Thursday 30 September 2010

ETFs: what are the risks? - Telegraph

ETFs: what are the risks? - Telegraph

Thursday 23 September 2010

Greenberg: Can an ETF Collapse? - CNBC

The question of whether an ETF can collapse is the focus of a fascinating new report by Bogan Associates, an under-the-radar investment firm in Boston.
The concern of the Bogan report, as well as other market participants I’ve been talking to, is that the complexity of exchange-traded funds and their increased use as trading vehicles by hedge funds can be quietly but quickly creating serious market risk.

Greenberg: Can an ETF Collapse? - CNBC

Majority Of Money Managers See Market As Undervalued

Majority Of Money Managers See Market As Undervalued

Rethinking The Quarterly Client Meeting

Rethinking The Quarterly Client Meeting

Monday 20 September 2010

How Expense Ratios and Star Ratings Predict Success

How Expense Ratios and Star Ratings Predict Success

How Expense Ratios and Star Ratings Predict Success

How Expense Ratios and Star Ratings Predict Success

Waka Waka, Its time for Africa

Excerpts from an article written by Larry Seruma, CIO of Nile Capital Management, LLC, titled: A Time to Invest in Africa:

For the past two decades, investors around the world have been riveted on the emerging markets of the four high growth BRICs – Brazil, Russia, India and China. However, as these opportunities fade, other high-growth emerging and frontier markets should become attractive and worthy of consideration to be added to an investor’s asset allocation strategy. Several of these markets are located in Africa, the world’s second largest continent by population and land mass, behind only Asia in both measures. With a population of more than one billion spread among 53 nations and almost 12 million square miles, Africa is becoming too big for investors to ignore. Yet, its financial markets and expanding public companies remain shrouded in mystery for most foreigners.

● A ground floor opportunity with potential for high returns - Already we have seen the first wave of strong returns from Africa. The continent’s economic growth is just forming what we believe is a powerful upward curve that will continue for decades and may produce results as rewarding as the BRICs over time.

● Political risks have been exaggerated - The stereotype of an African country ruled by one-party or military dictators is outdated and exaggerated. More than 90% of African nations now have functioning democracies.

● Strong economic and market growth - Nine of the 15 countries with the highest 5 year growth rate are in Africa and the continent is urbanizing at a faster rate than India and is already as nearly urbanized as China.


● Increased global demand for commodities - Africa holds an estimated 30% of the world’s mineral reserves. A supply that simply cannot be ignored. As BRIC countries industrialize, their demand for natural resources will keep increasing and they are turning to Africa as a source of scarce natural resources - especially energy and industrial metals. If you believe in the commodity growth story over the next five (5) years, Africa will be a prime beneficiary of that growth.

● Low correlation to domestic, international and Emerging Markets - Africa has correlations of 0.59 to S&P, 0.66 to MSCI EAFE, and 0.60 to MSCI Emerging Markets. This fact can have dramatic effects within a well positioned portfolio.

● The China Factor- China has increased its trade with Africa from $10 billion to $90 billion over the past decade. China is committed to investing its growing reserves into real assets around the globe and specifically commodities to secure its future economic growth. Africa as the mineral reserves and should benefit.
●Steadily increasing capital flows - Capital flows to Africa now exceed those of three (3) of the four (4) BRIC countries.

Wednesday 1 September 2010

Once in a lifetime...

Bill Miller, legendary market-beating fund manager, chairman and chief investment officer at Legg Mason Capital Management, recently commented in the Financial Times that US large-cap stocks offer fantastic buying opportunities, in his view the best in many decades! While one can debate whether this is true or not true, one thing is certain: One should take serious note whenever Bill Miller is talking about investments...

The common view seems to be that the weak stock market reflects a weakening economy.
But we think the converse is more likely: the weak stock market is causing the economy to weaken. It is not a surprise that the recent US consumer confidence numbers were so poor; with the stock market having fallen so sharply since late April, they could hardly be otherwise.
Using the outlook for the economy to predict the direction of the stock market, which most appear to do, is to look at things the wrong way round. The stock market’s behaviour will predict the economy’s future behaviour. The market’s decline since late April foreshadowed the soft economic numbers now being reported, just as the market’s rally beginning in the spring of 2009 foretold the beginning of the recovery now under way.
Markets are all about expectations and the critical question for investors is always, what is discounted? Are the expectations reflected in market prices too high, or too low? One clue is to look at financial stocks. Financials tend to lead the market, both on the upside and the downside.
They have been market leaders off the bottom in March 2009, and they peaked in 2007 well before the market. They peaked about two weeks before the market in April and have led it down in this correction.
If financials begin to act better, the market should follow; and if they languish, then the market is likely to do no better. Financials in particular and the market in general, have been plagued with a variety of worries since April, when concerns about the Greek financial situation led to a more generalised worry about sovereign debt. The BP oil spill, Goldman Sachs coming under fire from the Securities and Exchange Commission, gold’s relentless rise, the shape of the financial reform bill, the spectre of higher taxes as the Bush tax cuts expire, all weighed on the market during this swoon.
To say that they caused the market drop, though, is a stretch. “What will the stock market do, Mr Morgan?” someone asked JPMorgan over a hundred years ago. “Fluctuate,” he is said to have replied. That’s what markets do, and in late April after eight straight weeks higher, the string was broken. The news is always a mix of positive and negative. When markets decline, people point to the negative news; and when it increases, the positive news is emphasised.
This decline has led to elevated levels of bearish sentiment, and bearish activities, such as rising put call ratios, which is probably setting the stage for a rally. I hope so. But hope is not a strategy, as the saying goes.
Having a long-term strategy may seem quaint in a market dominated by high frequency trading, the 24-hour news cycle, the ubiquitous and shrill blogosphere, flash crashes, and where it is repeated as if divinely given that buy and hold is dead.
The summer of 2010, though, when most global markets are down, pessimism about the future is high, and macro concerns predominate, is one of those rare periods where one can reliably adopt a long-term strategy that promises (but of course cannot guarantee) returns superior to what just about everybody else is now doing.
The public’s distaste for equities is palpable and understandable. Negative returns for 10 years in stocks while “riskless” Treasuries have soared, and right after one of the best six months Treasuries have had in the decade, is more than enough to convince folks that stocks are not good long-term investments.
More than 20 years of superior returns over stocks in an asset guaranteed by the US government seems to be sufficient to drive a stake through the heart of the idea that you want stocks for the long term.

