tag:blogger.com,1999:blog-169673882024-02-18T23:47:17.682-08:00Bud FoxThe richest one percent of this country owns half our country's wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. It's bullshit. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own.Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.comBlogger1787125tag:blogger.com,1999:blog-16967388.post-15986358229186609672015-11-24T14:29:00.004-08:002015-11-24T14:29:30.353-08:00Baupost Sees Opportunity In Volatile Markets<h1 class="title" style="-webkit-hyphens: manual; color: #1b1b1b; font-family: Georgia; font-size: 1.25em; line-height: 1.4em; margin-bottom: 1em; max-width: 100%;">
<span style="font-size: 21px;">Baupost Group, the hedge fund managed by renowned</span><span style="font-size: 21px;"> </span><a href="http://www.valuewalk.com/2015/11/berkshire-hathaway-50th-anniversary-symposium/" style="color: #416ed2; font-size: 21px; max-width: 100%; text-decoration: none;" target="_blank">value investor</a><span style="font-size: 21px;"> </span><span style="font-size: 21px;">Seth Klarman, saw the value of its funds under management decline by a mid-single digit percentage during the nine months to the end of September, according to the fund’s</span><span style="font-size: 21px;"> </span><a href="http://www.valuewalk.com/2015/11/baupost-group-q3-letter/" style="color: #416ed2; font-size: 21px; max-width: 100%; text-decoration: none;" target="_blank">third quarter letter to partners</a><span style="font-size: 21px;"> dated October 15th.</span></h1>
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<li style="max-width: 100%;">Also see – Baupost Is Said To Decline 3.8% In September On Energy, Biotech by Sabrina Willmer, <a href="http://www.bloomberg.com/news/articles/2015-11-02/baupost-is-said-to-decline-3-8-in-september-on-energy-biotech" rel="nofollow" style="color: #416ed2; max-width: 100%; text-decoration: none;" target="_blank">Bloomberg</a></li>
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However, during the first five days of October the fund erased 75% of these YTD losses, and Seth Klarman expects the market to throw up more opportunities for value investors to take advantage of in the near future.</div>
<figure class="clear" style="clear: both; color: rgba(0, 0, 0, 0.65098); font-family: -apple-system-font; font-size: 21px; margin: 0px; max-width: 100%;"><img alt="Baupost Group Seth Klarman" height="201" src="http://www.valuewalk.com/wp-content/uploads/2014/11/Baupost-vs-SP-1-2.jpg" style="display: block; height: auto; margin: 0.5em auto; max-width: 100%;" width="778" /><figcaption style="font-size: 0.75em; line-height: 1.5em; margin-top: 1em; max-width: 100%; width: 810.359375px;">Baupost Group: Performance since inception</figcaption></figure><h3 style="color: #1b1b1b; font-family: Georgia; font-size: 1.05em; max-width: 100%;">
Baupost: No pressure to perform</h3>
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In Baupost's third quarter letter, Seth Klarman comments on the prevailing market environment. Specifically, Klarman writes that many investors have been lured into the financial markets based on expectations of continued low volatility, a result of extreme policy measures by central banks around the world.</div>
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However, Baupost has remained wary and has not been "captivated by this monetary siren song". Unlike other hedge funds, which have <a href="http://www.valuewalk.com/2015/11/hedge-funds-favorite-equities/" style="color: #416ed2; max-width: 100%; text-decoration: none;">piled into crowded trades</a> under pressure to outperform their peer group on a short-term basis, Baupost has continued to invest with a long-term outlook.</div>
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What's more, the fund's cash balance (Klarman's favorite hedge against volatility) has remained high throughout the year, at more than 40% of the portfolio -- despite significant buying. Another 8% in cash is held in the liquidation of the cash-rich Lehman debtors.</div>
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Baupost continued to invest its capital in new opportunities throughout the third quarter, despite volatility. The fund deployed cash buying public equities, additional Lehman claims, and real estate. All of the investments acquired during the quarter were purchased at a significant discount to Baupost's calculation of underlying value and were attractive even under very conservative assumptions.</div>
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According to <a href="http://www.valuewalk.com/2015/11/hedge-fund-13f-q3-2015-data/" style="color: #416ed2; max-width: 100%; text-decoration: none;">Baupost's 13F SEC filing </a>the fund added nine new equity positions to its portfolio during the quarter, including PayPal Holdings Inc., Twenty-First Century Fox CL B, Olin Corp., Twenty-First Century Fox, AerCap Holdings N.V., LifeLock Inc., Sunrun Inc. and Orexigen Therapeutics Inc. Klarman’s largest buy during the <a href="http://www.valuewalk.com/2015/11/alcoa-aa-elliott-management/" style="color: #416ed2; max-width: 100%; text-decoration: none;">quarter was Alcoa Inc</a>., which is now Baupost’s third largest holding after Cheniere Energy Inc. and Viasat Inc.</div>
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‘Adds’ for the quarter were Cheniere Energy Inc., Pioneer Natural Resources, Antero Resources, Atara Biotherapeutics Inc., Veritiv Corp., ChipMOS TECH, Bellatrix Exploration Ltd., Biotie Therapies Corp. and Sanchez Energy Corp.</div>
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Throughout the third quarter, Baupost spent $2 billion buying public equities, $250 million acquiring undervalued debt instruments and $175 million was spent acquiring real estate. Partially offsetting this buying were almost $500 million of public securities sales, $550 million of mostly profitable real estate monetizations, and $170 million of Lehman distributions in the quarter.</div>
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Baupost: Volatility, opportunity ahead</h3>
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Baupost exited the third quarter with plenty of dry powder on hand and Seth Klarman believes that there will be plenty of opportunities to deploy this capital going forward.</div>
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Indeed, Klarman speculates that the markets are entering an era of greater market volatility, where trading algorithms and investor skittishness drive more frequent and wider swings in the market. Moreover, a great many excesses have built up since the 2008 crisis, many investors, starved of opportunity have piled into the market, exhausting cash resources in the belief that easy money policies will continue to drive returns for the foreseeable future.</div>
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Going into the fourth quarter, Baupost is excited about the enhanced opportunity set on offer but is wary of plunging in head first. The fund remains cautious. It is doing some buying, averaging down while constantly checking and rechecking analysis, validating assumptions, and comparing new opportunities to what's already owned.</div>
Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-75799164680574618582015-11-24T13:09:00.001-08:002015-11-24T13:09:06.713-08:00Bunch O' Charts<div class="separator" style="clear: both; text-align: center;">
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<br />Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-63113621635851475192015-11-22T12:29:00.000-08:002015-11-22T12:29:03.997-08:00Barclays bets on stock boom <h1 class="title" style="-webkit-hyphens: manual; color: #1b1b1b; font-family: Georgia; font-size: 1.25em; line-height: 1.4em; margin-bottom: 1em; max-width: 100%;">
<span style="font-size: 18px;">Barclays has advised clients to jump into world stock markets with both feet, citing the fastest growth in the global money supply in over thirty years and an accelerating recovery in China .</span><span style="font-size: 18px;"> </span></h1>
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Ian Scott, the bank’s global equity strategist, said the sheer force of liquidity will overwhelm the first interest rate rises by the US Federal Reserve, expected to kick off next month. </div>
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Global equities rose by an average 15pc over the six months after the last three US tightening cycles began, on average, and Barclays argues that this time stocks are cheaper. </div>
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The cyclically-adjusted price to earnings ratio (CAPE) for the world’s equity markets is currently 18, compared to 25.5 at the beginning of the last rate rise episode in 2004. </div>
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This is roughly 14pc below the CAPE average since 1980, though critics say earnings have been artificially inflated by companies borrowing a rock-bottom rates to buy back their own stock. </div>
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Mr Scott said the growth of global M1 money – essentially cash and checking accounts – has surged to 11pc in real terms, led by China and the eurozone. This is higher than during the dotcom boom and the pre-Lehman BRICS boom. </div>
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It is likely to ignite a powerful rally in equities nine months later if past patterns are repeated, although the lags can be erratic, and the M1 data gave false signals in the mid 1990s. </div>
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<span style="max-width: 100%;"><img alt="" height="379" src="http://i.telegraph.co.uk/multimedia/archive/03506/barclays_global_mo_3506296b.jpg" style="display: block; height: auto; margin: 0.5em auto; max-width: 100%;" version="b" width="620" /><span style="max-width: 100%;"><span style="max-width: 100%;"></span></span></span></div>
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Barclays said American stocks are trading at a 30pc premium to the rest of the world. This gap is likely to close as emerging markets - "the epicentre of negative sentiment" - come back from the dead. The pattern of foreign fund flows into the reviled sector has triggered a contrarian buy-signal. </div>
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Everything hinges on China where real M1 money has ignited after languishing for over a year. Floor space sold is growing at 20pc and house prices have stabilized. </div>
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Simon Ward from Henderson Global Investors <a href="http://moneymovesmarkets.com/" style="color: #416ed2; font-weight: bold; max-width: 100%; text-decoration: none;">says </a>real M1 is now surging in China at the fastest rate since the post-Lehman credit blitz, though money data is cooling in the US </div>
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Chinese fiscal spending has jumped by 36pc from a year ago and bond issuance by local governments has taken off, drawing a line under the recession earlier this year. "A growth revival is under way and will gather strength into the first half of 2016," he said. </div>
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<span style="max-width: 100%;"><img alt="" height="426" src="http://i.telegraph.co.uk/multimedia/archive/03507/china_m1_ward_3507061b.jpg" style="display: block; height: auto; margin: 0.5em auto; max-width: 100%;" version="b" width="620" /><span style="max-width: 100%;"><span style="max-width: 100%;"></span></span></span></div>
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Barclays is not alone in calling the bottom in emerging markets. Amundi Asset Management is cautiously buying, based on a 'soft-landing' hypothesis for China. </div>
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Kamakshya Trivedi from Goldman Sachs is also nibbling, though the bank remains bearish on China and has ditched its infamous `BRICS' fund to focus on a more coherent concept. </div>
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Mr Trivedi said there is no going back to the "roaring 2000s" but the worst may be over after three years of dire returns. “2016 could be the year emerging market assets start to find their feet," he said. </div>
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Capital Economics has been caustic about the BRICS for several years but said the hard data at last point to a tentative rebound for the emerging market nexus as a whole. "All told, there doesn’t seem to have been much justification for the alarmist talk that gripped the markets in the summer," said William Jackson, the group's senior emerging market economist. </div>
