News Mentions & Press Releases

What investment products do millennials want?

September 11, 2017
Case Eichenberger, CIMA, CLS Portfolio Manager — InvestmentNews

Millennial investors don’t want their parents’ investments. This is bad news for mutual funds and good news for ETFs. Case Eichenberger of CLS Investments says millennials want ETFs because they’re more cost effective and evidence based.

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Should You Jump on the Smart Beta Bandwagon?

August 25, 2017
Holly LaFon — U.S. News & World Report

Trendy quantitative exchange-traded funds, also known as smart beta, give investors exposure to algorithm-based strategies that offer lower fees and volatility than expensive, traditional stock-picking funds.

Unlike active funds, which rely on the decision-making skills of human portfolio managers, smart beta ETFs depend entirely on the numbers. The funds choose stocks and rebalance their holdings based on a mathematical or rules-based algorithm, says Marco Avellaneda, professor of mathematics at New York University and an enthusiast who has tracked exchange-traded funds since the 1990s and quant ETFs since 2002.

Though they have existed for decades, smart beta funds have mesmerized lately as the stock-picking talents of hedge and mutual fund managers hit a wall thanks to a market in full gallop. Unwilling to exit the stratospheric market just yet, investors opt for the low volatility and mathematical strategy of smart beta. But producers of the ETFs also have a goal.

Many investment managers are trying to give the public a variety of ETFs that mirror the Standard & Poor’s 500 or other major indexes, but that use rules-based formulas, which Avellaneda calls “a better mousetrap.” The additional features enable these funds to charge more than a traditional ETF. Hedge funds have also gotten into the game. Not wanting to miss the boat on smart beta, they have added more complex algorithms to their own ETFs and charge even more for the effort.

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Why Now Is Not the Time to Invest in FANG

August 21, 2017
Mark Matthews, CLS Investment Research Analyst — Wealth Management

Facebook, Amazon, Netflix, and Google—or FANG as they’ve been romantically referred to—have been atop the leader board in market performance for the last few years. As a result, investors have clustered into these stocks at a pace not seen in the technology sector since the late 90s and early 2000s. Correspondingly, FANG’s overall contribution to market performance has increased 8.5 times since 2012 (see graph below, data as of 6/12/17).

This performance chasing has resulted in a herd-like activity that has consistently caused investors to buy in at market highs, completely ignoring the time tested adage of buying low and selling high. What the graph below will show is that since 2012, herding into FANG stocks has caused the individual securities to trade at a significant premium to the global market. But, as the famous portfolio manager Howard Marks puts it, “No group or sector in the investment world enjoys as its birthright the promise of consistent high returns.” Meaning outperformance isn’t permanent and the notion of mean reversion is almost inevitable. The tech bubble of the early 2000s is a perfect example of such a phenomenon. Investors vehemently poured into tech stocks during then, pushing the Nasdaq from around 1,000 points in 1995 to more than 5,000 in the year 2000. To feed this demand, new internet-based companies were popping up virtually every single week. The frenzy ended in an abrupt halt, however, as the Nasdaq cratered 78 percent after hitting its peak in March 2000. While there are stark differences between the year 2000 and the present that suggest such a downturn in tech is highly unlikely, there are striking similarities that point to the importance of diversifying your exposure rather than piling into an already crowded consortium of just a few stocks.

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How to Invest in an Overvalued Market

August 21, 2017
Rebecca Lake — U.S. News & World Report

When stocks are on a winning streak, investors reap the rewards, but climbing prices often trigger mounting anxiety. And prices have been reaching skyward for some time now. In a recent survey from Bank of America and Merrill Lynch, 44 percent of fund managers say equities are too expensive. By region, a net 84 percent of fund managers say the U.S. is the most overvalued.

Worries about stock prices may be magnified for individual investors, but they should put this in perspective with the larger economy, says Ron Weiner, managing director and partner of RDM Financial Group at HighTower in Westport, Connecticut. “Right now, economic fundamentals remain mostly positive,” he says, citing a double-digit rise in earnings, steady job growth, a stable inflation rate and consistent levels of consumer and business confidence. For fears about overvaluation to be realized, economic conditions need to reverse direction first. Unfortunately, predicting when a bull market will turn into a bear market isn’t an exact science.

