Results 51–100 of 282 found.
Risk-On Risk-Off vs Qualitative Market Environments
A “Risk-on Risk-off” environment exists when prices fluctuate relative to investors’ tolerance for risk. In this environment, stocks and sectors tend to be highly correlated. Volatility is often higher during these times as a result of investor uncertainty, similar to what we’ve seen in recent months. Many investors decide to go “all-in” or “all-out”, often through buying or selling an index. Indexes are simple to trade and their market cap weighting is appealing during fearful times.
The Defaults Ahead
Much has been made about the outlook for defaults in the high yield market. Many have speculated that we are at the beginning of a big upturn in that default cycle and thus, this market should be avoided. While this makes for good headlines, the projections we’ve seen, and our own expectations, don’t add up to a big uptick in default rates. Yes default rates will likely increase, but remain below historical averages for the high yield market.
Back To Bodie And The 10/90 Portfolio?
I wanted to follow up on several different ideas including one from quite a few years ago but they all tie together. First up is replacement rates in terms of figuring out how much to plan on for retirement. The Wall Street Journal had an article that says research calls into question the “venerable 80% rule” and there was also a companion piece at ThinkAdvisor. So first I always thought the rule of thumb was actually 70% but either way.
Liquidity Premiums In High Yield Investing
There is no denying that liquidity has become a well-publicized concern in today’s high yield market, with much focus specifically on high yield ETFs. With the post financial crisis regulation that has curtailed market making activity by the large investment banks and dealer inventory, liquidity has decreased and volatility increased. However, we believe that arguments that liquidity concerns within the ETF space will lead to the high yield market’s demise are overblown.
Yieldcos or Yieldnos?
A little over a year ago we looked at a new income vehicle called a yieldco which was highlighted in Barron’s. Over the weekend Barron’s provided an update on the still small niche and basically they’ve had a rough go in the last three or four months although I should note that for the six months prior they were white hot. Along the way GlobalX listed a fund that tracks the space and although not charted below it has also gone down considerably in the last few months.
Fear Mongering in The High Yield Market
There have recently been a few high profile investors that have spoken out against the high yield market, with Carl Icahn among the more vocal. While Icahn may have an agenda or perhaps a short trade in high yield, it is peculiar that he is so vocal against high yield bonds, calling it a bubble, when many of his equity purchases also are high yield issuers, not to mention his Icahn Enterprises is an issuer of high yield bonds.
Done in By Biases?
Howard Gold had a post at MarketWatch noting research that shows baby boomers have too much in equities relative to when they would be likely to retire. He talks about this being poor asset allocation strategy, that it plays into some behavioral finance issues, says that many people need to admit they can’t manage their own money and concludes that everyone should put their 401k money into the target date fund in their 401k most suited to their intended retirement date.
Say Goodbye To The 4% Rule?
Wade Pfau has a white paper posted at FA Mag that pretty much blows up the 4% (retirement withdrawal rate) rule or attempts to anyway. Pfau lists several different factors for why 4% may prove to be too optimistic going forward including longer life spans (the 4% rule was originally conceived with a 30 year retirement and now 40 years may make more sense), the prospect for lower equity market returns (which may or may not happen) and historically low interest rates which we know we have but who knows how long they will remain low and various fees related to investing.
The High Yield Market: A Look at Past Recessions
The Fed interest rate decision came and went with relatively little market reaction. They pushed out an increase in rates, citing concerns about global economic conditions. Like many, we do share their concerns about the global economy, as we expect that it will result in muted growth here at home (and as we have noted in prior writings over the past several months, we’d expect that muted growth to ultimately result in a very moderate move in rates). But some market participants are voicing concerns that this global weakness will lead to a U.S. recession.
Closed End Funds versus Exchange Traded Funds
There are currently a number of fund-based options available to investors looking for yield. In addition to traditional open-ended mutual funds, investors are also turning toward closed end funds (CEFs) and exchange traded funds (ETFs) to generate yield, including in the high yield bond market. Both CEFs and ETFs have continuous trading and pricing throughout the day, making them very liquid options for investors. While CEFs tend to be actively managed, there are both index-based options and actively managed options in the ETF space.
Last week there was an article in the WSJ noting the performance struggles of one of the larger liquid alternative mutual funds. I am not going to link to the article or name the fund because any fund can do very well, attract a lot of assets, then do poorly and lose the assets which is the arc of this fund’s story but instead want to focus on avoid that sort of loop or at least recognizing the potential for that sort of loop so that no one is surprised if/when it happens.
What Value are Credit Ratings?
If there was any question about it, the financial crisis of 2008 demonstrated to us all just how flawed the ratings process is, where AAA debt was suddenly in default and highly rated companies all of a sudden required bailouts seemingly overnight. However in the aftermath, while there have been efforts to reduce our reliance on ratings, it has also become clear that changing the ratings process is exceedingly difficult, if not impossible. They are ingrained in our system and ingrained in the way many people and institutions invest.
