Opinion

John Wasik

Battling the unknowns of currency devaluation

Feb 8, 2013 17:58 UTC

CHICAGO, Feb 8 (Reuters) – Owning a truly globalized
portfolio means investing in both developed and emerging
markets, but figuring out the right mix gets complicated when
you consider currency risk.

In just the past few weeks, a new Japanese stimulus policy
that has been easing the relative value of the yen is the latest
thing upsetting global trade.

More countries may soon get into the currency devaluation
game, too. The Bank of England, in trying to avert another
recession, may adopt U.S. Federal Reserve-style quantitative
easing policy moves to jump-start the British economy. The pound
has already fallen some 3 percent against the dollar in 2013 in
anticipation of that move, according to BMO Private Bank.

It is too early to tell how currency battles will play out
at a time when slow growth is forecast for most developed
countries. The United States is struggling to revive employment.
Japan is trying to climb out of a slump that has lasted more
than a decade. The euro zone, mired in austerity measures, still
faces high unemployment.

If you have investments in any of these countries, through
country-oriented or trade-specific funds, your returns will
depend on how your funds are denominated. If your portfolio is
concentrated in U.S. dollar-earning companies, it could lose
some value due to exchange rate shifts, while the yen- and
pound-denominated stocks could rise in value.

With Dow breaking 14,000, what should you do?

Feb 4, 2013 17:53 UTC

CHICAGO (Reuters) – Whenever the stock market breaches an old high – like when the Dow closed over 14,000 on Friday, the best mark since October, 2007 – it is time to look inward, not outward.

You could be happy that your portfolio looks pretty good, or you could remember how you felt in 2007 after feeling optimistic, then only to be crushed soon.

Given that you probably have a lot of year-end and tax-related statements coming in right now, you will see a lot of material to evaluate your investments. What to do next? Sell off winners? Hedge against a fall? Pick up laggards before they, too, go on the upswing?

Put your investment enthusiasm on a dimmer switch

Feb 1, 2013 13:30 UTC

CHICAGO, Feb 1 (Reuters) – Whenever there is an extended
rally in the stock market, blazing lights go on in the heads of
Main Street investors, signaling that it is time to join the
party.

As the S&P 500 reached a five-year peak at the end of
last week, on top of a 13 percent gain for the index last year,
enthusiasm for stocks approached fever pitch. More than $55
billion in new cash flooded in to stock mutual and
exchange-traded funds in January, according to TrimTabs
Investment Research. That is the biggest monthly inflow on
record, beating the previous record set in February 2000.

What to make of this exuberance? Investors are seeing a
clearer horizon after the “fiscal cliff” came and went without
hurting the market. Pending home sales took a dip in December,
but were up nearly 7 percent for the year, according to the
National Association of Realtors. Corporate earnings also look
relatively strong, with earnings growth of 2.5 percent expected
in the fourth quarter of last year, reports Factset Research. A
renewed prospect of personal wealth is piggybacking this
positive news.

How to hold fickle commodities in your portfolio

Jan 28, 2013 19:36 UTC

CHICAGO, Jan 28 (Reuters) – Commodities are among the most
skittish investments. Not only do they react to global economic
forces, they can seesaw with supply and demand, China’s
voracious appetite for raw materials and the weather.

Since commodities are tangible things that are mined or
grown, they are hard to hold and often bought through futures
contracts, which have their own peculiarities. Yet what is
undeniable about commodities is that they are usually a good
tracker of broad economic growth, inflation among producer
prices and they run inversely to the dollar’s decline. You
should have a piece of them in your portfolio, but you have to
be careful about how you hold them.

Here’s how strange commodities are: Even though there was
growth nearly everywhere except for Europe last year,
commodities, as measured by the Dow Jones/UBS commodities index,
declined 1 percent. That compares to a resounding 16 percent
gain for the S&P 500 index of large U.S. stocks with dividends
reinvested.

Curing the curse of the bandwagon effect before the next crisis: John Wasik

Jan 28, 2013 15:51 UTC

CHICAGO (Reuters) – During a market crisis, when everyone wants to jump off the ship in the same leaky lifeboats, that doesn’t bode well for most individual investors, who simply want to preserve capital.