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Sceptics abound. Nobody knows for sure what will happen to the most indebted countries if the Fed embarks on a serious tightening cycle. Dollar debts in emerging markets have jumped to $3 trillion, and much higher under some estimates. </div>
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Private credit in all currencies has risen from $4 trillion to $18 trillion in a decade in these countries. Research by the Bank for International Settlements suggests that rate rises by the Fed ineluctably lifts borrowing costs everywhere. </div>
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Barclays said the US rate rise cycle is a tonic for global financial companies. It has raised its weighting for banks, insurance companies, and other finance stocks to 31.9pc. </div>
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“We think global banks are severely under-priced,” said Mr Scott. He likes AXA, Banco Popular, Citigroup, JP Morgan, Lloyds Banking, ICBC, MetLife, Intesa San Paulo, among others. </div>
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Bonds are likely to suffer if global recovery builds and fears of 'secular stagnation' give way to an incipient reflationary cycle. </div>
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<span style="max-width: 100%;"><img alt="" height="371" src="http://i.telegraph.co.uk/multimedia/archive/03506/barclays_sectors_b_3506304b.jpg" style="display: block; height: auto; margin: 0.5em auto; max-width: 100%;" version="b" width="620" /><span style="max-width: 100%;"><span style="max-width: 100%;"></span></span></span></div>
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The bank said the worst sectors at this phase of the cycle are real estate and utilities. </div>
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Materials and commodities may instead make a come back. These are what it calls the "anti-bond" equities. They are trading at a near record 34pc discount to "bond-proxy" sectors. </div>
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Materials and commodities may make a come back. Barclays is heavily overweight energy - at 11.9pc against the benchmark 6.8pc - backing Shell, Marathon, Total, Conoco, Suncor, and Valero Energy, as well as the fertilizer group Agrium. </div>
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Mr Scott said "value stocks" - underpriced relative to fundamentals - are about to come into their own again. These are trading at the cheapest level relative to "growth stocks" since the dotcom bubble, based on the CAPE measure. </div>
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Barclays is betting that the 12pc rout on global stock markets this summer was a false alarm - or a pause to catch breath - along the lines of the Asian financial crisis in 1998. The blast of stimulus that followed in 1998 drove a two-year boom in global equities before the cycle ended. </div>
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The bank may be wrong but there are no signs of the complacency and wild 'animal spirits' that typically mark a speculative top. The bull/bear ratio tracked by Investor's Intelligence is far below previous late-cycle peaks. </div>
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As long as markets are climbing the proverbial wall of worry, investors can take comfort. Pessimism is a fund-manager's best friend.</div>
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Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-68056859206003806642015-11-13T10:52:00.002-08:002015-11-13T10:52:20.664-08:00Is Value Set For A Comeback?<h1 class="title" style="-webkit-hyphens: manual; color: #1b1b1b; font-family: Georgia; font-size: 1.25em; line-height: 1.4em; margin-bottom: 1em; max-width: 100%;">
<span style="font-size: 18px;">Since 2008, value investing has underperformed growth investing for the longest period on record. As a result, at the end of August, value was trading at its widest valuation discount to growth since the Dotcom Bubble of the late 1990s.</span></h1>
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And value’s performance since the financial crisis has been unexpected. Value investing as a style has historically outperformed growth more. Still; past results are no guarantee of future performance, and there’s no guarantee that value will recover.</div>
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However, as <a href="http://www.ftinstitutional.com/downloadsServlet?docid=if6u38gb" rel="nofollow" style="color: #416ed2; max-width: 100%; text-decoration: none;" target="_blank">Franklin Templeton points out</a> when major global central banks begin policy normalization, the idea of <a href="http://www.valuewalk.com/2015/10/pboc-interest-rates/" style="color: #416ed2; max-width: 100%; text-decoration: none;">mean reversion, or normalization</a>, offers an intuitive argument for an eventual recovery in value. Securities trading at a discount to the fundamental value of their underlying businesses are not likely to maintain <a href="http://www.valuewalk.com/2015/10/the-low-interest-rates-and-the-value-investor-an-sp-500-story/" style="color: #416ed2; max-width: 100%; text-decoration: none;">that discount indefinitely.</a></div>
<figure class="clear" style="clear: both; color: rgba(0, 0, 0, 0.65098); font-family: -apple-system-font; font-size: 18px; margin: 0px; max-width: 100%;"><img alt="" height="616" src="http://i.imgur.com/8qBM3Zk.png" style="display: block; height: auto; margin: 0.5em auto; max-width: 100%;" width="551" /><figcaption style="font-size: 0.75em; line-height: 1.5em; margin-top: 1em; max-width: 100%; width: 674.59375px;">Value returns</figcaption></figure><h3 style="color: #1b1b1b; font-family: Georgia; font-size: 1.05em; max-width: 100%;">
Rare opportunity</h3>
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For value investors looking to snap up bargains, there hasn’t been an opportunity like this since 2000. The price-to-tangible book value of the MSCI World Value Index vs. the MSCI World Growth Index is now at its lowest level since late 2000/ early 2001. Value-oriented stocks trade at a 75% discount to growth in terms of price-to-tangible book value — two standard deviations below the long-term average level based on figures to the end of August.</div>
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<a href="http://www.valuewalk.com/wp-content/uploads/2015/11/PTBV.png" style="color: #416ed2; max-width: 100%; text-decoration: none;"><img alt="PTBV" class="clear" height="613" src="http://www.valuewalk.com/wp-content/uploads/2015/11/PTBV.png" style="clear: both; display: block; height: auto; margin: 0.5em auto; max-width: 100%;" width="580" /></a></div>
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According to <a href="http://www.ftinstitutional.com/downloadsServlet?docid=if6u38gb" rel="nofollow" style="color: #416ed2; max-width: 100%; text-decoration: none;" target="_blank">Franklin Templeton</a>, it’s unlikely that value will continue to trade at a discount to growth indefinitely. The concept of mean revision offers an intuitive argument for an eventual recovery in value.</div>
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The post-global <a href="http://www.valuewalk.com/2015/11/liquidity-management-of-hedge-funds-around-the-2008-financial-crisis/" style="color: #416ed2; max-width: 100%; text-decoration: none;">financial crisis</a> era brought a new wrinkle to the idea of normalization: ZIRP—the zero-interest-rate policies pursued by the world’s most powerful central banks. Indeed, the rising tide of cheap, readily available credit has seemingly lifted all boats, delaying bankruptcies and restructurings and creating a broadly indiscriminate trading environment. Sustained high <a href="http://www.valuewalk.com/2014/08/equity-hedge-funds-lag-global-equity-june-ubs/" style="color: #416ed2; max-width: 100%; text-decoration: none;">equity correlations</a> still stand as a testament to the market’s indifference to bottom-up fundamentals.</div>
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Meanwhile, the almost non-existent yields offered by bonds perceived as “risk-free” has forced investors up the risk curve into higher yielding debt. Bond investors have also been forced into equities in their search for yield and equity investors chasing growth in a yield-starved environment have incurred a tremendous amount of volatility just to keep up.</div>
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“This is not how the market’s risk–reward proposition is typically framed over time. Dislocations have become extreme, and once conditions potentially normalize, the market’s eventual snap-back to its typical function as cash-flow discounter and value arbiter could be profound, much to the potential benefit of patient, value-oriented equity investors.” — <a href="http://www.ftinstitutional.com/downloadsServlet?docid=if6u38gb" rel="nofollow" style="color: #416ed2; max-width: 100%; text-decoration: none;" target="_blank">Source</a></div>
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Tracking interest rates</h3>
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Historically, the performance of value as a style has been closely correlated with the interest rate cycle. If you believe that interest rates will never head higher again, then value isn’t the strategy for you. But if we take the view that over the long-term, <a href="http://www.valuewalk.com/2015/10/the-coming-us-interest-rates-tightening-cycle-smooth-sailing-or-stormy-waters/" style="color: #416ed2; max-width: 100%; text-decoration: none;">interest rates will head higher</a>, value as a strategy is appealing for the long-term investor. The Fed’s long-term directional preference is clear when it comes to interest rates.</div>
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The entire discipline of value investing revolves around buying stocks when they are out of favor. Global stocks recently have been correcting, value has underperformed for the longest stretch on record, and we may be approaching the trough of a long-term interest rate cycle; what better time for contrarian investors to re-commit to value?</div>
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<a href="http://www.valuewalk.com/wp-content/uploads/2015/11/value-vs-interest-rates.png" style="color: #416ed2; max-width: 100%; text-decoration: none;"><img alt="value vs interest rates" class="extendsBeyondTextColumn" height="342" src="http://www.valuewalk.com/wp-content/uploads/2015/11/value-vs-interest-rates.png" style="display: block; height: auto; margin: 0.5em auto 0.5em -38px; max-width: none; width: 750px;" width="750" /></a></div>
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Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-56650098231169964392015-11-13T10:47:00.001-08:002015-11-13T10:47:40.182-08:00Extremely Narrow<h3 style="border: 0px; color: #36424a; font-family: 'Futura T W01 Book'; font-size: 1.5em !important; font-weight: normal; line-height: 1.2em; margin: 15px 0px 2px; outline: 0px; padding: 0px 0px 2px; vertical-align: baseline;">
The market has been extremely narrow this year and as a result YTD returns have been strictly about what you own. The tables below show how the 10 largest stocks in the S&P 500 have contributed more the 100% of this year’s 2% gain. Compare that to 2013 and 2014 where the largest 10 stocks contributed less than 20% of the year’s returns. Market leadership remains tied to a handful of stocks which is why it hasn’t been profitable to simply have been long the market this year.</h3>
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<a href="http://www.otterwoodcapital.com/wp-content/uploads/2015/11/Strategas-Tables.png" style="border: 0px; color: #455560; margin: 0px; outline: 0px; padding: 0px; text-decoration: none; vertical-align: baseline;"><img alt="Strategas Tables" class="size-full wp-image-6990 aligncenter" height="466" src="http://www.otterwoodcapital.com/wp-content/uploads/2015/11/Strategas-Tables.png" style="border: 0px; display: block; height: auto; margin: 6px auto 10px !important; max-width: 100%; outline: 0px; padding: 0px; vertical-align: baseline;" width="1198" /></a></div>
Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-50786364086658696152015-10-06T04:31:00.001-07:002015-10-06T04:31:18.717-07:00Templeton Betting on `Multi-Decade' Emerging-Market Opportunity<div data-view-uid="2|0_7_2_10" style="box-sizing: border-box; -webkit-font-smoothing: antialiased;"><header class="standard-image-lede standard-lede lede" style="box-sizing: border-box; -webkit-font-smoothing: antialiased; margin-top: 4.375rem; width: 40rem;"><h1 class="lede-headline" itemprop="name headline" style="box-sizing: border-box; -webkit-font-smoothing: antialiased; margin: 0px; line-height: 4rem; font-weight: normal; padding: 0px;"><br></h1></header></div><div data-view-uid="2|0_7_2_3" style="box-sizing: border-box; -webkit-font-smoothing: antialiased;"><section class="article-body" itemprop="articleBody" style="box-sizing: border-box; -webkit-font-smoothing: antialiased; line-height: 1.618em; position: relative; padding-bottom: 2.5rem; 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box-sizing: border-box; -webkit-font-smoothing: antialiased; -webkit-transition: opacity 0.2s ease; transition: opacity 0.2s ease; text-decoration: none; outline: 0px; display: block; line-height: 3rem; cursor: pointer; width: 1.875rem; height: 3rem; margin: 0px auto; border-bottom-width: 0px;"></a></div></div></div></div></div></div></div><div class="article-body__content" style="box-sizing: border-box; -webkit-font-smoothing: antialiased; float: right; width: 37.5rem;"><p style="box-sizing: border-box; -webkit-font-smoothing: antialiased; margin-top: 0px; margin-bottom: 0px;"><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">The recent selloff in emerging-market assets, including Mexico and Malaysia’s currencies, has opened up investment opportunities not seen for decades, according to Franklin Templeton’s Michael Hasenstab, who’s well known for making contrarian bets.</span></p><p style="box-sizing: border-box; -webkit-font-smoothing: antialiased; margin-top: 1.25rem; margin-bottom: 0px;"><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">“On a valuation basis, this is not a once-a-decade, this is a multi-decade opportunity to be buying very cheap assets,” Hasenstab, who oversees 30 funds with $143 billion in assets, said in an <a itemscope="itemscope" itemprop="StoryLink" href="https://www.youtube.com/watch?v=QQ0qpf2ZnRo&feature=em-uploademail" title="Dr. Michael Hasenstab: Uncovering A Once in a Multi Decade Opportunity" target="_blank" style="box-sizing: border-box; -webkit-font-smoothing: antialiased; transition: color 0.1s ease-out; -webkit-transition: color 0.1s ease-out; text-decoration: none; outline: 0px; border-bottom-width: 1px; border-bottom-style: solid; border-bottom-color: rgb(43, 0, 247);">interview</a> posted on YouTube Monday. “We are not buying everything,” but “there are a handful that have been caught up in the turmoil that we think are diamonds in the rough,” he said.</span></p><figure class="inline-image inline-media right " style="box-sizing: border-box; -webkit-font-smoothing: antialiased; display: inline-block; margin: 1.875rem 2.5rem 0px 0px; padding: 0px; position: relative; clear: none; width: 22.5rem; float: left;"><div class="inline-media__unlinked-image" style="box-sizing: border-box; -webkit-font-smoothing: antialiased; position: relative; cursor: pointer;"><img data-attachment-key="240769806" src="http://assets.bwbx.io/images/izmr4t18zvo8/v2/-1x-1.jpg" srcset="" alt="Michael Hasenstab" data-pfsrcset="http://assets.bwbx.io/images/izmr4t18zvo8/v2/488x-1.jpg 488w, http://assets.bwbx.io/images/izmr4t18zvo8/v2/628x-1.jpg 628w, http://assets.bwbx.io/images/izmr4t18zvo8/v2/750x-1.jpg 750w, http://assets.bwbx.io/images/izmr4t18zvo8/v2/1200x-1.jpg 1200w, http://assets.bwbx.io/images/izmr4t18zvo8/v2/-1x-1.jpg 2417w" width="768" style="box-sizing: border-box; -webkit-font-smoothing: antialiased; border: 0px; max-width: 2417px; display: block; position: relative; margin: 0px auto; z-index: 1; width: 360px;"></div><figcaption class="inline-media__info" style="box-sizing: border-box; -webkit-font-smoothing: antialiased; position: relative; padding: 0.9375rem 0px; z-index: 1; margin-left: 1.25rem; line-height: 1.125rem;"><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><div class="inline-media__caption" style="box-sizing: border-box; -webkit-font-smoothing: antialiased; line-height: 1.125rem; display: inline;">Michael Hasenstab</div> <div class="inline-media__credit" style="box-sizing: border-box; -webkit-font-smoothing: antialiased; line-height: 1.125rem; margin-top: 0.9375rem; display: inline;">Source: Franklin Templeton Cos LLC via Bloomberg</div></span></figcaption></figure><p style="box-sizing: border-box; -webkit-font-smoothing: antialiased; margin-top: 1.25rem; margin-bottom: 0px;"><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">The San Mateo, California-based money manager said he’s buying the Mexican peso, Malaysian ringgit and Indonesian rupiah, while avoiding assets in Turkey, South Africa and Russia. He’s also betting on an increase in U.S. Treasury yields and sees the dollar strengthening against the euro, yen and the Australian currency.</span></p><div data-view-uid="2|0_7_2_5" style="box-sizing: border-box; -webkit-font-smoothing: antialiased;"></div><p style="box-sizing: border-box; -webkit-font-smoothing: antialiased; margin-top: 1.25rem; margin-bottom: 0px;"><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Hasenstab, an avid mountaineer who climbed Mount Everest, is doubling down on emerging markets after a slowdown in China’s growth rate, a slump in commodities and the prospect for an increase in U.S. interest rates roiled markets from Brazil to Malaysia. E<span class="apple-converted-space" style="box-sizing: border-box; -webkit-font-smoothing: antialiased;">merging markets <span class="apple-converted-space" style="box-sizing: border-box; -webkit-font-smoothing: antialiased;">are set to record the first net capital outflow since 1988, the <a bbg-destination="https://www.iif.com/" data-rte-autocap="false" data-rte-autocorrect="false" data-rte-spellcheck="false" href="https://www.iif.com/" data-destination="https://www.iif.com/" target="_blank" style="box-sizing: border-box; -webkit-font-smoothing: antialiased; transition: color 0.1s ease-out; -webkit-transition: color 0.1s ease-out; text-decoration: none; outline: 0px; border-bottom-width: 1px; border-bottom-style: solid; border-bottom-color: rgb(43, 0, 247);">Institute of International Finance</a> estimated last week.</span></span></span></p><h3 style="box-sizing: border-box; -webkit-font-smoothing: antialiased; line-height: 1em; font-weight: normal; margin: 1.25rem 0px 0px; padding: 0px;"><span class="apple-converted-space" style="box-sizing: border-box; -webkit-font-smoothing: antialiased; font-size: 17px; -webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Big Bets</span></h3><p style="box-sizing: border-box; -webkit-font-smoothing: antialiased; margin-top: 1.25rem; margin-bottom: 0px;"><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">The Mexican peso has fallen 12 percent this year and reached record lows, while the ringgit tumbled 20 percent to levels last seen during the 1997-1998 Asian financial crisis.</span></p><p style="box-sizing: border-box; -webkit-font-smoothing: antialiased; margin-top: 1.25rem; margin-bottom: 0px;"><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Hasenstab’s view on emerging markets stand in contrast with some of the biggest hedge funds. Fortress Investment Group LLC told investors last month that emerging markets are at the beginning of a bear market that could rival the Asian financial crisis of 1997. Ray Dalio’s Bridgewater Associates has said the impact of emerging-market losses is likely to be more widespread than in the crises of the 1980s and 1990s because investors have more money invested in developing markets.</span></p><p style="box-sizing: border-box; -webkit-font-smoothing: antialiased; margin-top: 1.25rem; margin-bottom: 0px;"><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">During his 20 years at Franklin Templeton, Hasenstab has established his reputation as a bond manager by placing large bets on assets when they were plunging. He made billions of dollars by scooping up Irish debt in July 2011, eight months after the country entered an international bailout.</span></p><div data-view-uid="2|0_7_2_6" style="box-sizing: border-box; -webkit-font-smoothing: antialiased;"></div><p style="box-sizing: border-box; -webkit-font-smoothing: antialiased; margin-top: 1.25rem; margin-bottom: 0px;"><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Hasenstab has a history of being bullish on emerging-market debt. In an interview in 2002, he said he had a “fairly optimistic” view on developing markets, and over the years reiterated his positive outlook on debt in countries including Russia, the Ukraine and Malaysia.</span></p><h3 style="box-sizing: border-box; -webkit-font-smoothing: antialiased; line-height: 1em; font-weight: normal; margin: 1.25rem 0px 0px; padding: 0px;"><span style="font-size: 17px; -webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Ukraine Deal</span></h3><p style="box-sizing: border-box; -webkit-font-smoothing: antialiased; margin-top: 1.25rem; margin-bottom: 0px;"><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">His reputation was tarnished after an investment in Ukraine turned sour as the conflict-torn country defaulted on its bonds. A Templeton-led creditor committee holding about half of the country’s $18 billion Eurobonds reached a restructuring deal with the Ukraine government in August.</span></p><p style="box-sizing: border-box; -webkit-font-smoothing: antialiased; margin-top: 1.25rem; margin-bottom: 0px;"><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Hasenstab’s Templeton Global Bond Fund, which manages $61 billion, has lost 6.1 percent this year, trailing 85 percent of its competitors, as some of its wagers on emerging markets flopped, according to <a itemscope="itemscope" itemprop="StoryLink" href="http://www.morningstar.com/funds/XNAS/TPINX/quote.html" title="Fund Performance" target="_blank" style="box-sizing: border-box; -webkit-font-smoothing: antialiased; transition: color 0.1s ease-out; -webkit-transition: color 0.1s ease-out; text-decoration: none; outline: 0px; border-bottom-width: 1px; border-bottom-style: solid; border-bottom-color: rgb(43, 0, 247);">Morningstar Inc.</a> It returned 7.1 percent annually over the past decade, beating 99 percent of its peers.</span></p><p style="box-sizing: border-box; -webkit-font-smoothing: antialiased; margin-top: 1.25rem; margin-bottom: 0px;"><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">At the end of June, the fund had invested about 14 percent of its assets in South Korea, according to <a itemscope="itemscope" itemprop="StoryLink" href="https://www.franklintempleton.com/forms-literature/download/406-FF" title="Fund Fact Sheet" target="_blank" style="box-sizing: border-box; -webkit-font-smoothing: antialiased; transition: color 0.1s ease-out; -webkit-transition: color 0.1s ease-out; text-decoration: none; outline: 0px; border-bottom-width: 1px; border-bottom-style: solid; border-bottom-color: rgb(43, 0, 247);">the company’s Website.</a> Mexico accounted for 9 percent, while Malaysia made up about 7 percent, ranking as the second- and third-largest holdings. Franklin Templeton funds were the largest owner of Malaysian government local-currency bonds due in the next 30 months among funds that disclosed their holdings, Bloomberg reported in August.</span></p><p style="box-sizing: border-box; -webkit-font-smoothing: antialiased; margin-top: 1.25rem; margin-bottom: 0px;"><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Hasenstab said the biggest risk for global investors over the next few years is rising U.S. Treasury yields, partly because the Federal Reserve is at risk of losing “credibility” in fighting inflation.</span></p><p style="box-sizing: border-box; -webkit-font-smoothing: antialiased; margin-top: 1.25rem; margin-bottom: 0px;"><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">“While over the last 30 years, I wanted to make money by declining rates, we think over the next five years, you want to make money by rising rates,” he sai</span><font color="#3c3c3c" face="TiemposTextWeb-Regular, Georgia, serif"><span style="font-size: 1rem; -webkit-text-size-adjust: 100%;">d.</span></font></p></div></section></div>Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-27996025607768294642015-10-05T10:16:00.002-07:002015-10-05T10:16:21.843-07:00The always outstanding monthly Mutual Fund Observer is out (link)http://www.mutualfundobserver.com/2015/10/october-1-2015/<br />
<br />Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-52685636615200781002015-09-28T19:05:00.002-07:002015-09-28T19:05:47.894-07:00Chart-tacular<div class="separator" style="clear: both; text-align: center;">