It’s a truism in capital markets that the best investments are those that have previously done worst, where expectations are low, demand is down, and prospects appear at best highly uncertain. In 1980, bonds had been through a 30-year bear market relative to stocks, inflation was soaring, yields were at historic highs, yet expected to go higher, and a long bull market in bonds was at hand.
The idea that US interest rates would be near all-time lows 30 years later would have been dismissed as ludicrous. The situation is now reversed, with stocks having underperformed bonds for decades.
The point here is simple: US large capitalisation stocks represent a once-in-a- lifetime opportunity in my opinion to buy the best quality companies in the world at bargain prices. The last time they were this cheap relative to bonds was 1951. I was one year old then, but did not have sufficient sentience to invest. I do now, and if you are reading this, so do you.

Everything is not hunky-dory...

RGE Monitor's Wednesday Note examines the current state of economic affairs in America. Here are some excerpts from their article:
Growth in Q2 2010 registered a very weak 1.6%, revised down from an original estimate of 2.4%—a sharp slowdown from the 3.7% of Q1. This implies much weaker growth in H1 than even bearish forecasters had expected. Moreover, most of the growth was driven by a temporary inventory adjustment; final sales grew a mediocre 1.1% in Q1 and 1.0% in Q2.

All the tailwinds of H1 will become headwinds in H2. As state and local governments keep retrenching and even the federal stimulus diminishes, the fiscal stimulus will turn into a fiscal drag that will be much more pronounced in 2011 and after some of the 2001-03 tax cuts expire. The base effects from the lousy economic activity figures of 2009 are gone, temporary census hiring is finished and tax incentives—cash for clunkers, the investment tax credit, the first-time homebuyer tax credit and cash for green appliances—have all expired after “stealing” demand and growth from the future.
Personal consumption—70% of aggregate demand—seems off to a rocky start this quarter: Core retail sales for July showed the third decline in the last four months. With inventory restocking over, the investment outlook is equally bleak. Corporate sector capital expenditure, the only component of aggregate demand that grew robustly in H1, appears set to slow: The shipments and new orders indicators of the July durable goods report showed a decline across categories.
Meanwhile, despite the return to marginally positive growth in Q2, investment in non-residential structures will remain anemic at best through H2, given the record-high vacancy rates in commercial real estate. The housing sector is already in a double dip: Single-family starts fell by 4.2% m/m in July, the third consecutive month of decline, and both existing and new home sales touched their all-time lows.
In summary, every component of aggregate demand—with the exception of net exports, which weighed on growth in Q2—appears set to offer a worse contribution to growth in Q3 than the previous quarter.

The truth is that we have not had much of a recovery in the first place, which might prevent the economy from falling enough to display what many would label a double dip—although we are now assigning a 40% probability to such an outcome.
The anemic recovery and downward trend of inflation and inflation expectations are raising concerns that the economy could not only surprise to the downside but eventually stall. A growth rate of 1% or lower (now likely for H2 2010) is a severe growth recession, as potential growth is closer to 3%.
With growth nearly stalled, an unstable disequilibrium arises that is likely to tip the economy into a double-dip recession. The unemployment rate climbs, the budget deficit widens because of automatic stabilizers, home prices keep falling, bank losses are much larger and protectionist pressures come to a boil. Stock markets could sharply correct, and credit and interbank spreads could widen as risk aversion increases.
A negative feedback loop between the real economy and the financial system could easily tip the economy into a formal double dip: The real economy reaches a near-stall speed and risky asset prices correct downward, leading to a negative wealth effect, a higher cost of capital and reduced business, consumer and investor confidence.
Given political and fiscal constraints and banks' unwillingness to lend, we remain doubtful of the potential for policy to prevent a double dip. The real issue facing the U.S. is the need for balance sheet deleveraging and repair, and that will be a multi-year process. The U.S. must brace itself for a long period of below-potential growth.