Opinion

John Wasik

How to avoid the trouble coming to the tech sector

Apr 14, 2014 17:31 UTC

CHICAGO, April 14 (Reuters) – A resounding shot across the
bow has been fired at the tech sector in recent weeks. The
tech-heavy Nasdaq Composite Index is down nearly 5 percent in
April through Friday’s close and the Nasdaq Biotechnology Index
is off 21 percent from its record closing high on Feb. 25. Many
of the sector’s flagships and newcomers have been in the
crosshairs.

The latest tech stock falterings could be a sign of trouble
ahead.

To get a clearer idea of what’s roiling the tech sector, you
have to look at trends within various parts of it.

One item to look at is data storage, which is offered by
Amazon.com Inc and Google Inc and has been
the object of a price war of late. While falling prices in this
sub-sector are great for customers, they will eat into profits
for competing companies.

Brian Bolan, a portfolio manager and equity strategist for
Zacks Investments in Chicago, surmises that the storage price
war is partially responsible for the delay of initial public
offerings of companies like Dropbox and Boxee.

Tech companies’ valuations, particularly those that are
barely profitable, may be the object of inflated expectations of
future business and earnings because they often engender
irrational exuberance. Witness the dot-com bubble of more than a
decade ago.

Smart shopping for mid-caps

Apr 7, 2014 19:48 UTC

CHICAGO, April 7 (Reuters) – Go for the most famous
companies when you are investing, and you are likely to pay the
highest price possible because most investors place a premium on
the biggest-name stocks. But take a look at the roughly 1,500
companies that make up the mid-cap market, and you could be
making a pretty solid investment this year.

Mid-caps, with market values between $1 billion and $15
billion, are often the least visible choices in investing. They
are big enough to have mature management teams, yet may not
carry the same downside risk as a mega-cap or a small company.
They may be able to grow more robustly than mega-caps because of
their size. And as market valuations have climbed for both mega-
and small caps, mid-caps offer returns that are right down the
middle of the plate.

The S&P MidCap 400 index returned 23.2 percent for
the 12 months through April 4 compared to 22 percent for the S&P
500 index of big stocks and 29 percent for the
small-company S&P 600 index.

Avoid losses on your bond funds by going unconventional

Mar 31, 2014 18:34 UTC

CHICAGO (Reuters) – As the financial markets await more signals on the Federal Reserve’s interest-rate policy next year, which may push rates higher in early 2015, it wouldn’t hurt to take a close look at alternative bond funds.

Unlike conventional bond index funds, which may hold static portfolios, “unconstrained” or “hedged” funds are able to be nimble when rates rise. Although they may not totally avoid losses that could come with rising rates, they could avoid some of the volatility. Ten bond dealers out of 17 polled by Reuters see the Fed raising rates in the second half of 2015, with another four saying increases would not start until 2016.

Last Friday, Charles Evans, president of the Federal Reserve Bank of Chicago, said eventual rate hikes would likely follow a “shallower path of increases.”

Watching the weather on Wall Street

Mar 24, 2014 18:16 UTC

CHICAGO (Reuters) – With the warming of spring, there’s a natural tendency to think that stocks might warm up as well, despite less-than-sunny outlooks on interest rates from the Federal Reserve.

There is a documented weather pattern to Wall Street, which market watchers use as another indicator in their play books. But in this year of endless winter storms, the patterns have already been stood on their heads.

In positive years for stocks, January has typically seen rallies while February falters. Not so in 2014. The S&P 500 index dropped 3.5 percent in January, followed by a 4 percent rebound last month.

After the Fed: What investors should do now

Mar 20, 2014 19:59 UTC

CHICAGO, March 20 (Reuters) – For active income investors,
the next year or so will be a trying time of tough love. While
yields are rising, which depresses prices of most
income-oriented securities, this presents other opportunities.

On Wednesday, Federal Reserve Chairman Janet Yellen signaled
that interest rates may rise as early as next spring, and the
market reacted with force, continuing a pullback that began
nearly a year ago.

