John Wasik

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.”

One way of avoiding losses in your income portfolio is to shorten maturities of the single bonds you’re buying or shorten durations in the bond funds you own. Duration is a measure of interest-rate risk. If your fund has a duration of 3, you could lose 3 percent if rates climb one percentage point.

Another worthy consideration are bond funds that hedge interest-rate risk or have the ability to shift their portfolios into less-volatile bonds.

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

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.