Smart Money Insights: Weekly Brief June 7

Pay to Lend Fitch Ratings recently highlighted that global negative yielding sovereign debt topped $10.4 trillion in May, an increase of $500 million from the prior month. Much of the increase was driven by yield declines in additional maturities of Japanese and Italian sovereign bonds. In Japan, quantitative easing and negative interest rates instituted by the Bank of Japan have contributed to negative sovereign yields. In Europe, weak inflation and manufacturing data along with an expansion of the ECB’s economic stimulus program have contributed to the negative yields. 17 Days until Brexit? Last week, we explored possible explanations for a …

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Brexit in 22 Days?

A new Guardian poll reveals a 52 – 48 split among Britons in favor of leaving the EU. The alarming result represents a sharp decline in support for the Remain camp, which held a comfortable ten point lead as recently as mid-May. Commentators attribute Remain’s reversal of fortune to a combination of heated rhetoric surrounding the migrant crisis and a growing skepticism among Britons that a Brexit would negatively impact their personal finances. A recent survey by UK research group Ipsos Mori revealed that 58% percent of respondents believed their standard of living would be unaffected, while a further 9% …

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Smart Money Insights: Weekly Brief May 31

Welcome back after the holiday weekend. Last week we revisited some recent dire predictions that have faded from the headlines. This week, we’ll focus on a single issue — value vs growth stocks – since this is having a big impact on active investors of all stripes. The catalyst is that value-focused ETFs have had inflows of $5.5 billion this year while growth ETFs have seen outflows – causing some to forecast a reversal of the growth-chasing trend over the past several years. Key points follow below. Value Has Performed Terribly vs. Growth There’s a good article today in Bloomberg …

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Smart Money Insights: Weekly Brief May 24

It’s time to revisit some of the big macro risks over the past year.  The risks of $10 oil, a recession in 2016, a sudden devaluation by China, Brexit and a renewed Grexit crisis all appear contained – see below.  If we’d polled readers in January about where the equity markets would be by Memorial Day if those five risks had all subsided in the second quarter, the answer most likely would not have been “flat to down YTD.”  But here we are.  Perhaps the markets are shifting to concerns about more rapid Fed rate hikes or the rise of …

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Smart Money Insights: Weekly Brief May 17

We’re picking up again after a lull due to intensive work on a webinar and several research topics.  First, despite a flat S&P year-to-date, active managers are having one of the worst years on record.  Second, we may be at the tipping point for hedge fund fees – long overdue and a validation of what we’ve been shouting from the rooftops for years.  Third, the equity market recovery seems to be driven by short covering – not a stable foundation.  We are working on several research projects, which will show up as dedicated blog posts.  If there are any specific …

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Chasing Fund Returns is a Very, Very Bad Idea

How does a fund earn over $500 million in management fees yet lose over $1 billion for investors since inception? No, sorry.  It’s not a hedge fund.  It’s a mutual fund:  the Marketfield Fund, arguably the poster child for returns chasing in the liquid alts space. Here’s the background. The Marketfield Fund was launched in July 2007 and outperformed the S&P 500 by a cumulative 34.5% during the crisis. As one of a handful of long/short mutual funds, it stood to benefit from the rise of liquid alts in the years following the crisis. From mid-2008 through the end of …

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Smart Money Insights: Weekly Brief Apr 11

The start of the second quarter saw equity markets decline – continuing a pattern, the S&P fared better than pretty much any other index.  The whipsaws in the market this year are taking a big toll on active investors.  In March, the average large cap fund underperformed the S&P by almost 800 basis points on an annualized basis – a record going back to 1998 – and less than 20% outperformed the index – also a record low.  In some areas, like growth funds, the numbers were far worse.  Hedge funds continue to have problems with crowded trades, and technical …

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Smart Money Insights: Weekly Brief Apr 4

In the words of one hedge fund manager, “At least it’s over.”  This is the typical refrain about the first quarter – for many, what was supposed to work, didn’t.  Small mistakes led to punishing losses.  “Prudent” de-risking in February locked in losses after six weeks of relentless market declines and caused many managers to watch in disbelief as the markets recovered by the end of the quarter.  “Short covering” and unwinding of popular trades inflicted larger than expected losses on some preeminent fund managers.  Here’s a recap of what was working and what wasn’t: Recession Risk is Down Hedge …

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Smart Money Insights: Weekly Brief Mar 21

If March ended today, the first quarter of 2016 would look like a “yawner”: the S&P 500 index rose modestly, emerging markets and commodities bounced nicely after a terrible 2015, some of last year’s gains on the dollar reversed (which eases pressure on corporate profits), and bonds performed nicely in a world of slowing economic growth and aggressive monetary easing. Completely absent from this narrative is the violent churn beneath the surface and the damage to many investment portfolios. In that context, it’s worth revisiting some of the drivers of market volatility this year. Is the US heading into recession? …

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Smart Money Insights: Weekly Brief Mar 14

The widespread reversal of losses through mid-February continued over the past week. The S&P 500 rose 3% and is up over 10% from the trough. Oil closed above $38 per barrel, up over one third from the lows and close to flat YTD. Emerging market stocks were up 9% on the week and are now up 3% this year. The most important, and least understood, event last week was the market’s reaction to the ECB’s significant expansion of quantitative easing. In addition, MLP investors got some bad news and many investors are starting to focus on the severity of Italy’s …

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