Leveraged and Inverse Funds

One of our favorite financial writers is Bloomberg’s John Authers. He recently wrote a tongue-in-cheek article about an investment company by the name of Hindsight Capital. In hindsight, or in the company’s case, Hindsight Capital, he talked about what the firm did and what you should have done over the last ten years to produce outstanding returns.

We expect emerging market (EM) fixed income asset classes to continue to perform well in 2020. Though the sector appears to be starting from less attractive valuations than a year ago, in a low-yielding world, we see opportunity for relative performance in credit and local rates and a tactical tailwind for EM currencies.

Research Affiliates provides its outlook for 2020 and discusses where it sees attractive return opportunities across the globe.

The January edition of Macrogram highlights the current state of the economy. The chart-based newsletter shows the weakness in manufacturing, calls attention to the current slope of the yield curve and covers key macroeconomic indicators. Macroeconomic insights at-a-glance.

Foreign trade ends up being cleared through international money – a currency that the world accepts as final payment, even in places where it is not legal tender.

For nearly three years we’ve been tactically recommending overweighting large caps (S&P 500) and underweighting small caps (Russell 2000)—time for an update.

We expect European investment grade bonds to post slightly positive excess returns in 2020. We believe the sector stands to benefit from healthy supply and demand balances, likely offsetting tight valuations and weakening fundamentals.

In Part 1 of this forecast I described my relatively benign outlook for the next 12 months. The calm may last into 2021 and even beyond. But beneath the surface, pressure will still be increasing. It will grow slowly, almost imperceptibly, but eventually explode.

Will 2020 be more of the same? Our teams are encouraged by differences they see in the new year; but they remain alert for unexpected downturns.

With this article I am going to present several ways that investors, especially retired investors, can beat the market without fail. However, what I will be presenting may not be what you are expecting, particularly if you have a narrow notion of what beating the market means.

The US investment grade (IG) corporate bond market is coming off an exceptionally strong year. Declining interest rates coupled with sharply narrower credit spreads contributed to strong absolute and relative returns.

This morning's employment report for December showed a 145K increase in total nonfarm payrolls, which was below the Investing.com forecast of 164K.

2019 was a triumphant year for the US large cap equity market, with the S&P500 index up 31% on a total return basis. The resolution of two major concerns in the year, namely the US Fed being too aggressive on rate hikes, and the US/China trade relationship hanging in a total impasse, drove the market higher, particularly in 1st and 4th quarter.

Franklin Equity Group’s Jonathan Curtis explains why he thinks businesses will need to invest significantly more in digital technology in the coming years to better understand and service their customers and to reduce costs.

A few months ago, I wrote about the mechanics of value investing and the many decisions that go into building value portfolios. Many investors believe that all value-based strategies will produce a similar performance. But in reality, the many portfolio construction decisions that value managers make...

Markets appear to expect the Federal Reserve to hold interest rates steady during 2020. In this environment, we think the outflows seen in leveraged loan mutual funds are likely to abate, and possibly change directions.

Trump's decision to take out the Islamic Republic's most celebrated military leader, Qassem Soleimani, was a timely reminder that we face many problems. An armed conflict between the US and Iran is clearly one of them but far from the only one. Here is a list of the ones we worry mostly about, going into 2020.

Expect a steeper yield curve, according to Jeffrey Gundlach. Investors should be “defensive” with respect to long-term bonds. Gold will go up, inflation will be subdued, there is a 30% to 35% chance of recession and – his “highest conviction” idea – the dollar will weaken. His most surprising prediction was who will be the Democratic nominee.

The outlook for the global economy has improved over the past three months, but there may be less capacity to combat a recession when it comes. We discuss seven key macroeconomic themes we expect in 2020 and implications for investors.

Let’s walk through the first 20 years of the new millennium and the lessons for the next 20 years.

A combination of spread compression and reduced US Treasury base rates contributed to double-digit gains in the high yield corporate credit sector in 2019. However, unlike many years with similar returns, lower-quality, CCC-rated credits meaningfully lagged their higher-quality counterparts. At this point in the extended credit cycle, investors appear wary about the performance of lower-quality credits.

Following another year of strong returns, Emerging Markets (EM) fixed income has outperformed developed bond markets by a significant margin over the past four years. The outperformance is likely to continue in 2020, because EM fixed income remains attractively priced both in absolute terms and relative to bonds in developed markets as well as under-owned and well-supported by an improving fundamental backdrop.

Welcome to the 2020s. Some weren’t sure we would make it this far, but we did. Now we face a new decade and new challenges. How we handle them will determine what kind of conversation we have in 2030.

One of the striking things about bull markets is that they often end in confident exuberance, while simultaneously deteriorating from the inside. We’ve certainly observed this sort of selectivity during the past year. The market advance in 2019 fully recovered the market losses of late-2018, fueled by a wholesale reversal of Fed policy, hopes for a “phase one” trade deal, and as noted below, a bit of confusion about what actually constitutes “quantitative easing.”

