News Mentions & Press Releases
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.
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.
View our 2017 Market Predictions in WealthManagement.com Mid-Year Review on page 34.
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.
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.
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:
- Lower starting valuations. Sure, those help.
- Improving earnings. Yes, that is a big one.
- GDP growth increasing and, more importantly, growing above expectations. Yes, and yes!
- Currency? Let’s look a little closer.
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.
“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.
TWST: Do you mind briefly describing your firm and your role in it?
Ms. Wieck: CLS Investments is an ETF strategist and third-party money manager. We manage close to about $8 billion in assets and specialize in ETFs. We work with a lot of different strategies, meaning anything from wealth accumulation, income, tax management and protection strategies, such as the Shelter Fund. Our team is pretty robust. We have 13 people on our investment staff, a combination of portfolio managers and analysts. We work with more than 3,700 financial advisers and 400 broker/dealer partners to manage more than 35,000 client portfolios as well as our own proprietary funds of ETFs.
TWST: Can you provide an overview of the Shelter Fund that you co-manage and its philosophy?
Ms. Wieck: The Shelter Fund is designed for investors who are either more emotional about large losses or have a shortened time horizon. There has been research done from the behavioral-finance perspective that many investors are loss-averse. So a loss in their wealth is a lot more painful than missing out on gains. Sometimes, investors get scared, especially when the market starts correcting or becoming more volatile. They sell at the wrong times. The goal of the Shelter Fund is to help investors stay invested so they can achieve those longer-term financial objectives. It gives a structured, systematic way to respond to market corrections. Since it is also designed for people with a shorter time horizon in mind, it’s a great strategy for investors who are nearing retirement.
TWST: Now, I believe it only invests in exchange-traded funds?
Ms. Wieck: For the most part. We also have the ability to use cash-like products, which could be Treasury bills, money market funds or ETFs.
Knots of our hiking party staggered into the parking lot, most wearing the weary but triumphant smiles that come with completing a great challenge.
But not everyone was there. We waited. And waited. Triumph turned to concern.
Refilling our water bottles, we headed back to search and found our distressed comrade being tended to by two hikers who had found him prone and unconscious on the trail. He was coming to as we arrived, aided by one of the hikers — an EMT in his day job. He gave our friend a brief checkup and pronounced him alive.
Getting a salt tablet into our afflicted friend to help him retain water, we got him on his feet. With our help, with effort and with stops every 200 yards or so for rest and water, he made it back to the trailhead.