The safeguard is to move against what behavioral finance experts call the “bandwagon effect” — when so many investors follow the same path that they disrupt the traditional correlation of assets.

This is what has happened when Modern Portfolio Theory (MPT) — a bedrock of investing that advocates diversifying your portfolio to temper risk and boost returns — met big institutional investors who employed the idea on steroids, plowing money into alternative investments from leveraged hedge funds to timber.

Curing the curse of the bandwagon effect before the next crisis

Jan 25, 2013 18:08 UTC

CHICAGO, Jan 25 (Reuters) – During a market crisis, when
everyone wants to jump off the ship in the same leaky lifeboats,
that doesn’t bode well for most individual investors, who simply
want to preserve capital.

The safeguard is to move against what behavioral finance
experts call the “bandwagon effect” — when so many investors
follow the same path that they disrupt the traditional
correlation of assets.

This is what has happened when Modern Portfolio Theory (MPT)
– a bedrock of investing that advocates diversifying your
portfolio to temper risk and boost returns — met big
institutional investors who employed the idea on steroids,
plowing money into alternative investments from leveraged hedge
funds to timber.

Disclosure won’t help money fund investors

Jan 22, 2013 18:30 UTC

CHICAGO (Reuters) – The $2.7 trillion money market funds market is in line for new regulations as the Securities and Exchange Commission ponders new rule changes that would give investors a better idea of how much risk they’re taking.

But no matter what happens, the funds will still be relatively safe baskets for short-term cash, though afflicted by paltry yields for the near term.

The biggest change that might come about is increased transparency. The SEC tabled a proposal late last year on a set of rules and now the matter is being reconsidered, although it may not be acted upon until a new, permanent chairman is appointed and one of the empty commissioner’s seats is filled. Another proposal before the Financial Stability Oversight Council may require that managers set aside capital against losses or price funds at the actual net asset value.

Five red flags for municipal bond investors: Wasik

Jan 18, 2013 16:43 UTC

CHICAGO (Reuters) – There is a bubble forming in the municipal bond market, and millions of investors could be impacted if it bursts.

In the coming months, as Congress and the White House wrestle over the next budget, debt ceiling and new sources of revenue, volatility is likely to roil the muni market. Skittish investors had triggered a minor sell-off in December. Yet despite a 1.2-percent loss in the last month, the Barclays Municipal Bond Index gained 6.8 percent overall in 2012.

Munis avoided the chopping block in the last round of fiscal cliff negotiations, but that does not mean they are in the clear. They are still vulnerable in the debt-ceiling negotiations since Washington is looking for new sources of revenue to reduce the federal deficit. No matter how Congress acts, you still need to be cautious. Any uptick in interest rates, or market hiccups, could trigger losses, too.

Mid-cap stocks worth a close look

Jan 14, 2013 17:56 UTC

CHICAGO (Reuters) – Like the middle children they are, mid-cap stocks are often outshined by their mega-cap brethren. The largest two constituents of the S&P 400 Mid-cap Index are Regeneron Pharmaceuticals Inc and Equinix Inc, an information technology firm. Not exactly Apple Inc or Johnson & Johnson.

Yet inattention from the investing world often misses that fact that mid-caps often outperform large companies and are worthy additions to any portfolio. These are generally companies with a market value of from $1 billion to $4 billion but with an outer range of about $13 billion,

Take Ametek Inc, a $9 billion company, which produces electronic instruments for the aerospace industry. It rarely makes headlines, but the company hit a 52-week high on January 4. Overall, the S&P mid-cap index was up almost 4 percent year-to-date through January 11, compared to 3.2-percent return for the large-cap S&P 500 Index over the same period.

The Soul of the S&P 500: Durable stocks over time

Jan 11, 2013 13:03 UTC

CHICAGO (Reuters) – It takes a lot of gumption to buy mongrel stocks at the beginning of the year.

Generally, if you’re looking for stocks with upside potential, picking a beaten-up sector is a good way to find turnaround stories.

Last year’s comeback kid was the housing industry, which has been limping along since the 2008 meltdown. One of the biggest winners was the PulteGroup, the homebuilder that posted negative returns in four out of the past five years through 2011. The company has soared about 169 percent on the rebounding housing market for the past 12 months through January 9 as the market is continuing to favor the sector in 2013.

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