Smart beta slow to gain traction among asset managers
Only 15% of those surveyed are comfortable with the term
Apr 30, 2014 @ 11:09 am (Updated 2:41 pm) EST
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Rabu, 30 April 2014
Gross: No asset bubbles given Fed neutral policy rate of 2%
Gross: No asset bubbles given Fed neutral policy rate of 2%
Bill Gross said asset markets from stocks to real estate are not overpriced because the Federal Reserve’s long-term policy rate will be half of what policy makers are forecasting.
Pacific Investment Management Co.’s Bill Gross said asset markets from stocks to real estate are not overpriced because the Federal Reserve’s long-term policy rate will be half of what policy makers are forecasting.
“Estimates which average less than 2 percent are much closer to financial reality than the average 4% ’blue- dot’ estimates” of Fed policy makers, Mr. Gross wrote in his monthly investment outlook posted on Newport Beach, Calif., based Pimco’s website today. He was referring to the Fed’s neutral policy rate, a level that would be consistent with full employment, growth and stable prices.
The Fed’s March summary of policy makers’ economic projections, or SEP, had a median estimate for the long-run policy rate of 4%, unchanged from the December report. The median forecast was for the federal funds rate to move to 1% in December 2015 and 2.25 percent a year later. That compared with estimates in December of 0.75% and 1.75%.
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Mr. Gross has stumbled in the past year after building one of the best long-term track records in the industry. Over the past year, his $232 billion Pimco Total Return Fund, the world’s largest bond fund, has lost 1.85%, trailing 90% of similar funds. Over the past five years, the fund is beating 57% of peers.
LOWER RETURNS
While investors don’t face the risk of market bubbles if the long-run Fed policy rate proves lower than Fed officials now foresee, they will suffer from lower-than-average returns, Mr. Gross wrote. Pension-fund assumptions of 7% to 8% total returns will prove too high, he wrote.
“Still there are ways to fight back -- most of which involve taking different risks than you may be commonly used to taking: alternative assets, hedge funds, leveraged closed-end funds, a higher proportion of stocks versus bonds in a personal portfolio,” he wrote. “All of these alternative are potentially higher-returning assets in a world of 2% policy rates where cash is a poor performing asset, but likewise a cheap liability that can be borrowed to an investor’s advantage.”
Implied yields on federal funds futures traded at the CME Group Inc. exchange signal a 51$ probability the Fed will first increase its target rate in June 2015, according to calculations available on the exchange’s website.
Fed policy makers have cut their monthly debt buying by $10 billion increments at each of their last three meetings, lowering it to $55 billion. The Federal Open Market Committee will complete a two-day policy meeting today and probably will continue with reductions at that pace and end the program in October, economists said in a Bloomberg News survey last month.
(Bloomberg News)
Pimco, a unit of the Munich-based insurer Allianz SE, managed $1.94 trillion in assets as of March 31.
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Hedge funds short small caps most since 2004
Money managers are turning on stocks that have delivered the best returns during the bull market: small caps.
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Selasa, 29 April 2014
The power of IFTTT on Android
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AMG first-quarter profit rises, acquires global equity manager
Affiliated Managers Group Inc., the company that owns stakes in more than two dozen money managers, said first-quarter profit rose 11% as the rally in global stocks boosted assets under management.
Credit: RSS for Investments
Credit: RSS for Investments
Yellen takes another stab at offering clarity on Fed policy without jarring the markets
Yellen takes another stab at offering clarity on Fed policy without jarring the markets
Plus: Visa and MasterCard tighten screws on Russian banks as the list of sanctions grows, bond ladders get snubbed by a fan of bond barbells, checking the math on alternative-investment performance, and the momentum-stock nosedive is real
Apr 29, 2014 @ 7:32 am (Updated 8:16 am) EST
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Senin, 28 April 2014
An alternative way to go when searching for income
An alternative way to go when searching for income
Some things to think about when considering how to use a liquid alts fund for income
On his old “Coffee Talk” routines on “Saturday Night Live,” Mike Meyers played Linda Richman, a New Yorker who worshipped Barbra Streisand and had a knack for identifying commonly used phrases that were internally inconsistent and, when considered, made little sense. “The Middle East is neither in the middle nor in the east. Discuss.” How about, “The Partridge Family was neither a partridge nor a family. Discuss.”
