI differential models. Overall against 18 currencies, the USD is overvalued against 12 of them on a PPP basis.
Four Certainties About Populist Economics
While few anticipated the British vote to leave the EU and Donald Trump's election as US president, neither outcome should have been all that surprising: disaffected voters were rejecting economic models that had produced high levels of inequality. The question now is what will replace those models.
Weighing the Week Ahead: Will Policy Uncertainty Increase Stock Volatility?
We have a normal calendar for economic data. There will be important news will come from corporate earnings reports. Since this earnings season is part of an inflection point – the end of the earnings recession– it is special.
Digging Down on the Trump Effect
Some sort of fund repatriation will be part of the package. All else equal, that suggests a bias to companies that might gain the most. The Atlanta Fed provides some hard data. Expect tax cuts, probably including some nods to Democrats. This will represent fiscal stimulus. Cyclicals continue to show strength, partly from the expectation noted above. (Eddy Elfenbein). The trade war is likely to be a bargaining approach. It is an error to over-react on speculation. The health care issue is far from settled. Early symbolic repeal? Yes. Real changes? Unclear.
Milliman FRM Risk Matters: Low Rates Make the past a Virtually Impossible Prologue
Factors ranging from China’s evolving economy to the rise of nationalism combined to make 2016 a year that will not be quickly forgotten.
Gundlach: Trump Should be Commended
Speaking before the results of the presidential election were known, Jeffrey Gundlach commended Donald Trump for his campaign and the results he achieved. Gundlach did not, however, reiterate his prediction that Trump would win and, as in the past, he neither endorsed Trump nor said that he would vote for him.
Economic Risk Factor Update: November 2016
After significant bouncebacks in the major indicators over the past couple of months, we saw a bit of a pullback in several components of the data in October.
Small Caps in Asia Capture Big Lifestyle Trends
In Shanghai and Singapore, a growing number of joggers take to the streets each day. Asian lifestyles are changing, and smaller companies across the region are the key to investing in the trend.
Gundlach: A “Big, Big Moment” for the Bond Market
An Investment Only a Mother Could Love: The Case for Natural Resource Equities
Lucas White and chief investment strategist Jeremy Grantham highlight the long-term investment opportunity in natural-resource equities.