To celebrate another great year of doing the work I do with my firm’s valued clients, this week’s column is devoted to resolutions I hope you are able to make and keep in your businesses.

As we wave goodbye to the bull market of the 2010s, here are the rules for investing in whatever comes in the next decade.

"Travel on all roads and streets changed by +1.0% (+2.9 billion vehicle miles) for October 2019 as compared with October 2018. Travel for the month is estimated to be 285.1 billion vehicle miles."  The 12-month moving average was up 0.09% month-over-month and up 0.9% year-over-year. If we factor in population growth, the 12-month MA of the civilian population-adjusted data (age 16-and-over) was up 0.01% month-over-month and up 0.4% year-over-year.

The economic calendar is very light and interrupted by the mid-week holiday. We can always see volatility when volume is low, but many market participants will be on an extended holiday. This includes much of the A-team punditry, but someone will be left to fill the airtime.

How do you build a moat around your client base?

David Ellison manages the Hennessy Large Cap Financial Fund (HLFNX) and the Small Cap Financial Fund (HSFNX), both of which have outperformed their benchmarks since their inception in 1997. Dave has been recognized by Morningstar as the most tenured mutual fund portfolio manager in the financial services sector. I spoke with Dave on December 12.

While some cook with a dash of this and a dash of that, the best chefs follow a recipe to a T. Without abiding by a set of instructions, you’re at risk of inconsistent results or worse, omitting steps altogether. Sugarless baked goods rank right up there with eating cardboard. And too much of even basic spices can ruin any dish. Overcooked foods can be dry or burnt. Undercooked foods can cause illness. Clearly, following a recipe precisely is essential.

The accompanying chart is a way to visualize real GDP change since 2007. It uses a stacked column chart to segment the four major components of GDP with a dashed line overlay to show the sum of the four, which is real GDP itself. Here is the latest overview from the Bureau of Labor Statistics.

President Trump called it “amazing,” and U.S. Trade Representative Lighthizer said the China deal is “remarkable.” In my view, however, it is merely the best trade deal in the last 36 months of Chinese history, and it falls well short of two key objectives. Because the deal sets highly unrealistic goals for U.S. exports to China...

Rick Rieder and Russ Brownback argue that contrary to the many year-end outlooks foreseeing either a recession or a rebound in 2020, the most likely path for the economy and markets is more moderate, which can be encapsulated in their theme of “1.8.”

While US-China trade tensions and other concerns prompt a cautionary stance when it comes to risk assets, Franklin Templeton Multi-Asset Solutions’ Ed Perks and Gene Podkaminer nonetheless remain positive about the US equity market in the year ahead, citing a number of long-term growth drivers that still remain in place.

Now that the US and China have agreed to begin easing trade tensions, the fog over China’s markets is starting to lift. Investors should consider Chinese equity opportunities that have been overlooked because of tariff fears.

If the Fed is papering over problems in the overnight funding market, we are left to question its understanding of global funding markets and the global banking system’s ability to weather a more significant disruption than the preview we observed in September.

Brexit and trade talks provided lots of uncertainty this year. Last week saw progress on both fronts.

Predicting a major economic or financial event—whether that’s a recession, market downturn or even your own retirement—requires that you also take action. Otherwise your prediction was meaningless.

Insured bonds continue to pay interest and principal even if an issuer defaults.

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.

Fear among bond investors is focused on rising rates, but Jeffrey Gundlach says you should worry about something more sinister. In his webcast yesterday, he also offered his updated 2020 presidential election prediction.

The recent repo squall shined a spotlight on “sponsored repo” transactions, a growing segment of the U.S. overnight funding market.

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.

The hedge fund firm Renaissance Technologies, founded by James Simons, has been an object of amazement, admiration, and envy for years, because of the incredibly high investment returns of its flagship Medallion fund. In a new book, author Gregory Zuckerman explains how Renaissance did it. He also shows how a key Renaissance employee used his riches to get Donald Trump elected president.

While many risk assets have rallied in 2019, the lower-rated tranches of collateralized loan obligations (CLOs) have weakened. Is this a sign that the credit cycle is turning?

Improvements in accessibility are expected to accelerate further inclusion in the near term.

The recent half-cycle has been admittedly difficult. My bearish response to historically-reliable “overvalued, overbought, overbullish” syndromes proved detrimental in the face of zero-interest rate policies that amplified speculation, and we’ve adapted our discipline to give priority to our measures of market internals – which we use to gauge that speculation.

The venerable investor Warren Buffett has a real knack of putting complex concepts and ideas into simple and easily understood terms. In my opinion, his quote, “Price is what you pay. Value is what you get” is one of the more profound and important statements he has ever uttered.

