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Investing
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Could Japan's Long Struggling Economy Finally Be Pulling Out Of Its 25-Year Malaise? |
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Tuesday, May 21, 2013 13:28
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Japan has been running a monetary experiment--shock therapy for its ailing economy. It's highly controversial. While it's similar to the liquidity injected into the Ameircan economy by the Federal Reserve since the financial crisis, the amount of liquidity being injected into Japan's economy is much, much greater. What's interesting is that it is working. This Website Is For Financial Professionals Only
Japan’s $5 trillion economy grew at a robust annualized pace of 3.5% in the first quarter. "The stock market has soared more than 60%over the past year, and the yen has lost more than a quarter of its value, lifting corporate earnings in a country that is dependent on exports," says The New York Times.
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Budget Office Cuts Estimate Of Nation’s 2013 Deficit By 24% |
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Tuesday, May 14, 2013 21:33
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The nonpartisan Congressional Budget Office has slashed its projections of the current-year fiscal deficit because of bigger-than-expected tax receipts and payments from Fannie Mae and Freddie Mac.
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According to The New York Times, in a periodic update to its projections, CBO on Tuesday estimated that the deficit for the current fiscal year, which ends on Sept. 30, would be about $642 billion, or 4% of economic output. Just three months ago, it projected that the current-year deficit would be $845 billion, or about 5.3% of economic output.
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ERISA Attorneys Confirm That Fiduciaries Must Vet Target Date Fund Selections |
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Friday, May 10, 2013 19:48
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In a detailed new analysis, two ERISA attorneys make the case that fiduciaries are “responsible for the prudent selection and monitoring of” target date funds (TDFs) within defined contribution plans.
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Safe harbor provisions for Qualified Default Investment Alternatives (QDIAs) do not relieve fiduciaries of their obligation to vet TDFs, according to this in-depth analysis by attorneys Bernard T. King and Michael R. Daum of Blitman & King, published by Bloomberg Law.
Fiduciaries generally believe they are protected from litigation by two safe harbors in their selection of TDFs: Properly structured TDFs are Qualified Default Investment Alternatives (QDIAs) under the Pension Protection Act of 2006, and as long as they choose among the most popular TDF providers they should be OK.
However, relying on these two factors can lead to breaches of fiduciary duty that will bring lawsuits after the next economic downturn, as I explained last year in this article about the Safe Harbor minefield.
The U.S. Department of Labor released a guide for fiduciaries concerning TDFs in February that agreed with my analysis, and now two prominent ERISA attorneys have done the same. Here is a summary passage from the Bloomberg Law article:
“Regardless of whether the plan fiduciaries responsible for setting the plan’s investment lineup comply with Section 404(c)(5), or whether the mutual fund platform provider would qualify as a fiduciary, the responsible fiduciaries must understand the underlying details about the TDFs they are selecting as the plan’s QDIA. Although the fiduciaries can receive some protection from the QDIA safe harbor, they remain responsible for the prudent selection and monitoring of the TDF. Thus, at a minimum, the responsible fiduciaries should understand the TDF’s glide path, fees, and underlying assumptions. Then, having a general idea about the projected actions and attributes of the plan’s participants and beneficiaries, the fiduciaries should confirm that these characteristics are appropriate for the plan participants.”
For more guidance on selecting TDFs, see my Fiduciary Guide.
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Looking For Love In All The Right Places: Using Heat Maps To Generate Alpha Signals |
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Wednesday, May 01, 2013 20:00
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Tags: investing | investor behavior | stocks | style classification Momentum investing works, and it works best in an opportunity-rich environment. You just need to know where to look.
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A just-published report in Reuters Hedgeworld, which I happened to have authored, demonstrates the power of using heat maps that incorporate sector, style, and country to generate alpha. The report provides heat maps for investors that have proven effective.
The standard disclaimer, “past performance is not an indicator of future results” might not be true, if momentum investing works. Studies have shown that investing in yesterday’s winners can indeed generate alpha over time. Investor behavior is the probable cause of momentum, believing we can buy past performance.
Heat maps are good visuals for finding yesterday’s winners and losers. A heat map shows shades of green for “good,” which in this case is good performance, and shades of red for “bad,” indicating underperformance. Yellow is neutral. The idea is to focus on the dark greens and dark reds for clues on momentum and reversals. The opposite approach to momentum is “regression to the mean,” which seeks reversals – winners switch to losers and vice versa.
Presented below are charts showing back-tested performance results using a very simple rule. “High” takes the three winners in the previous 12 months and invests equally in them for the next quarter. “Low” takes the three worst performers. Results are for the 9.25 years ending March 31, 2013.
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Good Start To 2013 As Domestic Stocks Earn 11% In First Quarter Performance |
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Monday, April 08, 2013 20:12
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Tags: international equities | stocks | style classification | US investing 2013 stock markets started like 2012 stock markets – with a bang. U.S. stock markets kicked off 2013 with a very good 10.7% return. Also like 2012’s first quarter, foreign markets didn’t fare as well, earning only 3.5%. If we merely hold onto these gains for the remainder of the year we’ll do fine.
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In the following I examine the details of what has been working in global stocks, providing quick insights into market segments that have succeeded and failed.
U.S. Stocks
Smaller value stocks led the way in the quarter, earning more than 13%. By contrast, large core companies earned only 7.5% and large value earned 9.5%. Other than these extremes, style returns clustered around 12%. This has been one of those unusual periods where the “stuff in the middle” (core) has not performed in line with the “stuff on the ends.” I use Surz Style Pure® classification throughout this commentary.
On the sector front, health care and consumer staple stocks fared best, earning 15% and 14% respectively. By contrast, materials earned only 1%, and infotech gained only 6%.
Foreign Stocks
Looking outside the United States, foreign markets earned 3.5%, lagging both the U.S. stock market’s 10.7% return and EAFE’s 5.3% return. Japan was the big story, earning 12.8% in $U.S. The return in Japanese yen was an even more impressive 23%. The Japanese stock market soared in the quarter as the yen was weakening against the dollar. By contrast, emerging markets suffered a setback, losing 2%.
On the style front, core surprised, as it did in the United States, but core led rather than lagged.
For more details please visit http://www.ppca-inc.com/Commentaries/20130407-1Q13-Commentary.pdf.
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