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<br />Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-30398119508377426082015-09-28T18:40:00.002-07:002015-09-28T18:40:53.613-07:00Bridgewater on Risk Parity (September Update)https://www.bwater.com/Uploads/FileManager/research/Our%20Thoughts%20about%20Risk%20Parity%20and%20All%20Weather.pdf<br />
<br />Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-89898108018977686442015-09-28T18:38:00.002-07:002015-09-28T18:38:58.168-07:00Emerging Markets Sentiment Summed Up...<span style="background-color: white; font-family: 'Open Sans', Helvetica, Arial, sans-serif; font-size: 13px; line-height: 22px;">The number of money managers with “underweight” positions in emerging markets touched a 10-year high, according to September’s monthly survey of fund managers from Bank of America Merrill Lynch. “It is too early to call a bottom in emerging markets, but valuations now appear attractive,” </span><a href="http://www.cnbc.com/2015/09/27/emerging-market-etfs-suffered-19-billion-of-outflows-so-far-this-year.html" style="border: 0px; color: #757575; font-family: 'Open Sans', Helvetica, Arial, sans-serif; font-size: 13px; line-height: 22px; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">says</a><span style="background-color: white; font-family: 'Open Sans', Helvetica, Arial, sans-serif; font-size: 13px; line-height: 22px;"> Ursula Marchioni, chief strategist at BlackRock’s iShares ETF division.</span>Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-85058135854946683022015-09-10T17:47:00.002-07:002015-09-10T17:47:53.518-07:00DB: Developed Markets Stocks & Bonds Have Never Been This Universally Expensive<div style="font-family: 'Lucida Grande', Verdana, sans-serif; font-size: 13px; line-height: 17.333332061767578px; margin-bottom: 0.75em; margin-top: 0.25em;">
Thanks to the new normal world of extremely loose monetary policy and extraordinary accumulations of financial assets by Central Banks, Deutsche Bank finds that we live in a period not of selectively expensive global asset prices, but of <strong>record "expensiveness" across developed market bonds, stocks, and real estate</strong>.<br /> </div>
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<strong>In aggregate, across the three main asset classes, average valuations are close to the highest they’ve ever been relative to their long-term trend.</strong> The current reading of just under 80% is similar to that seen at the turn of the twentieth century and during the 1940s when financial markets were artificially repressed around war time.</div>
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And, based on Deutsche's valuation metrics, <strong>bonds and equities alone are at their highest ever combined valuations when aggregated across these 15 countries</strong>.</div>
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<a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/09/20150908_rich.jpg" style="color: #666666; text-decoration: none;"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/09/20150908_rich.jpg" style="border: 0px; height: 393px; max-width: 100%; width: 546px;" /></a></div>
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In addition, <strong>83% of observations are in their top 20% of valuations through history.</strong></div>
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<a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/09/20150908_rich1.jpg" style="color: #666666; text-decoration: none;"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/09/20150908_rich1.jpg" style="border: 0px; height: 385px; max-width: 100%; width: 534px;" /></a></div>
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<u><strong>Peak Asset Prices?</strong></u></div>
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<em>Source: Deutsche Bank</em></div>
Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-82904381622838249112015-09-10T17:33:00.001-07:002015-09-10T17:33:50.616-07:00It's OK - Janet will know what to do<div class="separator" style="clear: both; text-align: center;">
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<br />Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-56778627967136891222015-09-10T17:31:00.002-07:002015-09-10T17:31:07.288-07:00Shhhh.... Don't tell anyone: Copper has quietly rallied 9% off the lows<div class="separator" style="clear: both; text-align: center;">
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<br />Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-64013457669051951452015-09-10T17:10:00.001-07:002015-09-10T17:10:05.969-07:00Various Graphics / Charts / Comments<div class="separator" style="clear: both; text-align: center;">
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<br />Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-10887716549741490652015-09-04T05:23:00.004-07:002015-09-04T05:23:33.452-07:00Leon Cooperman Blames Risk Parity For Market Chaos<h1 class="title" style="-webkit-hyphens: manual; color: #4b4b4b; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; font-size: 1.5em; font-weight: normal; line-height: 1.25em; max-width: 100%;">
<span style="color: #414141; font-size: 28px; line-height: 39px;">Last week JPMorgan Chase & Co. (</span><a href="http://www.valuewalk.com/stock-data/?stock_symbol=NYSE:JPM" style="color: #416ed2; font-size: 28px; line-height: 39px; max-width: 100%; text-decoration: none;" title="Array">NYSE:JPM</a><span style="color: #414141; font-size: 28px; line-height: 39px;">) Chase & Co.</span><span style="color: #414141; font-size: 28px; line-height: 39px;"> </span><a href="http://www.valuewalk.com/2015/08/jpmorgan-ctas-marko-kolanovic/" style="color: #416ed2; font-size: 28px; line-height: 39px; max-width: 100%; text-decoration: none;" target="_blank">warned its clients</a><span style="color: #414141; font-size: 28px; line-height: 39px;"> </span><span style="color: #414141; font-size: 28px; line-height: 39px;">that Volatility Target strategies, CTAs and Risk Parity portfolios could sell a combined total of $150 billion to $300 billion of equities during the next few weeks as momentum drives selling (</span><a href="http://www.valuewalk.com/2015/08/risk-parity-pros-vs-cons/" style="color: #416ed2; font-size: 28px; line-height: 39px; max-width: 100%; text-decoration: none;">Concerns Over Risk Parity Grow [Cont.]</a><span style="color: #414141; font-size: 28px; line-height: 39px;">)</span></h1>
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The report from JPMorgan came a few days after the Financial Times <a href="http://www.ft.com/cms/s/0/54680182-46a1-11e5-b3b2-1672f710807b.html#axzz3jjLTyaLx" rel="nofollow" style="color: #416ed2; max-width: 100%; text-decoration: none;" target="_blank">published an article</a> on the risks that Risk Parity strategies posed to the global bond market. The Financial Times cited a new report from AllianceBernstein (Introduction to Tail Risk Parity an old copy of the paper <a href="https://www.abglobal.com/abcom/segment_homepages/defined_benefit/3_emea/content/pdf/introduction-to-tail-risk-parity.pdf" rel="nofollow" style="color: #416ed2; max-width: 100%; text-decoration: none;" target="_blank">can be found here</a>), which estimates that risk parity is now a $400 billion industry. Assuming an average leverage ratio of 355%, these funds control around $1.4 trillion in assets.</div>
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Risk Parity strategy</div>
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Leon Cooperman on risk parity</h3>
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Reports from the Financial Times, AllianceBernstein and JPMorgan all imply that Risk Parity is a disaster waiting to happen. And <a href="http://www.valuewalk.com/tag/leon-cooperman/" style="color: #416ed2; max-width: 100%; text-decoration: none;" target="_blank" title="Leon Cooperman">Leon Cooperman</a>, the founder of Omega Advisors just joined the party.</div>
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Within his August letter to investors, Cooperman blamed Omega's poor returns (year to date Omega's funds are down between 6% and 11% according to Omega's letter to investors reviewed by ValueWalk) on "price-insensitive" investors.</div>
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Our investment process, grounded in fundamental company research, with a capital marketr overview designed to help us gauge appropriate risk asset exposure, has served us well since our inception 23 years ago, and we believe in its continued effectiveness. The firm has virtually no debit balance, and we like what we own.</div>
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With respect to the investment outlook, we believe that shares in the U.S. will end the year higher. A slowing in China's economic growth, the surprise devaluation of the yuan in August, continued weak oil and commodity prices, and uncertainty as to the timing of the first Federal Reserve rate hike, all contributed to an initial weakness in U.S. and global equity markets in late August. However, these factors, we believe, cannot fully explain the maenitude and velocity of the decline in equity markets last month. We think that much of that decline can Ix attributed to systematic/technical investors that are price-insensitive and largely indifferent to fundamentals. Such investors include risk-parity funds, derivative hedgers, trend-following CTA's, and insurance variable-annuity programs.</div>
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The month of August was a bad one for global risk markets and a bad one for Omega. The S&P 500 dropped 6%, its worst monthly decline in over three years. Our various investment funds, excluding our Credit Opportunity Fund which eased just 1.4% last month, declined by between 9% and 11% in August. Year to date, our equity-focused funds are down between 6% and 11%; differential returns among our funds reflect different investment mandates. The Credit Opportunity Fund has a total return of 9% year-to-date.</div>
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We are very disappointed in our performance. Prior to the August decline in U.S share prices, we were of the view that our equity market was in a zone of fair to full value and had moderate upside potential to year-end. The swift and severe correction in U.S. and global equity markets took us by surprise, as our analysis of the fundamentals did not signal noteworthy equity-marks vulnerability. Be assured that everyone at Omega is committed to reversing our 2015 year-to-date experience. Our investment process, grounded in fundamental company research, with a capital marketr overview designed to help us gauge appropriate risk asset exposure, has served us well since our inception 23 years ago, and we believe in its continued effectiveness. The firm has virtually no debit balance, and we like what we own.</div>
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With respect to the investment outlook, we believe that shares in the U.S. will end the year higher. A slowing in China's economic growth, the surprise aevaluation of the yuan in August, continued weak oil and commodity prices, and uncertainty as to the timing of the first Federal Reserve rate hike, all contributed to an initial weakness in U.S. and global equity markets in late August. However, these factors, we believe, cannot fully explain the magnitude and velocity of the decline in equity markets last month. We think that much of that decline can 3e attributed to systematic/technical investors that are price-insensitive and largely indifferent to fundamentals. Such investors include risk-parity funds, derivative hedgers, trend-following CTA's, and insurance variable-annuity programs.</div>
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While it is obviously difficult to estimate when these systematic/technical investors will stop roiling the markets, we do believe that the conditions for a further sustained decline in share prices are not in-place and that shares should trend higher over the coming year. Put simply, the end of an equity bull market has almost always required the following: significant acceleration in wage and consumer price inflation; tight monetary policy as represented by declining year-over-year growth in real money supply; the expectation of recession; investor exuberance; speculative aggregate market valuation; and net purchases of equities by individuals. None of these precursors to a bear market are evident today nor do we expect their arrival any time soon. Further, the large percentage of stocks in the S&P 500 down year-to-date, and the significant percentage of stocks down in excess of 15% year-to-date, both signal that substantial damage to shares has already been incurred. Based on these observations, if the U.S. equity bull market is over, it will be the oddest ending to a bull market in the post-war period.</div>