The financial services industry has a number of two-word combos that could use some scrutiny from Ms. Richman. “Risk arbitrage” — arbitrage, in its purest form, is defined as risk free. Discuss. “Private equity” — yes, the companies are private and not publicly traded on a stock exchange but the asset class also consists of debt, not just equity. Discuss. And “hedge fund” — does this mean that the client's returns are hedged against market risk? Discuss.
Institutional investors investing in hedge funds are presumed to be sophisticated and able to decide for themselves how much actual hedging is being done by their managers. Individual investors and their financial advisers, on the other hand, have traditionally not had to concern themselves with the inner workings of hedge funds that they were not allowed to buy. The explosion of new liquid alternative funds has changed the landscape and individual investors now have the opportunity to use the familiar mutual fund format to gain access to investment vehicles that include strategies previously reserved for institutions.
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A good place to start thinking about the sector is to look closely at the term “liquid alternative.”
First, “liquid.” While all funds in the liquid alt space are, by definition, daily priced mutual funds that trade at their net asset value, that does not mean the underlying assets can in every case sustain a bad patch of investor redemptions. Discuss.
Second, “alternatives.” Putting non-traditional assets into a mutual fund may seem alternative by type of holdings, but is the result truly alternative to the other assets a client already owns? Discuss. For example, a leveraged investment in large capitalization U.S. equities held in a liquid alt fund will certainly have produced impressive returns through the first quarter of 2014, but shouldn't investors be concerned about that investment's correlation with core equity holdings?
(More: Five things you need to know before investing in liquid alts)
SEC rules for liquid alts give managers flexibility for asset class and security selection that is not found in traditional mutual funds. A review of the offerings finds many liquid alt funds with an absolute-return focus. Searching for liquid alt funds with an emphasis on income and capital preservation produces very few choices. At a time when large numbers of investors are worried about possible higher long-term interest rates and are holding abnormally large amounts of their portfolios in cash equivalents earning essentially no returns, might a liquid alt structure be used to offer clients a worthwhile level of income without exposing them to undue risk?
In my opinion, an income-oriented liquid alt fund should have:
• Liquid underlying assets owned as part of a strategy that can scale up or down without regard to market conditions.
• Alternative (i.e., very low) correlations to both the equity and debt markets.
• Consistency of criteria for security selection.
• An expense ratio that does not gobble up the income being generated.
To achieve the above objectives, a liquid alt fund would need to step away from the familiar traps and tendencies of being a closet indexer or a momentum follower or a yield chaser.
U.S. equities are in the fifth year of a roaring bull market and interest rates may be moving up. A cautious investor sitting on the sidelines gives up the chance for capital appreciation and is “rewarded” with short-term, microscopic money market returns. Perhaps a little alternative income can play a role in a diversified portfolio? Discuss.
David Sand is chief investment strategist at Community Capital Management Inc.
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Awash in alt fund launches, Morningstar examines coverage standards
Analysts may have to examine less than three years' performance.
The perfect storm: Why alts make sense
High equity prices, low bond yields and geopolitical risk are all leading to new popularity for this once-shunned allocation. Find out how more portfolio strategists are moving away from the traditional 60/40 split.
Alternative investing program targets advisers looking to diversify
Timing of new certification training couldn't be better with stocks at highs and rates set to climb.
