John Wasik

Closed-end funds provide yield, but at a price

Apr 26, 2013 19:15 UTC

CHICAGO, April 26 (Reuters) – Investors chasing yield in
this low-rate environment are jumping into alternative vehicles.
That’s helping closed-end income funds stage a comeback.

Such funds, which offer a fixed number of shares and are
closed to new capital once they start operating, have their
attractions, but investors should exercise caution. Expenses for
closed-end funds tend to be higher than with exchange-traded
funds, they are more complex and they usually carry more risk.
Their active managers are free to use leverage and invest in a
variety of assets in the hope of delivering higher returns than
mutual funds with static bond mixes.

In 2008, initial public offerings of closed-end mutual funds
fell off sharply, to just one, from about 30 the year before.
They fell out of favor because of the market meltdown and other
debacles. There were 11 in 2009, 12 in 2010, four in 2011 and 13
last year, according to Lipper, a Thomson Reuters company.

This year so far, there have been eight closed-fund IPOs -
six in the first quarter alone, all of them income-oriented -
raising some $5 billion. There are more on the way, according to
Investment News.

Leading the pack is the Pimco Dynamic Credit Income Fund
(PCI), which raised $3 billion for the world’s largest bond-fund

Bugged out on gold? Try REITs instead

Apr 22, 2013 20:23 UTC

CHICAGO, April 22 (Reuters) – In the wake of a dramatic gold
sell-off over the last two weeks, investors are looking for
other ways to hedge against inflation.

They are realizing that the metal is a false prophet of the
hyperinflation that gold bugs have been expecting since 2008.
It’s clear at this point that the scenario probably won’t
materialize in the immediate future. Assets of the SPDR Gold
Trust, the leading gold bullion exchange-traded fund,
have dipped to the lowest level since 2010 on a wave of

Gold, which on Monday traded $100 over a two-year low of
$1,321 on April 16, is also proving not to be a safe haven from
global economic woes. The metal was supposed to be a defensive
shadow currency in a world going to hell, but it turns out to be
highly volatile as well.

Customized green portfolios make more of a difference

Apr 19, 2013 15:05 UTC

CHICAGO, April 19 (Reuters) – Green stock funds have always
made me blue. There are dozens of socially responsible,
“clean-tech” or environmentally friendly mutual and
exchange-traded funds, but I have a hard time recommending them.
They are typically too expensive because of their fees, have
poor returns and are too concentrated in highly volatile stocks.

Take the PowerShares Wilderhill Clean Energy ETF,
which holds alternative energy/conservation companies based on a
56-stock index. At nearly $140 million in assets, it’s one of
the most popular green funds. Yet volatility and poor
performance in the portfolio’s solar and other alternative
energy stocks have produced awful total returns.

The PowerShares fund is down 24 percent and 27 percent for
the three- and five-year periods through April 17. It has a 0.7
percent annual expense ratio, which is high for an index fund.
More than one-third of the portfolio is in “information
technology” stocks, a category that includes several battered
solar companies.

Thai stocks worth a look, but be cautious

Apr 16, 2013 19:13 UTC

CHICAGO, April 16 (Reuters) – Most emerging market talk
focuses on BRICS – Brazil, Russia, India, China and South Africa
- or maybe even TIMPs – Turkey, Indonesia, Mexico and the
Philippines. But one sizzling emerging market that has not been
adopted into an investing acronym is Thailand.

Thailand has been growing rapidly relative to sluggish
Western economies. Like its Southeast Asian cousins Indonesia,
Singapore and Vietnam, Thailand has a relatively young
population and a growing middle class, and it is building
infrastructure along with a commodities trade.

Thailand has had its political problems, including a coup,
in recent years, but now it is focused on an export economy,
driven by demand from China and India. Global investors are
attracted to the country’s cornucopia of natural resources such
as alumina, cocoa, gas, oil and sugar. Some 60 percent of the
Thai gross domestic product is export-driven, which also
consists of autos, rice and electronics.