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RBC: Selling slows</h3>
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While Leon Cooperman and others are blaming Risk Parity strategies for the market panic caused at the end of last month, in a note to clients this week RBC Capital reported that there's been a sizeable slowdown in the exposure cutting of leveraged trading strategies this week.</div>
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RBC's traders have reported a "<em style="max-width: 100%;">strong bid into the back part of the SPX cash session 4 of the past 5 days.</em>" However, according to the note to clients, the bank reports that a number of different buy-side sources have estimated anywhere from $75 billion to $100 billion apiece of S&P futures selling from leveraged vol target / risk-parity / systematic quant strategies over the past 10 days -- an estimated $275 billion of futures supply against estimates from some around $300 billion of exposure cutting to do.</div>
Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-35476270674195990942015-08-31T20:38:00.001-07:002015-08-31T20:38:11.252-07:00The great managers and underperformance<br><div class="separator" style="clear: both;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjf8cJHHY_BpQBu8ExT0LADlF8sbkDrxYB61anEqFnCDK2cHFym-khNhEBZvfvxlnZ8lT84idGtVSPqNgMEHSuaL6s2TyMOOdNFBd9dJYP2s6B9_FYLmvvs_JL_BBO4lmWeqts/s640/blogger-image-1377125842.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjf8cJHHY_BpQBu8ExT0LADlF8sbkDrxYB61anEqFnCDK2cHFym-khNhEBZvfvxlnZ8lT84idGtVSPqNgMEHSuaL6s2TyMOOdNFBd9dJYP2s6B9_FYLmvvs_JL_BBO4lmWeqts/s640/blogger-image-1377125842.jpg"></a></div>Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-57607736580526698292015-08-26T05:59:00.002-07:002015-08-26T05:59:49.792-07:00Charts, with comment. (Buy fear)<div class="separator" style="clear: both; margin: 0px; text-align: center;">
<b>Market has demonstrated <u style="font-style: italic;">MORE</u> fear in this move than Lehman?!?</b></div>
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<b>Yes, this is a major correction. Now you have the numbers.</b></div>
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<b>Bear in mind the marginal buyer/seller. Feels like ETFs/Passive (indiscriminate) are playing a large role.</b></div>
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<b>For all the talk about slowing Chinese GDP and the stock market, it doesn't seem that they're all that connected. Convenient narrative?</b></div>
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<b>Long Bond Outperforming...for a while now</b></div>
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<b>Sentiment went from Bullish to Very Bearish --- Real Fast</b></div>
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<b>In case anyone asks, What happened in China?</b></div>
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<b>David Einhorn's Holdings - this month performance. Ugh.</b></div>
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<b>Eurozone Credit Leading Equities Higher, ahead of Draghi in Jackson Hole</b></div>
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<br />Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-72170355113541124062015-08-26T05:20:00.000-07:002015-08-26T05:20:07.269-07:00Manager Style and Outperformance (Illusion thereof)<div class="post-info" style="background-color: #f9f9f9; color: #626365; font-family: Arial, Helvetica, sans-serif; font-size: 13px; line-height: 20px; margin: 0px 0px 15px; padding: 2px 5px;">
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Figure 1: Morningstar Style Box Performance and Percentage of Managers that Outperformed. Three years ending June 30, 2015.</div>
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<em>Source: Morningstar magazine, August/September 2015, chart and regression by R. Ferri</em></div>
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Figure 1 graphically illustrates the relationship between style performance and the ability of active fund managers to outperform the style. Mid-cap Value (MV) earned 20.7% annually and outperformed all other styles; MV managers had a very difficult time outperforming this index and succeeded only about 9% of the time. In contrast, Large-cap Value (LV) earned 14.1% annually and was the worst-performing style index; LV managers had an easier time outperforming, winning about 63% of the time.</div>
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The regression is close to 85%. This means the percentage of managers who outperformed in each style is highly correlated with the relative performance of the style index. The greater a style index outperforms adjacent styles, the fewer managers outperformed in that style and vice versa.</div>
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This observation isn’t new in mutual fund analysis. William Bernstein wrote about the phenomenon in 2001 article, <a href="http://www.efficientfrontier.com/ef/101/dlr101.htm" style="color: #6684ab;">Dunn’s Law Review</a>: The Life and Times of “Core and Explore,” in which he noted, “[T]he fortunes of indexing a particular asset class depend on its performance relative to other asset classes.”</div>
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The concept was expanded by William Thatcher in a 2009 article, <a href="http://www.iijournals.com/doi/abs/10.3905/JOI.2009.18.3.008" style="color: #6684ab;">When Indexing Works and When It Doesn’t in U.S. Equities: The Purity Hypothesis</a>. Both articles indicate an inverse relationship between a style’s relative performance to other styles and active management’s ability to outperform in style.</div>
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This brings us to a couple of important questions. First, when do a majority of active managers outperform a poor-performing style? Second, can managers time styles and position their portfolios accordingly and make it worth investing in messy active funds?</div>
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Tables 1, 2 and 3 help answer the first question: When do a majority of active managers outperform a poor performing style? The yellow box with the red numbers in each table represents the percentage of managers that outperformed that style over a three-year period ending in June 2015. The red box represents the performance of the Morningstar style index for that category. The green box represents the performance of surrounding Morningstar style indices.</div>
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<img alt="" class="alignleft size-full wp-image-3574" height="1024" src="http://www.rickferri.com/blog/wp-content/wpuploads/2015/08/FERRI_Messy-V2-3.jpg" style="display: inline; float: left; margin: 0px 10px 10px 0px; max-width: 100%;" title="FERRI_Messy-V2-3" width="557" /></div>
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Table 1 indicates Large Cap Value (LV) managers had a great run over the three-year period ending June 2015. Almost 63% of active manager beat the Morningstar Large Value Index return of 14.1%. It’s easy to see why. The green areas in Table 1 represent the performance of adjacent styles indices: Large Core (18.3%), Mid Core (19.9%), and Mid Value (20.7%). All three had notably superior performance to Large Value. Any messy LV managers who invested outside of, but near the LV style index constituents would have added performance to their portfolio.</div>
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Table 2 shows the opposite story for Mid Cap Value (MV) managers. Only 9.0% outperformed their style index. MV was the highest-performing style of the nine style boxes, so any messiness on the part of MV managers would have hurt their performance relative to the style index – and it did.</div>
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Table 3 represents Small Cap Value (SV) managers, 33.6% of whom outperformed the Small Cap style index. Although the index performed satisfactorily at 17.0%, it underperformed the adjacent style indices, but not by as wide a margin as LV in Table 1. Accordingly, there was some benefit to active SV manages, but not enough to increase their win rate over 33.6%.</div>
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This latest evidence substantiates what Bernstein and Thatcher have indicated in the past: It appears there is no truth to the cliché that the market is inefficient in one style and not another. It’s about style performance relative to adjacent styles, and how messy managers are about remaining within a style in their equity selection.</div>
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Active fund managers look superior when their benchmark style performs poorly relative to adjacent styles, and they look bad when their benchmark style outperforms adjacent styles by a meaningful amount. Eventually, this all comes out in the wash. Active managers in every style have underperformed by about the same percentage. Please see <a href="http://www.rickferri.com/books-by-rick-ferri/the-power-of-passive-investing" style="color: #6684ab;">The Power of Passive Investing</a>for more analysis on this topic.</div>
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The second question is easier to answer: Can active managers time styles and position their portfolios accordingly? They cannot. If they could, today’s Morningstar active versus passive results would show improvement since the time Bernstein wrote about it. But it has not. Managers do not appear to have persistent skill in timing investment styles.</div>
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Mutual fund rating services help investors compare the performance of one style to another by creating style indices, and they help investors compare the performance of funds within a particular style. But raw data can create the illusion of superior performance when none exists. You’ll need to dig deeper into a manager’s performance to determine if he or she truly has ongoing skill or if it’s just an illusion.</div>
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Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-23466621319199109282015-08-24T14:54:00.003-07:002015-08-24T14:54:16.947-07:00US asset manager warns over ‘risk parity’<h1 class="title" style="-webkit-hyphens: manual; color: #4b4b4b; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; font-size: 1.5em; font-weight: normal; line-height: 1.25em; max-width: 100%;">
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AllianceBernstein, a big US asset manager, has warned that the swelling popularity of an investment strategy known as “<a href="http://www.ft.com/cms/s/0/cb5d861e-2a18-11e4-8139-00144feabdc0.html#axzz3j4coRARo" style="color: #416ed2; max-width: 100%; text-decoration: none;" target="_blank" title="Risk parity and McNuggets: a history - FT.com">risk parity</a>” is exacerbating the fragility of financial markets and worsening sell-offs. </div>
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Equity and bond markets have been hit hard by fears over sliding commodity prices, China’s economic slowdown and the resulting emerging market struggles this month, heightening concerns of hidden faultlines in markets caused by certain strategies.</div>
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So-called risk parity is a next-generation passive strategy — originally <a href="http://www.bwater.com/Uploads/FileManager/research/All-Weather/All-Weather-Story.pdf" style="color: #416ed2; max-width: 100%; text-decoration: none;" target="_blank" title="The All Weather Story - Bridgewater">pioneered by Bridgewater</a>, the world’s biggest hedge fund group — that seeks to give equity-like returns, while providing the relative stability of bonds in a crisis.</div>
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Risk parity funds typically invest in a basket of stocks, bonds and commodities, but “leverage” the traditionally safer fixed-income bets through derivatives to ensure each asset class contributes equally to a portfolio. Simplified, the theory is that when equity markets are buoyant the extra leverage will ensure that the bond portfolio does not drag on performance, and when markets are jittery the juiced-up bond positions will ameliorate a stock slide. </div>
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The robust and consistent<a href="https://www.aqr.com/cliffs-perspective/risk-parity-is-even-better-than-we-thought" style="color: #416ed2; max-width: 100%; text-decoration: none;" target="_blank" title="Risk Parity Is Even Better Than We Thought - AQR"> returns of risk parity </a>funds in recent years has helped them swell in size and number since the financial crisis, led by hedge funds including Bridgewater and AQR. Big asset managers such as BlackRock, Invesco and AllianceBernstein itself, have also embraced the approach.</div>