The Paradox of Chasing Returns, Part 2
In part one, we looked at the statistics of how difficult it was for hedge fund managers to consistently outperform the universe average. In part two, we wanted to examine the consistency of a hedge fund’s1 performance as its assets grow. We took the HFRI Equity Hedge Fund universe and looked at individual managers’ assets and returns during a recent period. The dataset includes funds reporting at any point between August 2008 to March 2015.
The Paradox of Chasing Returns, Part 1
Our firm often cites a paradox in the hedge fund industry: hedge fund of funds lag the mean hedge fund return. Represented below, the HFRI Fund Weighted Composite Index is composed of individual hedge funds of all types that are equally weighted while the HFRI Fund of Funds Composite Index is a separate index composed of equally weighted funds of hedge funds.
The High Yield ETFs: Market Size, Money Flows, and Liquidity
The entire U.S. fixed income market (municipals, Treasuries, mortgages, corporates, federal agency bonds, money market, and asset back securities) totals $39.2 trillion. Of this, corporate credit is about $8 trillion. The high yield bond market is a growing piece of that corporate debt piece, now at $1.8 trillion, and accounts for over 20% of total corporate bonds outstanding. If you add in high yield floating rate loans, that total high yield debt number moves to over 30% of corporate debt.
High Yield Default Outlook
With the energy markets once again taking a turn downward, we are seeing concern for the high yield market again escalating and talk of a spike in default rates heating up. Yes, the energy industry does make up a large portion of the high yield market, in fact the largest industry holding within the space at about 14-17% depending on the index used. We do expect defaults to increase in this industry.
Mid-Year Update: A Look at the High Yield Market
I have seen every cycle since 1985 and while this cycle which began in 2009 has not been without a few warts, it has also been very different and far more conservative than many of these prior cycles. The majority of issuance was and continues to be for refinancing activity. This lowers interest expense and improves credit metrics for companies. Case in point, as noted below, high yield interest coverage (cash flow, or earnings before interest taxes, depreciation and amortization divided by interest expense) has steadily improved and at the highest levels we have seen over the past 15 years.
Is Gold Dead?
Gold hit $1080 per ounce Sunday night which was the lowest price level since February 2010. Gold in U.S. dollar (USD) terms has a three-year annualized return of -11.1%. It is no wonder that money managers currently carry the smallest net long positions in gold.
The Futility of Retirement Calculators
USA Today syndicated a post from Motley Fool that did a good job taking down the concept of retirement calculators. The two big points made were that these calculators make an assumption based on people needing a percentage of their pre-retirement income, which does not take into account the particulars of individual circumstances, and that the calculators often overlook other sources of income including, in some cases Social Security.
All That Crap About Not Panicking?
It is still true. As I write this post Monday after the close there is still a lot of uncertainty on how Greece will precisely play out. Markets were down on Monday of course, right now the S&P 500 is at 2057 right around where it started the year and is flirting with its 200 day moving average.
The Joy Of Portfolio Boredom
Last week I stumbled across an article that favorably critiqued an alternative-strategy ETF for being boring which is its objective. “Boring” is not the stated objective in the prospectus but terms like market neutral, absolute return, low correlation to equities and some others really are about boredom. You can judge for yourself whether a given fund that is supposed to be boring is indeed boring as not every fund will deliver on its stated objective.
25 Things I Wish I Learned Before I Opened My First Brokerage Account
Brett Arends had a great post about what he wished he’d learned before graduating high school. It was a great mix of financial nuggets, points about not wasting time or money and some other generally sound ideas. With a nod to Arends; things people should know about finance and investing before they start and should be reminded of every so often as they go along.
High Yield Bonds: Rates and Returns
With a number of data points over the past month, including Friday’s better than expected jobs report, pushing the expectations for a September rate hike higher, concerns about the impact of interest rates on various asset classes is heating up. It is important to keep in mind that if and when “rates” do rise, we are talking about the Federal Funds Rate which we expect will primarily impact the short end of the yield curve, and less so those 5-year to 10-year maturities that relate more to the high yield market.
Don’t Follow The News? More Like Don’t Overreact To The News
Tadas Viskanta has a great blog post up titled Make More By Doing (and listening) Less. The general tone of the article is the extent to which investors too frequently are influenced by stock market media enough that they make changes to their portfolio that end up being the wrong thing to have done.
Does It Make My Portfolio Better?
Cliff Asness posted a commentary a few days ago that includes the following; One of the most basic lessons of investing is to think about how each investment impacts your overall portfolio not just its characteristics stand alone. You don’t evaluate your other investment options based on, “Would I trade my whole portfolio for this?” but rather on, “Does it make my portfolio better?”
U.S. Oil Production Dynamics: Now and To Come
In our last commentary (“Energy Markets: There Will be Winners and Losers), we gave our current thoughts on long-term US oil production and the vulnerable sub-sectors within the energy industry. So far this year, US production has been resilient even with rig counts falling over 50% from their highs and capex budgets being slashed
Working In Retirement Is A Hope?