High costs dim appeal of multi-asset funds

Apr 12, 2013 19:10 UTC

CHICAGO (Reuters) – On paper, multi-asset funds look great. These tactical “fund of funds” let an investor cover objectives ranging from inflation protection and income to international growth, while enabling managers to diversify quickly and avoid market sell-offs.

On the market for years, multi-asset funds have gained traction since the 2008 financial crisis. They have come into focus lately because many retirement plans have added them to their line-ups.

If the funds performed their jobs well at a low cost, then they would make sense to me. Picking a diverse mix of asset classes is challenging, and it would be helpful to average investors to have it done for them.

Take the lazy portfolio route to big returns

Apr 8, 2013 21:04 UTC

CHICAGO (Reuters) – I have always found that laziness is a virtue when it comes to managing my own money. The less I trade, the better my performance.

Years ago, in an attempt to come up with a hypothetical portfolio that provided low-cost diversification, I created what I called a “Nano” – small and compact – portfolio as a investment strategy intended to capture returns from the U.S. and global stock, bond and real estate markets. Lazy portfolios are generally passive and rebalanced once a year. The idea is to set the allocations and leave them alone – not try to time the market.

Thanks to MyPlanIQ.com, a useful website that creates and monitors portfolios (I have no connection to it), I have been able to track the performance of my virtual Nano holdings over time. My set-up has done reasonably well, but as with all portfolios, results depend on the period being looked at and on performance relative to the market as a whole.

A five-point strategy for riding the bull

Apr 5, 2013 13:36 UTC

CHICAGO (Reuters) – With the U.S. stock market rallying this year, it may be enticing to take extra cash on hand and ride the bull.

If anything, it is all too easy to pour contributions into actively managed U.S. large-stock funds. Some 90 percent of all retirement plans surveyed last year by the Plan Sponsor Council of America, an employer group, offered actively managed domestic stock funds, and most IRAs and 401(k)s hold these funds.

But a stock fund may not track the market as closely as an index fund. And there are several other asset classes that are worth scrutinizing. If you are jumping into the market with a bit of cash that goes beyond what you already have set up – say, $10,000 out of savings – it would make sense to cover a broad range of global options instead of exclusively focusing on U.S. large-company stocks.

Four reasons why boomerang effect will prolong stock rally

Apr 1, 2013 19:00 UTC

CHICAGO, April 1 (Reuters) – This is no April Fool’s day
joke, but catastrophes are good for stocks – eventually. The
market usually boomerangs into massive rallies in the wake of
them. That’s what seems to be happening now, which sustains the
argument for a continued rally after the S&P 500 index and the
Dow Jones Industrial Average hit new highs last week.

You can see the herd-like movement of mass emotions play out
in history. John Maynard Keynes called it “animal spirits” – the
spontaneous optimism that causes investors to keep buying.

I was not surprised to learn that the greatest stock rally
in American history was after the catastrophe of World War One:
between 1921 to 1929, the market gained about 500 percent,
according to the Leuthold Group, a Minneapolis investment
research firm.

Five questions to get to brass tacks with your money manager

Mar 22, 2013 13:30 UTC

CHICAGO (Reuters) – When interviewing a money manager, most investors want to know investment performance. It is a natural question, but there is much more you need to know beyond absolute returns.

In lieu of focusing exclusively on annual performance, it will be more important to know about a money manager’s record on capital preservation and expenses.

Anyone can do well in a bull market and many have lucky years. But when you are looking for a money manager, you want to find out what capacities he or she has beyond that – what makes them earn the fee? Here are some questions that will help you get beyond the surface:

When sluggish economies are good for stocks

Mar 19, 2013 15:20 UTC

CHICAGO, March 19 (Reuters) – A sluggish U.S. economy can
actually give stocks a boost.

According to a recent study from Ned Davis Research, when
the U.S. gross domestic product growth rate was 0.5 percent or
less, the S&P 500 Index rose at a rate of 10.5 percent
per year. Conversely, when the GDP rose above 6 percent, the S&P
500 lost 4.6 percent a year.

Of course, the stock market is not always a reliable
indicator of an economy. It often displays an exaggerated
reaction to most economic news from day to day.