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A report on bond markets by AllianceBernstein estimates that the total assets under management of RP funds could now be about $400bn, even excluding in-house RP funds in pension funds and insurers that have also embraced the strategy. With leverage that means that the RP industry now controls about $1.4tn of assets, the report estimated, not including in-house vehicles.</div>
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Douglas Peebles, head of fixed income at AllianceBernstein, compares the rise of risk parity to the invention of “<a href="http://www.investopedia.com/terms/p/portfolioinsurance.asp" style="color: #416ed2; max-width: 100%; text-decoration: none;" target="_blank" title="Portfolio Insurance - Investopedia">portfolio insurance</a>” in the 1980s, a tactic that was supposed to protect stock investments by using derivatives, but played a crucial part in the “Black Monday” Wall Street crash of 1987.</div>
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“It’s a core, structural change in the marketplace. Each investor is making a rational decision, but put them all together and it has caused a dramatic change in markets,” he says. “It has made the system more fragile.”</div>
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AllianceBernstein — as well as other asset managers including <a href="https://www.pimco.com/insights/economic-and-market-commentary/global-markets/asset-allocation-outlook/assetallocationsecular2015" style="color: #416ed2; max-width: 100%; text-decoration: none;" target="_blank" title="Asset Allocation Without Tailwinds - PIMCO">Pimco </a>and GMO — point out that risk parity depends on leveraging bond investments, low volatility and modest correlations between different markets over time. </div>
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When turbulence spikes, RP funds automatically sell assets in response, but that can intensify sell-offs. Some analysts say the strategy played a crucial role in aggravating the 2013 “taper tantrum” when investors were alarmed by the Federal Reserve preparing to end its monthly bond purchases.</div>
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“Should correlations turn positive, with stocks and bonds declining at the same time, the risk contribution of each one would rise. Managers would then have to sell both to maintain their risk targets. In other words, selling begets selling,” the AllianceBernstein report said.</div>
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Mihir Worah, one of PIMCO’s chief investment officers, is less concerned about the broader dangers but warns that it is a “case of buyer beware” for investors unappreciative of the fact that the outlook for the RP strategy is dimming.</div>
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“People think risk parity is a magic bullet, but it’s not,” he said. “It’s a fundamentally good idea, but it has benefited inordinately from falling volatility and falling bond yields. But we are now entering an environment where bond yields are probably going to rise, and volatility is going to increase.” </div>
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Another risk parity fund manager argued that the strategy was misunderstood and overly maligned, pointing to tests that show that it performed well under almost any scenario. But he admitted: “Strategies that mitigate risks to make themselves more secure might make the overall system more dangerous.”</div>
Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-46737967246435193342015-08-24T14:53:00.000-07:002015-08-24T14:53:10.522-07:00Before Today: As of Friday Nearly 70% Of S&P 500 Stocks In Correction Or Bear Market Territory<h1 class="title" style="-webkit-hyphens: manual; color: #4b4b4b; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; font-size: 1.5em; font-weight: normal; line-height: 1.25em; max-width: 100%;">
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Last week's market pullback did not spare too many equities from the draw down. As of the close on Friday, 30.3% (152 issues) of S&P 500 stocks are now down greater than 20% from their 52-week highs and another 39.0% (196 issues) are down between 10% and 20% from their 52-week highs. In total nearly 70% of stocks are in correction or bear market territory. Below is a table noting this breakdown.</div>
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Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-85987789521657748712015-08-21T11:22:00.001-07:002015-08-21T11:22:57.031-07:00Small and Micro Caps are positive today...and some other charts<div class="separator" style="clear: both; text-align: center;">
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Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-12054184341862747902015-08-18T11:50:00.002-07:002015-08-18T11:50:24.848-07:00Some Thoughts On Emerging Markets<h1 class="title" style="-webkit-hyphens: manual; color: #4b4b4b; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; font-size: 1.5em; font-weight: normal; line-height: 1.25em; max-width: 100%;">
<span style="color: #414141; font-size: 26px; line-height: 37px;">Emerging Markets have been performing awfully lately. And by lately, I mean the last six years in which little progress has been made. To make matters worse, there was a huge opportunity cost of having capital allocated away from U.S. equities.</span></h1>
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<a href="https://theirrelevantinvestor.files.wordpress.com/2015/08/spy-eem.jpg" style="color: #416ed2; max-width: 100%; text-decoration: none;"><img alt="spy eem" src="https://theirrelevantinvestor.files.wordpress.com/2015/08/spy-eem.jpg?w=640" style="border: 1px inset rgba(0, 0, 0, 0.0980392); display: block; height: auto; margin: 0.5em auto; max-width: 100%;" /></a></div>
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After six years of sideways movement, Emerging Markets are beginning to really move again, only in the wrong direction. Take a look at July’s performance, <span style="max-width: 100%;"></span>courtesy of Dimensional Funds. You’ll notice virtually no country was spared.</div>
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<a href="https://theirrelevantinvestor.files.wordpress.com/2015/08/country.jpg" style="color: #416ed2; max-width: 100%; text-decoration: none;"><img alt="country" src="https://theirrelevantinvestor.files.wordpress.com/2015/08/country.jpg?w=640" style="border: 1px inset rgba(0, 0, 0, 0.0980392); display: block; height: auto; margin: 0.5em auto; max-width: 100%;" /></a></div>
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Neither was any size or style.</div>
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<a href="https://theirrelevantinvestor.files.wordpress.com/2015/08/size.jpg" style="color: #416ed2; max-width: 100%; text-decoration: none;"><img alt="size" src="https://theirrelevantinvestor.files.wordpress.com/2015/08/size.jpg?w=640" style="border: 1px inset rgba(0, 0, 0, 0.0980392); display: block; height: auto; margin: 0.5em auto; max-width: 100%;" /></a></div>
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Or sector.</div>
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<a href="https://theirrelevantinvestor.files.wordpress.com/2015/08/other.jpg" style="color: #416ed2; max-width: 100%; text-decoration: none;"><img alt="other" src="https://theirrelevantinvestor.files.wordpress.com/2015/08/other.jpg?w=640" style="border: 1px inset rgba(0, 0, 0, 0.0980392); display: block; height: auto; margin: 0.5em auto; max-width: 100%;" /></a><br />
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So what do we do now with Emerging Markets? That obviously depends on what sort of investor you are, what your holding period is and all the other usual caveats. For investors committed to a diversified portfolio, understand that you’ll <em style="max-width: 100%;">never</em> hold enough of what’s going up and you’ll <em style="max-width: 100%;">always</em> hold too much of what’s going down. For broadly diversified portfolios, dealing with a lousy investment is a feature, not a bug.</div>
Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-33376114083926254942015-08-18T11:48:00.001-07:002015-08-18T11:48:25.228-07:00Did We Just Witness the Best Risk-Adjusted Returns Ever?<h1 class="title" style="-webkit-hyphens: manual; color: #4b4b4b; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; font-size: 1.5em; font-weight: normal; line-height: 1.25em; max-width: 100%;">
<span style="color: #414141; font-size: 26px; line-height: 37px;">Risk-adjusted return measures have been around for some time now, but following the financial crisis professional money managers and asset allocators zeroed in on these formulaic performance metrics like never before. One of the most well-known risk-adjusted return formulas, the Sharpe Ratio, is simple a measure of return per unit of risk. It takes the annual returns on an investment, subtracts the risk free rate of return (in most cases that’s cash or t-bills) and divides that by the investment’s standard deviation or volatility.</span></h1>
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Far too many investors confuse risk measurement with risk management so I’ve never been completely <a href="http://awealthofcommonsense.com/volatility-enemy/" style="color: #416ed2; max-width: 100%; text-decoration: none;" target="_blank">sold on volatility as a measure of risk</a>, but plenty of people have become enamored with it because it provides something tangible they can define. My problem is that volatility can’t measure consequences, only the variation in returns. It says nothing of the other risks you took to get that variation. Volatility only matters when it causes investors to make unforced errors, so in that sense it can be a type of risk, both in terms of investor behavior and career risk for portfolio managers.</div>
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So I’m not saying you can’t look at volatility as a way to understand the markets. You just never make it your sole determination for making a decision one way or another. Assuming you do subscribe to volatility as a measure of risk, the current market environment ranks as one of the lowest risk periods of the past forty years and could end up being the lowest volatility-adjusted cycle ever.</div>
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These are the rolling three year annualized returns on a 60/40 stock/bond portfolio comprised of the S&P 500 and the BC Aggregate Bond Index:</div>
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<a href="http://awealthofcommonsense.com/wp-content/uploads/2015/08/Sharpe-II.png" style="color: #416ed2; max-width: 100%; text-decoration: none;"><img alt="Sharpe II" class="clear" height="737" src="http://awealthofcommonsense.com/wp-content/uploads/2015/08/Sharpe-II.png" style="border: 1px inset rgba(0, 0, 0, 0.0980392); clear: both; display: block; height: auto; margin: 0.5em auto; max-width: 100%;" width="1025" /></a></div>
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Returns on this simple portfolio have actually been fairly average over the past few years, with higher than average stock gains, but lower than average bond performance. But take a look at the risk adjusted returns using the same time frame:</div>
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<a href="http://awealthofcommonsense.com/wp-content/uploads/2015/08/Sharpe.png" style="color: #416ed2; max-width: 100%; text-decoration: none;"><img alt="Sharpe" class="clear" height="738" src="http://awealthofcommonsense.com/wp-content/uploads/2015/08/Sharpe.png" style="border: 1px inset rgba(0, 0, 0, 0.0980392); clear: both; display: block; height: auto; margin: 0.5em auto; max-width: 100%;" width="1030" /></a></div>
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We’ve witnessed the highest Sharpe Ratios on record going back to the mid-1970s. Of course, any time volatility is used as a measure of risk, stocks are going to completely dominate that equation. Here are the three year returns for the S&P 500:</div>
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<a href="http://awealthofcommonsense.com/wp-content/uploads/2015/08/Sharpe-IV.png" style="color: #416ed2; max-width: 100%; text-decoration: none;"><img alt="Sharpe IV" class="clear" height="706" src="http://awealthofcommonsense.com/wp-content/uploads/2015/08/Sharpe-IV.png" style="border: 1px inset rgba(0, 0, 0, 0.0980392); clear: both; display: block; height: auto; margin: 0.5em auto; max-width: 100%;" width="1031" /></a></div>