In this scenario their nest egg increases significantly and their monthly expense goes down a fair bit and keep in mind Wheelhaus is very expensive in this realm. There is a resort in Wilson, WY that has a bunch of these from Wheelhaus, we’ve seen them first hand which is how I know about it at all and they are stunning so this sort of downsizing does not have to mean a double wide trailer at ground zero for some future tornado.
The (Investment) World Is Changing And You Need To Get On Board
Fast Company posted an article that looked at existing jobs that are likely to change dramatically or disappear altogether over the next ten years. Change happens of course often spurred along by technology and/or innovation.
Time to Go Active
Earlier this week we saw one of the major financial publications feature an article about how active management has outperformed passive management so far in 2015. While their article and data focused on equity funds, we believe that the same sort of opportunity for active fixed income managers exists over the balance of 2015.
Close to Retirement and Under-Saved, What Should You Do?
A blog post from the Wall Street Journal back in February noted that “the typical working household with a 401(k) approaching retirement had only $111,000 in a 401(k) and IRA.” There are plenty of articles floating around in the last couple of years lamenting how low retirement balances are. If $111,000 is right, that would be one of the higher averages published (obviously it is all in how the data is collected and who is surveyed but that is not the point of this post).
A Look at High Yield Bond and Equity Valuations
There has been talk in the media recently about high yield being overvalued at current levels. However, we feel that historical metrics indicate that we are nowhere near a point of overvaluation; rather, there is still value to be had in this market.
NASCAR, Firefighting, and Investing
Over the weekend at the Geico 500 at the Talladega Superspeedway, the underside of the Number 3 car driven by Austin Dillon caught fire in spectacular fashion. Someone on Dillon’s pit crew advised him to keep driving to the point where one of the racetrack fire crews was positioned which resulted in an instantaneous response and faster suppression of the flames.
High Yield Bonds: A Legislative History and the Opportunity Created
Throughout history of the high yield market there have been various legislative acts that have created and continue to create the market dislocation that allows investors an opportunity to produce what we see as attractive risk-adjusted returns.
To Hedge or Not To Hedge
There have been several blogposts on the merits of buying currency hedged ETFs for foreign equity exposure versus unhedged exposure. The arguments against unhedged ETFs are weak and often false, like “the companies hedge their currency exposure already”.
Social Security & Portfolio Withdrawals; It’s Complicated
The Wall Street Journal ran a blog post that outlined Michael Kitces’ argument for delaying Social Security which can be summed up by saying it should be thought of it as an asset in a portfolio so by waiting, the value of your asset grows.
The Active/Passive Debate: Others Weigh In
In the most recent AdvisorShares Alpha Call Josh Brown and Michael Batnick from Ritholtz Wealth Management discussed at length the importance finding the right strategy and then taking the time to understand the strengths and weaknesses of whatever you decide is the right strategy.
Overview of the Fixed Income Market
As we look at the high yield bond market, it is important to have an understanding of the fixed income marketplace and the investment options within it. The first thing to note is the sheer size, which is massive (just under $40 trillion).1 Somewhat surprisingly, mortgages represent the second largest single subcategory of the bond market; this helps to explain why problems in the mortgage market nearly took down the entire financial system in 2008. The largest subcategory is U.S. Treasury debt.
Is a Lost Decade for Performance Coming?
Game plan the composition of your portfolio for the long term. There will be periods of generally good performance in the market (this will be most of the time) and the occasional declines (12-18 months is a normal duration) and a portfolio’s strategy and composition need to account for cycles and rotating performance leadership. No segment of the market can be the best for all times.
Rates and Bonds
So at long last we know whether the word “patient” stays or goes: it’s gone and Treasury yields have actually declined as a result. So far this year we have seen rates go from a 2015 low of 1.19% on the 5-year and 1.68% on the 10-year on February 2nd, and then spike a month later at 1.70% and 2.24%, respectively, on March 6th. So an over 50bps move in a month all over the worry about the word “patient” and whether rates will rise as early as June. Only for rates to fall after the statement was released and the key word removed.
The Active Passive Debate Evolves by Necessity
Daily Alts took a stab at the topic of evolving asset allocation and the blurring of the line between active and passive citing work/theory done by Eaton Vance. As a starting point, and something we’ve been talking about here for several years, the basic 60/40 may be losing some of its effectiveness especially on the 40 side, the fixed income portion, because interest rates are so low and as we learned from the most recent Fed statement may stay lower for longer. The article also considered a blurring of the line between active and passive management.
The Benefits of Tiny Withdrawal Rates
For about the last year we have been blogging about the concept known as tiny houses. In that time interest has proliferated in terms of new websites devoted to the concept as well as at least four TV shows about tiny houses. The show Portlandia just had a bit making fun of tiny houses in a sketch where the toilet and the office were the same space as was the bathtub/shower and TV area.
Today’s Floating Rate Loan Market
Together the high yield bond and floating rate bank loan market total over $3 trillion.1 This has evolved into a significant, and growing asset class. With high yield bonds and loans now representing about 30% of corporate credit2, this market deserves not only our attention, but we also feel is ripe with opportunity for investors.
Results 51–100 of 282 found.