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How BDCs stack up against traditional closed-end funds
How BDCs stack up against traditional closed-end funds
Publicly-traded business development companies gaining a foothold among mainstream investors
Thanks to attractive levels of income and distinctive market exposure, publicly-traded business development companies are branching out beyond their traditional institutional investor base to gain a foothold among mainstream investors. Not only do they provide access to an alternative asset class — mainly debt investments in growing small and mid-sized private U.S. businesses — they also avoid the high investment minimums and stringent lock-ups that private limited partnerships usually require.
Comparisons to closed-end high yield bond and leveraged loan funds most readily spring to mind when positioning BDCs within an overall portfolio. At their most basic level, both are closed-end investments governed by the Investment Company Act of 1940 that have the potential to offer higher yields than more conventional income-oriented strategies. Like traditional closed-end funds, BDCs usually elect to be treated as regulated investment companies, meaning they bypass corporate income taxes as long as they distribute at least 90% of taxable annual net income to shareholders.
(Don't miss: Nontraded BDC to list shares on NYSE)
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However, several subtle differences help explain why BDCs are best viewed as complements, rather than competition, to their high yield bond and leveraged loan fund counterparts.
WHERE BDCs DIVERGE
For starters, unlike traditional closed-end funds, which generally favor investments in larger companies that tend to disclose financial and other information with the Securities and Exchange Commission, BDCs primarily invest in debt of private small and mid-sized companies. BDCs can earn higher yields lending to these businesses because there are fewer lenders in this segment of the market. While this debt may be less liquid than a debt investment in a larger company, the underwriting standards and protections built into the loan are generally stronger, reducing the level of credit risk. The net result is that dividend yields for BDCs are generally in the range of 8-12% — materially above yields offered by traditional closed-end funds. For instance, the current yield for the iShares iBoxx USD High Yield Corporate Bond ETF is 5.7%, while the PowerShares Senior Loan Portfolio ETF's is 4.2%. High yield investors who do not feel adequately compensated for the level of assumed risk may want to add exposure to BDCs to enhance their portfolios' risk/return profile.
BDCs are also attractive to investors wishing to diversify their interest rate exposure. Unlike high yield bonds, which typically carry fixed interest rates, many BDCs' underlying portfolios consist of floating-rate securities. In fact, the current industry average of floating rate securities is roughly 60% of total assets, though certain BDCs invest in them almost exclusively. These BDCs are lending at rates that will increase when short-term interest rates climb, so they stand to profit from a rising rate environment.
ORIGINATION PLATFORM OR SECONDARY MARKET?
The entire BDC industry is also benefiting from a changing competitive landscape. After several years of industry consolidation as well as a tougher regulatory environment that has raised the costs of financing small and mid-sized private businesses, fewer banks are lending to this segment. As banks retreat, alternative lenders like BDCs have stepped in, emerging as a conduit of capital to these private businesses.
BDCs with access to an origination platform are at the forefront of the shift away from banks. Because they are sourcing, structuring and underwriting investments directly with borrowers, these BDCs are able to better understand the borrowers' businesses when structuring loans. The closer relationship helps to reduce credit risk for the BDC and can generate additional fee income — on top of the coupon amount — as well as a potential discount on the loan.
Banks have not completely abandoned this market segment, though. They often finance the BDCs, which in turn lend to small and mid-sized private companies. This means BDCs are able to borrow from banks at relatively low cost — especially in the case of BDCs with investment-grade credit ratings — while lending at higher rates. In contrast, many traditional closed-end funds and BDCs without an origination platform either purchase their assets in the secondary market or from other lenders. Being further from the point of origination reduces the amount of fee income as well as any potential loan discounts.
POINTS TO KEEP IN MIND
When selectively adding BDC exposure, there are some important factors to bear in mind. First, only a handful of BDCs are affiliated with leading origination platforms. As mentioned previously, BDCs with access to an origination platform generally take a more active role in structuring transactions, capturing benefits that are largely unavailable to investors without an origination platform.
Second, BDCs generally operate with leverage of up to one times debt-to-equity versus the regulatory leverage of 0.33 times debt-to-equity that typically applies to traditional closed-end funds. Traditional closed-end funds use both structural and portfolio leverage, with the latter including certain types of derivatives, reverse repurchase agreements and tender-option bonds.