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And the rolling three year Sharpe Ratio on stocks:</div>
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<a href="http://awealthofcommonsense.com/wp-content/uploads/2015/08/Sharpe-III.png" style="color: #416ed2; max-width: 100%; text-decoration: none;"><img alt="Sharpe III" class="clear" height="715" src="http://awealthofcommonsense.com/wp-content/uploads/2015/08/Sharpe-III.png" style="border: 1px inset rgba(0, 0, 0, 0.0980392); clear: both; display: block; height: auto; margin: 0.5em auto; max-width: 100%;" width="1027" /></a></div>
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Stocks are also right around their peak Sharpe Ratio in this window of time. This makes sense in theory — we’ve had high returns, low volatility and extremely low or non-existent risk free returns. Add all of those up and you have the perfect recipe for high absolute <em style="max-width: 100%;">and </em>risk-adjusted returns.</div>
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This is actually one of the reasons I’m so skeptical of utilizing these types of risk measures. Investors could claim that is was their superior risk management abilities or investment expertise that led to such amazing risk-adjusted returns, when in fact it was all of product of the market environment. I’m not saying you should ignore volatility-based measures of performance, but they always need to be put into context. Nothing is ever as easy as it appears in a ratio.</div>
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There’s a running joke in the investment industry that everyone spends all their time researching, benchmarking to and talking about the 60/40 stock/bond mix but no one actually invests in that portfolio. There may be some truth to that statement if you consider cash, real estate and other diversified investment options. If nothing else, 60/40 provides something of a default balanced portfolio option for comparison purposes. It’s also been pretty tough to beat these past few years.</div>
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I hate the phrase “the easy money has been made,” because investing is never easy. Just go back and look at some of the headlines and fear-mongering that’s been going on during this recovery. It was never easy no matter what the data says. But if you have a U.S.-centric portfolio that’s heavily allocated to stocks and bonds it’s likely you just lived through one of the lowest risk periods ever to invest in — from a textbook perspective.</div>
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Further Reading:<br style="max-width: 100%;" /><strong style="max-width: 100%;"><a href="http://awealthofcommonsense.com/risk-adjusted-returns-matter/" style="color: #416ed2; max-width: 100%; text-decoration: none;" target="_blank">Do Risk-Adjusted Returns Matter?</a></strong><br style="max-width: 100%;" /><strong style="max-width: 100%;"><a href="http://awealthofcommonsense.com/two-finance-phrases-i-could-do-without/" style="color: #416ed2; max-width: 100%; text-decoration: none;" target="_blank">Two Finance Phrases I Could Do Without</a></strong></div>
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<em style="max-width: 100%;">Subscribe to receive email updates and my quarterly newsletter by </em><a href="http://feedburner.google.com/fb/a/mailverify?uri=AWealthOfCommonSense" style="color: #416ed2; max-width: 100%; text-decoration: none;" target="_blank"><strong style="max-width: 100%;">clicking here</strong></a><em style="max-width: 100%;">.</em></div>
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Follow me on Twitter: <a href="https://twitter.com/awealthofcs" style="color: #416ed2; max-width: 100%; text-decoration: none;" target="_blank"><strong style="max-width: 100%;">@awealthofcs</strong></a></div>
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<em style="max-width: 100%;">My new book, <a href="http://www.amazon.com/Wealth-Common-Sense-Simplicity-Complexity/dp/1119024927/ref=sr_1_1?ie=UTF8&qid=1433422493&sr=8-1&keywords=a%20wealth%20of%20common%20sense&pebp=1433422493721&perid=0HADHKDM1ZYJPB1951NK&tag=viglink24936-20" style="color: #416ed2; max-width: 100%; text-decoration: none;" target="_blank">A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan</a>, is out now.</em></div>
Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-67308335544862381732015-08-18T11:47:00.002-07:002015-08-18T11:47:37.045-07:00Has Einhorn Lost His Mojo?<h1 class="title" style="-webkit-hyphens: manual; color: #4b4b4b; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; font-size: 1.5em; font-weight: normal; line-height: 1.25em; max-width: 100%;">
<span style="color: #414141; font-size: 26px; line-height: 37px;">I send out a weekly hedge fund profile with 13F stock picks and results to</span><span style="color: #414141; font-size: 26px; line-height: 37px;"> </span><a href="http://www.theideafarm.com/" style="color: #416ed2; font-size: 26px; line-height: 37px; max-width: 100%; text-decoration: none;">The Idea Farm</a><span style="color: #414141; font-size: 26px; line-height: 37px;"> </span><span style="color: #414141; font-size: 26px; line-height: 37px;">each week. At the bottom of the post is the recent Greenlight Capital profile.</span></h1>
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One of the big challenges with allocating to active (subjective, not quant) managers is you are betting on their process – their ability to continue to keep doing what is is they are doing, and doing it well. So how does one know when to stop following a manager? Perhaps style drift or lost enthusiasm. Resting on their laurels, or maybe a nasty divorce. Too many assets? Put in jail. Newer, younger, and hungrier managers. Lots of reasons to move on from some managers, but often the criteria can be subjective.</div>
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Below is an example with everyone’s favorite poker player and stock mover, David Einhorn. (Note this is only examining his long book, and the 13F one at that. Perhaps his shorts are adding value, etc.)</div>
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As you can see, he has absolutely crushed the market since 2000 by over 7 percentage points a year. $100k invested in his 13F long picks would be worth about $600k vs. only about $200k in the S&P 500. But his story is one that is really about two periods. 2000-2006 , and 2007-2015. From 2000 – 2006, Einhorn beat the S&P500 every single year, on average by a whopping 27% per year! Since then? On average losing to the S&P 500 by about 4% a year.</div>
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<a href="http://mebfaber.com/wp-content/uploads/2015/08/Clipboard02.jpg" style="color: #416ed2; max-width: 100%; text-decoration: none;"><img alt="Clipboard02" height="315" src="http://mebfaber.com/wp-content/uploads/2015/08/Clipboard02-300x193.jpg" style="border: 1px inset rgba(0, 0, 0, 0.0980392); display: block; height: auto; margin: 0.5em auto; max-width: 100%;" width="490" /></a></div>
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<strong style="max-width: 100%;">Greenlight Capital, David Einhorn</strong></div>
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<em style="max-width: 100%;">“</em><a href="http://www.hedgefundletters.com/category/greenlight-capital/" style="color: #416ed2; max-width: 100%; text-decoration: none;"><em style="max-width: 100%;">What I like is solving the puzzles</em></a><em style="max-width: 100%;">. I think that what you are dealing with here is incomplete information. You’ve got little bits of things. You have facts. You have analysis. You have numbers. You have people’s motivations. And you try to put this together into a puzzle or decode the puzzle in a way that allows you to have a way better than average opportunity to do well if you solve on the puzzle correctly, and that’s the best part of the business.”</em></div>
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As an ace poker player (he has <a href="http://www.businessinsider.com/fabulous-life-of-david-einhorn-2013-2?op=1" style="color: #416ed2; max-width: 100%; text-decoration: none;">won millions in high stakes tournaments</a> and donated his take to charity), David Einhorn knows how to read the table — when to go all in on a hand he trusts and when to bet against a bluffing opponent. He plays the stock market in much the same way.</div>
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Einhorn’s multi-billion Greenlight Capital runs a concentrated portfolio heavily skewed toward his top positions, and the top six accounted for more than half of invested positions in the first quarter of 2015, according to his SEC filings. But for someone with that much money riding on companies he likes, Einhorn tends to get much more attention for the companies he hates.</div>
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An Einhorn short generates major headlines and can have the power to move a stock’s price. Companies on the receiving end of one of his short plays are said to be “Einhorned,” a term he joked about in a 2012 conference with the line, “Apparently now I’m a verb.”</div>
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<a href="http://foolingsomepeople.com/main/" style="color: #416ed2; max-width: 100%; text-decoration: none;">He was once investigated</a> by the SEC for market manipulation after discussing his short position against finance firm Allied Capital; his comments at a 2002 conference about his short generated so much activity in the stock that trading was temporarily suspended.</div>
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It took years to resolve, but Einhorn was eventually vindicated and the company taken to task by the SEC. Allied was subsequently bought out and taken private, and Einhorn wrote a book about the experience, <a href="http://foolingsomepeople.com/main/" style="color: #416ed2; max-width: 100%; text-decoration: none;"><em style="max-width: 100%;">Fooling Some of the People Some of the Time</em></a><em style="max-width: 100%;">. </em></div>
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There have been a number of other high-profile campaigns against companies since then. He argued that Lehman Brothers was using suspicious accounting and overly risky practices; the company collapsed in 2008 and during the economic meltdown. He presented a 100-page attack on Green Mountain Coffee Roasters in 2012 and delivered a 66-page presentation in 2014 explaining his short against Athena Health. <a href="https://www.greenlightcapital.com/IraSohn2014-final.pdf" style="color: #416ed2; max-width: 100%; text-decoration: none;">That presentation</a>concluded with a vintage line from Einhorn: “We believe that there are serious risks to this business model that are being mostly ignored by bullish investors and sell-side analysts.”</div>
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That comment belies the ferocity with which Einhorn often pursues his prey. <a href="http://www.nydailynews.com/sports/baseball/mets/meet-david-einhorn-cutthroat-charitable-new-york-mets-savior-article-1.158503" style="color: #416ed2; max-width: 100%; text-decoration: none;">A profile in the New York Daily News</a> quoted an unnamed source in describing how Einhorn works: “He does deals where he rips your face off. If he had a fin, he’d be swimming in the ocean.”</div>
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While it may be uncomfortable to be on the receiving end of an Einhorn short, it can be quite profitable to place money with him. He doesn’t always come out on top, but the thesis behind each investment – long or short — is based on such deep research and intensive analysis that even other hedge fund managers are impressed. One hedge fund manager described what Einhorn does as “extraordinarily detailed work.”</div>
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A graduate of Cornell University with a degree in government, Einhorn interned with the SEC, considered joining the CIA, but wound up taking a job at investment bank Donaldson, Lufkin and Jenrette (which was later bought out by Credit Suisse). Two years later he left for a job at hedge fund Siegler Collery & Co., and in 1996 launched Greenlight with a colleague from that firm.</div>