The big myth with webinars is that your audience cares whether it is live.

To get the attention of smart beta investors in a crowded marketplace, some smart beta providers are laying claim to performance that appears implausible. So what is plausible? We look at historical live performance to answer this important question.

Market valuation is always a factor; but often misunderstood is the vastness of the spectrum of metrics, and the sentiment nature of valuation.

From freight volume to flight delays and real estate to recession risk, we share quick thoughts on a variety of economic subjects.

Equity and credit markets have thus far taken lackluster earnings results and lower expectations in stride, but we think this could change if confidence readings drop further.

Since the financial crisis, households have de-levered while federal debt has marched upwards. But the net cost of the combined debt, measured as the “cost of carry,” is at a level that historically signals an oncoming recession.

In a “secular bull’ market, the prevailing trend is “bullish” or upward-moving. In a “secular bear” the market tends to trend sideways with severe drawdowns and sharp rallies. However, what truly defines long-term secular markets are valuations, and whether those valuations are contracting or expanding.

Models can help advisors streamline portfolio management while retaining the level of discretion appropriate for their practice.

As the clock ticks toward 2020, the overall economic picture remains muddled. Ongoing trade tensions and slumping global growth have cast a cloud of uncertainty over the globe, and forward-looking return expectations continue to look less than impressive.

In the US, unemployment is low, corporate earnings are growing, and businesses remain confident. But with global uncertainty running high, it may be time for investors to refocus on the fundamentals.

As hopes for a trade deal fade, similar to May and August, the CNY is devaluating against the USD again. In our work there are a handful of fairly mechanical relationships that should follow if the CNY continues to devalue.

Private markets remain a key source of income for institutional portfolios, but late-cycle concerns demand a thoughtful approach to opportunities and risks.

For SRI optimized index funds, stable ownership of a range of companies and industries provides a platform for helping investors integrate their values into their investment decisions.

A wave of volatility may knock back a passive fund, but active managers can nimbly assess the situation.

Here’s how you can radically accelerate your success, get back your time and freedom and build a wildly successful practice and life that you love.

Earlier this year, passive management was attacked in two high-profile articles. Those criticisms were proven to be false – and driven by active managers seeking to protect their livelihoods. But that still left the question, which I now examine, of whether flows to passive funds have increased certain risks.

Rick Rieder and Russ Brownback argue that – in contrast to the past decade of monetary policy lifting all economic boats at once – the years ahead are likely to be characterized by great dispersion between economies, industries and markets. Understanding that dynamic will be the name of the game for investment success.

There’s an old adage called “climbing a wall of worry” that’s used to describe a situation where markets continue to climb in the face of uncertainties. Certainly there is no shortage of uncertainties today, yet US stocks have clawed their way to new all-time highs. Franklin Equity Group Portfolio Manager Grant Bowers recognizes there may be a few cracks emerging, but says there are still two main reasons to be optimistic about the outlook, and believes there is still room for US equities to run in 2020.

Changing dynamics may present a new set of opportunities for investors.

Data, though abundant, is an ever-present challenge. Why? Consider the following five key data questions.

College is expensive. We all know that – and that is why parents come to financial advisors to talk about how they’ll pay for it. What you and your clients’ families may not be aware of is that the posted tuitions are rarely the price anyone pays. College tuition discounts vary widely and the methodology used to calculate tuitions is not disclosed by any college.

The economic calendar is normal with a focus on housing. Some will be parsing the Fed minutes while others watch the impeachment hearings. This week’s topic may not be a media focus for the week ahead, but it gets constant attention. With a government shutdown and the debt ceiling on the agenda, let’s seize the moment and ask: Is it time to worry about debt? I suspect that many readers believe it is way past time!

A correction is coming, just don't tell the bulls just yet. A technical look at the rapid reversion of sentiment from bearish back to bullish. With more extreme extensions of technical indicators, it suggests a correction is likely over the next few weeks in the stockmarket.

Emerging markets provide many potential investment opportunities, but corporate governance shortfalls can present challenges. Over the years, some countries have moved faster than others to plug their governance gaps. Franklin Templeton Emerging Markets Equity’s Chetan Sehgal and Andrew Ness outline what corporate governance is and how emerging markets are making improvements in this area.

A long-sought goal of advisors is a cost-effective way to hedge one’s equity holdings. I previously wrote about why put options fail to achieve this goal. In this article, I consider whether volatility-based products are any better.

Financial professionals project that clients who experience an unplanned long-term care event may spend their savings 2 to 3X faster than anticipated. Leverage this webinar to help your clients protect against this risk and gain new insights on the importance of including a long-term care plan in your client’s overall retirement strategy. You’ll gain an increased awareness of how a long-term care event impacts your clients and their loved ones, learn new strategies for initiating a LTC conversation and funding options that can help your clients mitigate their risks while feeling confident about the future.