Opinion

John Wasik

Column: How to catch the market’s upside with a downside cushion

Nov 25, 2013 21:14 UTC

CHICAGO (Reuters) – Sometimes the very name of a fund sounds like a security blanket if you’re a risk-averse investor. Case in point: “Managed volatility funds” promise some of the stock market’s upside with a cushion on the downside.

This burgeoning class of more than 400 funds is gaining a gaggle of devotees. There is more than $200 billion invested in them, according to Strategic Insight, up from $31 billion in 2006. While “managed volatility” isn’t well defined, these funds provide a strategy that dampens volatility over time.

So why worry about market volatility when the market continues to head higher and both the Dow Jones Industrial Average and S&P 500 Index keep hitting new highs? Because market downturns are often unpredictable and the overall risk of loss never goes away. Yet while volatility funds provide some cushion from frenetic markets, you pay a price for modest protection.

Take the BlackRock Managed Volatility Investors A fund, which is one of the largest funds in the category with more than $600 billion in assets. The fund has gained about 14 percent for the year through November 22. While that’s less than half the return of the S&P 500 during the same period, keep in mind that the fund is taking long and short positions in the stock market to hedge risk.

Like most of the managed volatility funds, the BlackRock fund is an expensive holding. The “A” share class levies a 5.25-percent front-end sales charge and charges 1.27-percent annually in additional expenses.

How to catch the market’s upside with a downside cushion

Nov 25, 2013 17:31 UTC

25 (Reuters) – Sometimes the very name of a
fund sounds like a security blanket if you’re a risk-averse
investor. Case in point: “Managed volatility funds” promise some
of the stock market’s upside with a cushion on the downside.

This burgeoning class of more than 400 funds is gaining a
gaggle of devotees. There is more than $200 billion invested in
them, according to Strategic Insight, up from $31 billion in
2006. While “managed volatility” isn’t well defined, these funds
provide a strategy that dampens volatility over time.

So why worry about market volatility when the market
continues to head higher and both the Dow Jones Industrial
Average and S&P 500 Index keep hitting new highs? Because market
downturns are often unpredictable and the overall risk of loss
never goes away. Yet while volatility funds provide some cushion
from frenetic markets, you pay a price for modest protection.

Choosing an index fund when the indexes are sky-high

Nov 18, 2013 20:28 UTC

CHICAGO (Reuters) – When stocks are on a roll – as they have been thus far this year – you want to go big or go home.

Quite naturally, most investors want to take advantage of the market’s healthy gains this year. Yet with so many 401(k) offerings and a plethora of stock-index mutual and exchange-traded funds (ETFs) out there, which ones will give you the most bang for your buck?

The answer is surprisingly complicated because there are so many similar options. Many of the best funds are either ignored by investors who insist on owning individual stocks or are not offered in retirement plans. You may have to hunt them down or request that your employer add them.

Column: Smart-beta stock ETFs focus on fundamentals

Nov 12, 2013 12:06 UTC

CHICAGO (Reuters) – Holding stocks in a passive index fund as a core portfolio holding has generally been a rock-solid idea. You can own nearly the entire market at a low cost and not get snagged in market timing errors.

Yet most index funds are capitalization-weighted, meaning they hold the most popular stocks by market value. That could lead to owning the most overpriced stocks, which may incur more downside risk when the market heads south.

A better alternative could be to own “smart-beta” funds. While still built on indexes, the stocks within these baskets are often picked for their cash flow, book value, dividends and sales. That means instead of picking all of the potentially over-valued stocks that have won the market’s latest beauty contest, more fundamental measures are applied.

Smart-beta stock ETFs focus on fundamentals

Nov 12, 2013 12:00 UTC

CHICAGO, Nov 12 (Reuters) – Holding stocks in a passive
index fund as a core portfolio holding has generally been a
rock-solid idea. You can own nearly the entire market at a low
cost and not get snagged in market timing errors.

Yet most index funds are capitalization-weighted, meaning
they hold the most popular stocks by market value. That could
lead to owning the most overpriced stocks, which may incur more
downside risk when the market heads south.

A better alternative could be to own “smart-beta” funds.
While still built on indexes, the stocks within these baskets
are often picked for their cash flow, book value, dividends and
sales. That means instead of picking all of the potentially
over-valued stocks that have won the market’s latest beauty
contest, more fundamental measures are applied.

Column: Why IPOs are unlikely to produce long-term gains

Nov 4, 2013 18:00 UTC

CHICAGO (Reuters) – As the founders and backers of Twitter move toward the ultimate tweet – an initial public offering – it’s a good time to ask whether IPOs are good investments.

Can the hot social media buzz surrounding Twitter be sustained for the company to survive a flame-out? While few can accurately predict future earnings growth, management decisions and whether the service can grow and gain more popularity, it’s good to cast a cautious eye on IPOs in general and cast a wider net.

Keep in mind that Main Street and Wall Street investors may have entirely different takes on IPOs. Short-term traders may “flip” the stock after a few days – or even hours – and then move on. Individual investors may be gun-shy about owning IPOs after last year’s botched offering of Facebook. It took a year for investors to recover from the company’s initial price decline.

Why IPOs are unlikely to produce long-term gains

Nov 4, 2013 17:57 UTC

4 (Reuters) – As the founders and backers of
Twitter move toward the ultimate tweet – an initial
public offering – it’s a good time to ask whether IPOs are good
investments.

Can the hot social media buzz surrounding Twitter be
sustained for the company to survive a flame-out? While few can
accurately predict future earnings growth, management decisions
and whether the service can grow and gain more popularity, it’s
good to cast a cautious eye on IPOs in general and cast a wider
net.

Keep in mind that Main Street and Wall Street investors may
have entirely different takes on IPOs. Short-term traders may
“flip” the stock after a few days – or even hours – and then
move on. Individual investors may be gun-shy about owning IPOs
after last year’s botched offering of Facebook. It took a
year for investors to recover from the company’s initial price
decline.

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