In contrast, larger BDCs — especially those with an investment grade credit rating — generally have greater diversity in their capital structure and do not utilize derivatives for leverage.
Third, BDCs are required to offer managerial assistance to their borrowers, and many times can attend the board meetings for their borrowers or have outright seats on the board. This is different than most high yield bond and leveraged loan investors who are mainly passive investors, unless the borrower is distressed.
Finally, BDCs generally disclose more in-depth information more frequently than traditional closed-end funds. SEC oversight mandates transparent reporting from both; however, BDCs file annual and quarterly reports with the SEC that include a detailed schedule of investments and a discussion of the results. Some BDCs also host quarterly conference calls, file 8-Ks and intra-quarter press releases or publish regular newsletters with updates on industry trends and the performance of their portfolio. Traditional closed-end funds generally have lower reporting thresholds which are limited to annual and semi-annual reports and a quarterly schedule of investments.
In a low-rate environment, investors are continually on the hunt for attractive sources of income — and for many, closed-end high yield bond and leveraged loan funds fit the bill. However, adding the right BDC to a portfolio that already has high yield exposure may tip the scales in an investor's favor.
Dean Choksi is executive director of finance and head of investor relations of Fifth Street Management, an alternative asset manager with over $4 billion in assets under management and the SEC-registered investment adviser of two publicly-traded BDCs, Fifth Street Finance Corp. and Fifth Street Senior Floating Rate Corp.
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Nontraded REIT returns: Where to put cash now?
The independent broker-dealer industry fattened up last year on the sale of nontraded real estate investment trusts. The question hanging over IBDs now is whether advisers are prudently reallocating the money of clients who are invested in nontraded REITs, particularly as the trusts continue to perform well and return capital to investors through listings or mergers.
Independent broker-dealers poised to keep roaring in 2014
These are heady times for the independent-broker-dealer industry, which came roaring back to life in 2013 and is poised for another strong year,...
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Ameriprise delivers strong 1Q results
Ameriprise delivers strong 1Q results
By Bruce Kelly
Apr 28, 2014 @ 5:49 pm (Updated 5:53 pm) EST
Armed with strong performance from its advisory and asset management businesses, Ameriprise Financial Inc. delivered on the upside for the first quarter.
The company reported first quarter earnings of $2.04 per share. The asset management and financial advice company beat analysts' estimates of $1.88 per share by 16 cents, according to results issued on Monday.
For the quarter that ended last month, the company's pretax operating earnings from Advice & Wealth Management and Asset Management grew 36% to $364 million, the company reported. Total retail client assets increased 12% to $418 billion, driven by client net inflows, the company said.
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“Ameriprise delivered another strong quarter,” CEO Jim Cracchiolo said in a statement. “Revenues and earnings were up nicely and our operating return on equity reached a new record of 20.8%.”
“Our advisory and asset management businesses continue to drive our growth,” he said. “Clients committed record flows to fee-based wrap programs and we're steadily driving improvement in advisor productivity.”
Financial adviser productivity continued to improve, the company said. On a trailing 12 month basis, operating net revenue per adviser, excluding results from former banking operations, increased 15% to $454,000.
Adviser recruiting remained solid, with 76 experienced adviser moving their practices to Ameriprise during the quarter and the recruiting pipeline remains good, the company said. In total, Ameriprise has a network of 10,000 registered reps in both an employee channel and an independent contractor model.
Bruce Kelly covers the securities industry, with a focus on independent broker-dealers; please contact him if you have news, information or industry scuttlebutt to discuss.
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Wall Street ties to Putin threatened as sanctions ratchet higher
Wall Street leaders including Lloyd Blankfein and James Gorman are facing a dilemma as tensions over Ukraine escalate.
Schwab offers independent advisers access to hot debt market
Firm hopes the move allows it to compete with Wall Street brokerages
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