Why Apple is NOT a Top Ten Holding of 93% of Hedge Funds

To infinity and beyond Buzz Lightyear A recent report by Goldman Sachs describes Apple (AAPL) as a “Very Important Position” (top ten holding) for 47 hedge funds. Overlooked is that fact that it’s not a significant position for 93% of the hedge funds in the survey and represents only a 1-2% overall allocation, less than its weighting in the S&P 500. Further, three years ago it was in fact a top ten holding of 109 hedge funds, so more than half decided to cut back. What happened? Perhaps the real question is, “how cheap is AAPL today?” Carl Icahn, …

Smart Money Insights: Weekly Brief Mar 7

March 7, 2016 Posted by Barbara Nadel Brexit Central Bank China High Yield Oil Smart Money Insights

It’s been an interesting few weeks, to say the least. Equities have recovered, but gains have been very uneven. Some macroeconomic fears have abated, or at least moved off the front page. In this weekly update, we check in on some of the major themes over the past several weeks, such as the likelihood of a US recession, the next move in central bank policy, whether China will devalue, the likelihood that oil has bottomed, or whether there will be contagion from energy sector high yield bonds. Is the US heading into recession? (update from Feb 22) In the first …

Is Warren Buffett a Value Investor?

February 29, 2016 Posted by Barbara Nadel Value Investment Markets

The best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return. Warren Buffett The quote above is a far cry from value investing as described in such canonical works as Graham and Dodd’s Security Analysis (1934). Those works tended to focus on asset rich companies – especially firms with easy to value assets like cash and working capital. The idea was to buy shares at a significant discount to intrinsic value. A lousy company with easy-to-value assets of $100 per share might still be a …

Smart Money Insights: Weekly Brief Feb 29

February 29, 2016 Posted by Barbara Nadel Brexit China Hedge Funds Smart Money Insights

Here’s the second weekly brief. First of all, thank you to Harvest Exchange for welcoming us into the community; our How Smart is Smart Beta? post was very well received. As a follow up to the topics from last week, recession fears have abated somewhat (hedge funds have been right so far…) and the news flow about China has been a little calmer (brief update below). The big story last week was about Brexit – whether the UK will vote in a referendum in June to separate from the EU. If you didn’t catch it, you might enjoy our post …

When a Client Asks, “What is Brexit?” Here’s Your Quick Guide

February 25, 2016 Posted by Barbara Nadel Brexit Europe UK Markets

As we discussed in a post on Market Psychology and the Investor Narrative, the markets get very volatile when a new, large and unfamiliar risk surfaces. Brexit, or the possibility that the UK will decide to exit the European Union, is one such risk. Will it happen? Right now opinion polls are roughly 50-50, and market participants are putting the probability at 40-50% of a yes/Brexit vote on the upcoming referendum on June 23, 2016. So, when a client calls and asks for an explanation, here’s your short primer: Basic points: The European Union consists of 28 member states. Member …

Smart Money Insights: Weekly Brief Feb 22

February 22, 2016 Posted by Barbara Nadel Apple Central Bank China Smart Money Insights

Is the US heading into recession? Does the market decline in January and early February signal that the US is heading into recession? Most hedge funds think not. In the face of surprisingly large drawdowns, most hedge funds appear to be sticking to their guns or even adding to positions in US equities. You don’t see this when there’s widespread concern about the overall economy. Bottoms-up fundamental managers don’t appear to be overly concerned about the US economy, in part because they have concentrated their investments in sectors that have been doing reasonably well (e.g. consumer spending, technology). A few …

Market Pundits in 2016 – A Reality Check

February 18, 2016 Posted by Barbara Nadel Behavioral Finance Markets

Most successful pundits are selected for being opinionated, because it’s interesting, and the penalties for incorrect predictions are negligible. You can make predictions, and a year later people won’t remember them. Daniel Kahneman (Nobel Prize winner in Economics for Behavioral Finance theory) It’s time for a reality check. The scary market narrative right now goes something like this: slower global growth – led by China – unleashed deflationary forces that exposed malinvestment and excessive leverage in commodity and industrial companies that will lead to widespread corporate bankruptcies, sovereign debt defaults and another banking crisis. Central banks are out of monetary …

How Smart is Smart Beta?

February 16, 2016 Posted by Mathias Mamou-Mani Smart Beta Markets

If smart beta is smart, is my beta dumb? First, a definition: smart beta strategies are (allegedly) better ways of getting exposure to equities, bonds and other asset classes than via traditional indices. What precisely does this mean? Let’s assume my core equity allocation is an S&P 500 index fund. Smart beta guys think I have a problem: the index is weighted by market cap. Whenever Standard & Poor’s rebalances it, the weights of winners go up and losers down. In other words, after Google rose 45% in 2015, I buy more Google (ok, “Alphabet”); as Chesapeake Energy dropped 75% …

The Commodity Head Fake

February 9, 2016 Posted by Mathias Mamou-Mani Commodities Markets

Prediction is very difficult, especially if it’s about the future. Niels Bohr In the annals of modern portfolio theory, commodities deserve an award for the biggest diversification head fake of all time. By 2006, commodities looked like the ideal diversifier. Academic studies demonstrated that commodities had consistently generated equity-like returns over decades, but with basically no correlation to other asset classes. Performance over the preceding decade supported this, and allocators extrapolated these return characteristics out into the future. Mean variance optimizers loved it as the new efficient frontier jumped to the upper left. Now fast forward to early 2016. Over …

The Trouble with Oil (Part Three)

February 1, 2016 Posted by Mathias Mamou-Mani Oil Markets

One thing that I’ve realized is that there’s a disconnect in how different investors think about oil. For asset allocators, oil and commodities are a financial asset. Volatility and drawdowns are viewed like those of a stock. Oil down 20% feels a lot like a stock down 20%. For investors in oil company stocks and bonds, however, a 20% decline in oil is much more serious. A stock price primarily reflects a company’s equity and earnings prospects; oil, on the other hand, reflects revenue. A 70% drop in crude prices is like GE selling every product at 70% off. Framed …