Some unheralded optimism lies behind Yellen’s comments that
the Fed will end its bond-buying stimulus program this fall and
probably raise short-term interest rates in the spring of 2015.
That bodes well for a number of sectors which benefit from
slowly rising rates and consumer spending.

Drop the S&P index fund for asset-class investing

Mar 17, 2014 15:59 UTC

CHICAGO (Reuters) – You can get most of what you want for your investments from off-the-shelf index funds, but you may have to dig deeper to make your portfolio more productive.

For most mainstream investors, a focus on S&P 500 index funds and a general bond market index serves them well. Yet what if you concentrated on a mixture of different asset classes instead of only picking the usual suspects in conventional index funds that hold the most popular stocks and bonds? You may be able to boost returns while insulating yourself from off years.

An “asset-class investing” approach still relies upon low-cost, passively managed funds as core vehicles, but it puts a greater focus on diversification, which could enhance returns. Giving yourself a piece of every corner of the market means investing in large-, medium- and small-sized companies in developed and emerging markets, plus a broad selection of U.S. and global bonds.

How you can build on Warren Buffett’s investment advice

Mar 10, 2014 17:51 UTC

CHICAGO (Reuters) – While it is hard to knock the advice of Warren Buffett, whose annual letter to Berkshire Hathaway Inc shareholders recently lofted down from the mountain of capitalism, some of his tips can be tweaked.

Among the many nuggets of wisdom in the Berkshire report was a recommendation from the company’s chairman to the trustee of his estate that 10 percent of the cash be invested in short-term government bonds and 90 percent in a “very low-cost index fund (Vanguard’s).”

Buffett is spot on about holding onto an index fund and avoiding the exorbitant fees of active managers. But we should look at his advice a bit more closely.

Finding nooks of growth in a sluggish Europe

Mar 3, 2014 17:27 UTC

CHICAGO, March 3 (Reuters) – While the euro zone presents
the unalluring face of sluggish growth, that doesn’t mean it
should be neglected. There are pockets of promise that are worth
exploring.

The reason for the negativity stems from concerns over
conflict in Ukraine and reported euro zone growth at 0.3 percent
in the fourth quarter. Although inflation isn’t a problem for
now, almost no analyst is forecasting robust acceleration for
the year in the region, which is expected to expand about 1
percent in 2014.

Beneath this lackluster scenario, though, lie several layers
of companies that are part of Europe’s turnaround story. If you
focus on smaller-cap companies and those paying dividends, the
picture is a mite brighter.

Betting against the buck easier said than done

Feb 24, 2014 17:57 UTC

CHICAGO, Feb 24 (Reuters) – The U.S. dollar has been taking
it on the chin of late. Last week saw the dollar hit a
seven-week low against its rival currency, the euro. The
greenback also declined against a basket of major currencies,
hitting one of the lowest points of the year to date.

The even worse news is that there’s not much anyone can do
about it right now. Investors whose assets are denominated in
the buck can lose value relative to other currencies, and it’s
difficult to find reliable vehicles to hedge against the
decline.

Some $4 trillion is traded in foreign exchange every day,
most of it by institutions. It would be nearly impossible for an
individual to have the information or trading capability
available that large banks and hedge funds employ.

Boring might be better for fund investors in 2014

Feb 18, 2014 12:00 UTC

CHICAGO, Feb 18 (Reuters) – With U.S. stocks doing a
stutter-step after a five-year bull run, a shift into
low-volatility funds might give you a little more traction if
the market retrenches.

Low or “minimum” volatility funds have become more popular
since the 2008 meltdown. Buying mostly defensive stocks with
high dividends and modest price variations, they represent an
$11 billion market for moderately risk-averse investors.

The most popular fund in this category, the PowerShares S&P
500 Low-Volatility ETF, holds more than $3 billion in
assets. It owns brand-name stocks like McDonald’s Corp
and Johnson & Johnson, along with lesser-known companies
like Sigma-Aldrich Corp.

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