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Greenlight has since grown from less than $1 million in assets to more than $10 billion, while Einhorn has himself become a billionaire and earned a reputation as a masterful short seller. But that reputation tends to overlook his other skill as a long investor running a highly concentrated portfolio.</div>
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Click any chart to enlarge.</div>
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<strong style="max-width: 100%;">FIGURE X –</strong><strong style="max-width: 100%;">13F Holdings, 6/30/2015</strong></div>
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<a href="http://mebfaber.com/wp-content/uploads/2015/08/1.jpg" style="color: #416ed2; max-width: 100%; text-decoration: none;"><img alt="1" height="288" src="http://mebfaber.com/wp-content/uploads/2015/08/1-300x217.jpg" style="border: 1px inset rgba(0, 0, 0, 0.0980392); display: block; height: auto; margin: 0.5em auto; max-width: 100%;" width="399" /></a></div>
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Source: AlphaClone</div>
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<strong style="max-width: 100%;">FIGURE X – 13F Performance, 2000- 2014</strong></div>
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<img alt="2" height="137" src="http://mebfaber.com/wp-content/uploads/2015/08/2.jpg" style="border: 1px inset rgba(0, 0, 0, 0.0980392); display: block; height: auto; margin: 0.5em auto; max-width: 100%;" width="379" /></div>
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<strong style="max-width: 100%;"><img alt="3" height="398" src="http://mebfaber.com/wp-content/uploads/2015/08/3-266x300.jpg" style="border: 1px inset rgba(0, 0, 0, 0.0980392); display: block; height: auto; margin: 0.5em auto; max-width: 100%;" width="353" /></strong></div>
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<strong style="max-width: 100%;"> <img alt="4" height="265" src="http://mebfaber.com/wp-content/uploads/2015/08/4-300x197.jpg" style="border: 1px inset rgba(0, 0, 0, 0.0980392); display: block; height: auto; margin: 0.5em auto; max-width: 100%;" width="404" /></strong></div>
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<strong style="max-width: 100%;"> <img alt="5" height="267" src="http://mebfaber.com/wp-content/uploads/2015/08/5-300x196.jpg" style="border: 1px inset rgba(0, 0, 0, 0.0980392); display: block; height: auto; margin: 0.5em auto; max-width: 100%;" width="409" /></strong></div>
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Source: AlphaClone</div>
Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0tag:blogger.com,1999:blog-16967388.post-84993764075983176712015-08-18T11:46:00.004-07:002015-08-18T11:46:40.205-07:00Julian Robertson's second dalliance with investors disappoints<span style="font-size: x-small;"><br /></span>
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<span style="font-size: x-small;">For Julian Robertson, the 83-year-old billionaire former hedge fund manager, history is repeating itself. </span></div>
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<span style="font-size: x-small;">In 2000, Robertson returned outside investors' money to focus on his own fortune. In 2010, he started taking money from outside investors again, but five years later, two of the three vehicles he set up have been unwound, while the third has shrunk as investors have pulled their money. </span></div>
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<span style="font-size: x-small;">Robertson's personal fortune has more than doubled to $3.4 billion since 2000, and his Tiger Management is as strong as ever: the hedge funds he has ownership stakes in now manage more than $30 billion, up from about $20 billion in early 2010 and equal to highs in 2008 just before the financial crisis. But the small part of his empire devoted to outside fund management has been less successful, and he's unlikely to expand that business, people familiar with Tiger said.</span></div>
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<span style="font-size: x-small;">Since 2000, Robertson has focused on giving start-up capital to hedge fund managers. After the financial crisis, many asset managers struggled to raise money from other investors, so Robertson decided to help raise money from outsiders for the hedge funds he had invested in. To do that, and ensure Tiger's success for the next generation, he promoted his son, Alex, to managing partner and brought in a trio of executives to help run and market the business.</span></div>
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<span style="font-size: x-small;">He started three vehicles that in turn put money into funds he already backed. Two were essentially funds of hedge funds for state pensions in Pennsylvania and North Carolina. One, Tiger Accelerator, let investors share in Robertson's ownership stake in six firms that managed hedge funds, and invest directly in the six funds as well.</span></div>
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<span style="font-size: x-small;">TAR HEEL PARTNERS</span></div>
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<span style="font-size: x-small;">The North Carolina fund, created at the request of the state pension system, was called "Tiger Tar Heel Partners." It invested in two funds that Tiger had already backed: Tiger Consumer and Hound Partners, and the blended portfolio produced gains through June 2014. Tiger had hoped North Carolina would add to the $140 million it allocated in 2012, allowing Tiger Tar Heel to hire more fund managers, people familiar with the matter said.</span></div>
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<span style="font-size: x-small;">But, in a previously undisclosed move, Tiger Tar Heel was dissolved this spring at Tiger's request. At about the same time, North Carolina decided as a matter of policy to invest directly in stock-focused hedge funds instead of through intermediaries, pension fund spokesman Schorr Johnson told Reuters. Investing in hedge funds directly can be less expensive as funds of hedge funds typically add an extra layer of cost, although Tiger did not charge such fees. Tiger indirectly benefited from having managers that it had seeded receive additional capital.</span></div>
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<span style="font-size: x-small;">North Carolina's move followed the collapse in 2013 of Tiger Keystone Partners, a fund created at the request of the Pennsylvania State Employees' Retirement System. A small loss early on—mostly tied to a bad bullion-related bet by hedge fund Sun Valley Gold— prompted a pension board member to call for the state to get out, according to public comments reported by The Philadelphia Inquirer. </span></div>
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<span style="font-size: x-small;">A political brouhaha ensued, and the pension's investment chief retired. The fund ultimately rebounded to a slight gain, but Tiger, frustrated with the experience, killed it, people familiar with the matter said.</span></div>
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<span style="font-size: x-small;">STALLED ACCELERATOR</span></div>
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<span style="font-size: x-small;">Some investors have also bailed on Tiger Accelerator, a fund launched in June 2011 that allowed outsiders to invest in six funds already seeded by Tiger. Investors were also given stakes in the companies that managed the funds, a first for Tiger Management, which previously kept those stakes for itself.</span></div>
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<span style="font-size: x-small;">Accelerator raised $450 million, most of it with the help of Morgan Stanley's far-flung clients in its wealth management network. Investors, including the St. Andrew's School in Middletown, Delaware, and the Bowana Foundation, a charitable vehicle for the founder of Boston Market and Einstein Bros. Bagels, committed to keeping their money tied up for two years and to pay as much as a 10 percent fee on returns if the fund performed well.</span></div>
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<span style="font-size: x-small;">In 2011 and 2012, the fund performed better than indexes of hedge funds but worse than the Standard & Poor's 500. </span></div>
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<span style="font-size: x-small;">Some investors were disappointed by the early returns and pulled out of the fund at their first chance in 2013.</span></div>
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<span style="font-size: x-small;">Other investors pulled out money more selectively — the fund was designed to allow them to withdraw from some Tiger Accelerator funds while remaining in others. Investors have mostly left Cascabel Management and Long Oar Global Investors, laggards that have or plan to return significant capital to investors this year, but are staying in business, according to people familiar with the situation.</span></div>
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<span style="font-size: x-small;">Assets stood at just $295 million as of April 30 this year, down from $464 million in November 2012, according to client reporting materials.</span></div>
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<span style="font-size: x-small;">To be sure, some funds that Tiger Accelerator invested in turned out to be winners. Nehal Chopra's Ratan Capital Management and Ben Gambill's Tiger Eye Capital both produced several years of huge returns and dramatically increased their assets.</span></div>
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<span style="font-size: x-small;">Investors in Tiger Accelerator received returns from two sources: the investments in actual hedge funds, and their partial ownership of the companies that managed the hedge funds. About $15 million has been paid out by Accelerator to investors from those partial stakes, people familiar with the matter said.</span></div>
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<span style="font-size: x-small;">It's not the first time Robertson has faced withdrawals from impatient clients. In the late 1990s, he lost money as he avoided Internet stocks and focused on shares he thought were undervalued. Investors got tired of waiting for him to be right, and withdrew billions of dollars. Tiger’s assets under management sank to about $6 billion from as much as $22 billion before.</span></div>
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<span style="font-size: x-small;">Soon after he closed the fund, the air hissed out of tech stocks. But Robertson had already moved on, giving startup capital to some of his former star analysts – often around $20 million each for a 20-percent to 25-percent stake in the business.</span></div>
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<span style="font-size: x-small;">Tiger has seeded about 50 firms overall, not to be confused with Tiger "Cubs" — pre-2000 Tiger employees who have gone on to run some of the largest hedge funds in the world.</span></div>
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<span style="font-size: x-small;">Seeding has helped Robertson's fortune rise to $3.4 billion from about $1.5 billion in 2000, according to Forbes and the Wall Street Journal. Robertson is an active philanthropist and his non-hedge fund investments include luxury hotels and land in New Zealand, where he spends a significant part of the year.</span></div>
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<span style="font-size: x-small;">Industry experts including David Shukis, head of global investment services at Cambridge Associates, which helps pension funds pick hedge funds and manage their holdings, said investors often love picking stocks and funds, and view working with clients as more of a chore.</span></div>
<span style="font-size: x-small;"><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="background-color: #fbfbfb; color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="background-color: #fbfbfb; color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="background-color: #fbfbfb; color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="background-color: #fbfbfb; color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span><span style="color: #414141; font-family: Georgia, Palatino, Times, 'Times New Roman', serif; line-height: 37px; max-width: 100%;"></span></span><br />
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<span style="font-size: x-small;">"It makes sense when managers who have already made a lot of money from fees say 'I don't need to do this anymore,'" Shukis said.</span></div>
Bud Foxhttp://www.blogger.com/profile/18048536935384051871noreply@blogger.com0