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2017 Market Predictions

August 18, 2017
Rusty Vanneman & Joe Smith — Wealth Management

View our 2017 Market Predictions in Mid-Year Review on page 34.

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How Millennials Are Changing Portfolio Management

August 18, 2017
Kostya Etus, CFA, CLS Portfolio Manager — Financial Advisor

Millennials are starting to pop up more and more in financial news because the oldest in that generation (born in the early 1980s) are entering their prime, wealth-building years. This means they are starting to spend more of their savings on weddings, houses, babies and retirement. (Full disclosure: I’m a millennial!)

The entry of millennials into this stage of life presents a lucrative opportunity for financial advisors. Instead of starting with a large asset base that has distributions around the corner (baby boomers), advisors can start with a smaller base—but one that continuously grows. There are some hurdles to overcome, however. Millennials have different mindsets from prior generations, and advisors need to consider these if they are to fully maximize the potential millennials represent.

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ETFs Make Value Investing Easier

August 17, 2017
Paula Wieck, CFA, CLS Portfolio Manager —

This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today’s article features Paula Wieck, portfolio manager at Nebraska-based CLS Investments.

One of the most difficult investment strategies is value investing (buying assets at a price below fair value). Value investing goes against human nature.

When a stock or sector is doing really well, a plethora of positive research becomes available. It’s much more difficult for people in the media (or even professional investment managers) to write positively about something that’s beat up.

To a novice, it can be pretty easy to get wrapped up in the hype of what’s hot. And that leads to buying at a price higher than fair value, an act that can be devastating to future returns.

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Are International Stocks Really Beating U.S. Markets?

August 14, 2017
Case Eichenberger, CIMA, CLS Client Portfolio Manager — ETF Trends

Of course they are! Are you kidding me? It’s not even close! (This is what I imagine you’re saying in your head right now.) Just take a look at the data below from two ETFs that proxy the U.S. and international stock markets: ITOT for the U.S. and ACWX for international.

As of the end of July 2017, international markets have added about 725 basis points of value over U.S. stocks.

Done. Shortest blog ever!

Not so fast. It’s important to look into what factors are contributing to the outperformance of international stocks:

  1. Lower starting valuations. Sure, those help.
  2. Improving earnings. Yes, that is a big one.
  3. GDP growth increasing and, more importantly, growing above expectations. Yes, and yes!
  4. Currency? Let’s look a little closer.

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BlackRock Doesn’t Mind Being Early to This Smart Beta Party

August 11, 2017
Carolina Wilson — Bloomberg

While smart beta is the hottest thing in the exchange-traded fund world, bond portfolios have yet to catch on. But BlackRock Inc. doesn’t mind being early to that party.

The world’s biggest money manager listed the iShares Edge High Yield Defensive Bond ETF, symbol HYDB, and an investment grade version of the fixed-income smart beta fund last month, according to data compiled by Bloomberg. Using smart beta strategies, the ETFs eschew traditional selection and weighting methodologies for customized exposures similar to those provided by active managers.

Drawn in by their growing liquidity, tax efficiency and low fees, U.S. investors funnelled a net $70 billion to bond ETFs in the first half of the year, nearly as much as they added in all of 2016, according to data compiled by Bloomberg. Those flows have largely been confined to market-capitalization weighted funds however, and not to smart beta products, which have proved far stickier with stock investors. Bond buyers continue to have faith in active managers and some remain skeptical of ETFs that use the strategies, said Rob Nestor, head of iShares smart beta at BlackRock.

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What I’m Holding

July 26, 2017
Joe Smith, CFA, CLS Senior Market Strategist — Bloomberg

“Our biggest holdings have been in international value-based ETFs. For example, we are holders of EFV, the iShares MSCI EAFE Value ETF. We also have FNDE, the Schwab Fundamental Emerging Markets Large Company Index ETF.

“For us, both of those represent the best opportunities for global investors in the next 2-3 years. We’re starting to see some rotation out of momentum-related stocks to companies that look relatively attractive because of their valuations, but then also are showing some positives in terms of fundamentals.

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