Tag Archives: dynamic

Opportunities are Present Even During Recessions

Of the last five GDP estimates* released by the Bureau of Economic Analysis, four of them have produced an annualized growth rate below 2.0%**; 0.4%, 1.3%, 1.8%, 3.0%, and 1.9% respectively.  Additionally, the Federal Reserve revised down their own ranged-estimate … Continue reading

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After Apple, SPX Futures Higher; Key Levels

Yesterday started out as planned, or at least according to yesterday’s quantitative levels of 1366 / 1377. After opening up flat, the SPX took to higher levels immediately following the 10 AM economic releases–specifically the revision to last month’s New … Continue reading

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Mixed Data, Mixed Reaction, Awaiting AAPL

The first tick on the SPX today was slightly negative–the low of the day. From there, the SPX made its way to 1375, pausing only briefly in advance of the 10 AM economic releases. Although several indicators came out this … Continue reading

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The Year of Reconciliation, Part I

Last year was a very difficult year in terms of investment management; very rarely will I speak in extremes, but 2011 could have been the most challenging year ever. There was, and still is, a confluence of factors too divergent to properly quantify. This created an environment of high volatility; so high that tactical strategies had trouble achieving, and subsequently maintaining, investment gains. “Buy and Hold” has its own issues involving behavioral risk.

This industry is marred with contradictions. Our timeframes are too long and, simultaneously, too short. Investors seek to maximize growth and moderate risk. Our focus is divided between the macroeconomic situation and microeconomic considerations, both of which drive portfolio decisions. Returns are benchmarked variably; on an absolute basis or relative basis depending on the particular day and/or perspective. Continue reading

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A Redefined Landscape Requires An Updated Map

Imagine creating a map 250 million years ago during the supercontinent phase of Pangaea. You are probably long overdue for an update. Similarly, there is a paradigm shift that is taking place among the investment management community. It is evolving slowly and growing out of necessity. Let’s refer to these strategies as “traditional” and “new normal.” I only suggest “new normal” because it is an already popularized phrase used to describe a time period with a new landscape. The difference between portfolio strategy from the traditional perspective and the new normal perspective is constraint; time constraint, weight constraint and, most importantly, mental constraint.

With time constraint, I’m referring to holding periods with long-term philosophies. With weight constraint, I’m referring to maximum mandated percentages of particular holdings or asset classes. What establishes the prior two obstacles is an emphasis on history; an emphasis that constrains the possibility of what a portfolio structure should resemble in the future. If this is a new normal economic period, it stands to reason that portfolio strategy should be redefined as well. Continue reading

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When the tipping point arrives, how will the market react?

With QE2 ending in June, I can’t help but wonder if we are at a tipping point in anticipation of that date. On the one hand, you have Bill Gross, who runs the world’s largest fund—PIMCO Total Return. On the other, you have Jeff Gundlach, whose Doubleline bond fund outperformed all other bond funds in 2010; gathering $4.5 Billion assets in the process. PIMCO has eliminated Treasuries from its holdings in search for better opportunity—and less risk—elsewhere. The question he poses is this: Who will buy Treasuries? If there is no demand, price will decline. Unless of course, supply also declines and there is demand. Gundlach approaches the situation from this angle, “In any kind of deficit cutting exercise, like we are now heading into, stocks are the losers and bonds are the winners.” Continue reading

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What’s the equation for long-term, consistent returns?

Clients and advisors ask me–all too frequently–“What is a good ETF/Mutual Fund/Stock to invest in?” Generally, these questions are accompanied by some type of buy-and-hold comment indicating these monies are for retirement. Let’s break this question apart in this way: … Continue reading

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Playing by the Rules and Winning the Game

You can distinguish one money manager from another by how well they play the game. In order to determine the winners and losers, you must know the objectives. Here they are: consistent returns, positive returns, and–for the bonus round–outperformance of equity benchmarks at all times. There is no rulebook for this game. Nor was this game shrink-wrapped neatly on the shelf of a Toys-R-Us [sic]. These are the rules imposed by clients. While these requirements do change, the past ten years and the current “new normal” economy have formed these parameters. Continue reading

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Equities with a Volatility Hedge: VQT

For the individual investor, I generally like strategic/dynamic funds whose weightings adapt—it alleviates a lot of the due diligence burden. Target date funds are probably the most widely known example, although VQT might hold the honor of most unique.

Barclays Capital recently launched an exchange traded note: Barclays ETN+S&P VEQTOR (Symbol: VQT). The index underlying this note is a great concept. The S&P 500 Dynamic VEQTOR Index allocates between equity and volatility based on the combination of realized and implied volatility trend decision variables. Continue reading

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Preparing for the New Investment Paradigm

While both fundamental and technical analysis have their place at 85 Broad St, equity markets have structurally changed. No longer is the environment fit for the retail investor. Retail investors, and most asset allocators, are at distinct disadvantages.

Behavioral risk dominates most investment decisions. The investments that generate the largest returns over the next decade are likely to have some of the most volatile price swings. Do you have the tolerance for this volatility? I think not. Therefore, long term investments are not appropriate for you. But it is questionable if you have to capacity to make objective and accurate decisions on a shorter time frame. Whatever your goals are for your investments (e.g. college, retirement, etc), you must invest for both the journey and the destination.

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