Opinion

John Wasik

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.

Generally, smart-beta funds emphasize large stocks with
healthy dividends that may not be everyone’s favorite at the
moment. Their portfolios may include a healthy dose of older,
defensive and dividend-rich companies in manufacturing,
utilities, healthcare and financial services.

The strategy behind smart-beta funds also leans toward
fundamental indexing that relies on identifying the
most-consistent companies year after year in terms of top-line
sales growth and cash flow.

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.

Beyond the Glitches: Profiting from Obamacare

Oct 28, 2013 17:16 UTC

CHICAGO, Oct 28 (Reuters) – In the shadow of the bungled
rollout of the U.S. Affordable Care Act health insurance
exchanges, a handful of companies are quietly profiting from the
biggest expansion of healthcare since Medicare in the mid-1960s.

Companies that were supposed to be collateral damage from
the new wave of ACA regulations have become Wall Street
darlings. Those that specialize in health records technology,
insurance and pharmaceuticals will benefit from the need for
more drugs, medical services and policies through the state and
federal exchanges.

In its first weeks, the ACA healthcare exchange websites
were swamped with more than half a million Americans applying
for insurance, with more than 19 million visiting the federal
site alone. Despite numerous technical roadblocks, those strong
traffic numbers bode well for companies that benefit from
selling new policies along with the Medicaid expansion that is
part of the new health law.

Three portfolio strategies to hedge political risk

Oct 21, 2013 17:50 UTC

CHICAGO (Reuters) – For angst-addled market watchers, the U.S. debt ceiling and budget chaos has been like one of those amusement-park rides in which you ride upside down. It’s harrowing and probably not over yet.

In addition to market and credit risk in the stock and bond markets, you need to be acutely aware of political risk. That means finding pockets of profit that are not dependent upon Washington.

Here are three strategies:

1. Balance risk in one fund

If you’re a fairly moderate to conservative investor, having a balanced fund as a core holding could replace several funds that hold just stocks or bonds. While you’re not entirely insulated from political risk, it’s more of a hedge than being completely exposed to stocks or bonds. But can you get one mutual fund to do this for you in a tactical way?

How to navigate the troubled municipal bond market

Oct 15, 2013 19:45 UTC

CHICAGO (Reuters) – If you can avert your eyes from the federal government’s budget and debt-ceiling crisis, you may spot more trouble ahead in the state and local municipal bond markets.

Detroit’s bankruptcy, Puerto Rico’s fiscal woes and unfunded pension liabilities in other states and cities are giving the nearly $4 trillion muni bond market the jitters. Investors have been yanking money out of muni bond funds for more than seven months – triggering redemptions of almost $50 billion since March, according to Morningstar.

That beats the nearly $45 billion in outflows from November 2010 to August 2011, when some soothsayers were predicting massive defaults based on weakening state and local finances and pension liabilities. And the exodus is far from over as the muni bond market heads for one of its worst years in the past half decade.

Circuit breakers investors can use for a debt default

Oct 7, 2013 18:23 UTC

CHICAGO (Reuters) – In times of calamity, every portfolio needs a set of circuit breakers.

And, as Congress speeds toward the debt-ceiling barrier, it is a good idea to consider some inverse exchange-traded funds(ETFs) that move in the opposite direction of stock and bond indexes.

The first major hurdle is October 17, when the Treasury will need authority to sell more debt securities – or face default on its obligations. What if markets get spooked over Washington’s inability to reach a consensus on fiscal matters? If traders truly believe that Congress won’t issue more debt to pay bills it has already racked up, that will send interest rates on Treasury paper soaring.

Demographics will drive the ‘new normal’ economy

Sep 30, 2013 22:27 UTC

CHICAGO (Reuters) – One of the most difficult terms to understand in long-term investing nowadays is “new normal.”

Coined by PIMCO Chief Executive Mohamed El-Erian, it means the “world of muted growth” that followed the 2008 meltdown. And although stock returns have been strong this year, down the road, the “new normal” will largely be driven by demographic forces.

And unless the current fight over the U.S. government’s debt limit forces a deep and prolonged market meltdown, now is the time to focus on an investment strategy with a longer view.

Three ways to profit from the taper tempest

Sep 23, 2013 19:31 UTC

CHICAGO (Reuters) – After the Federal Reserve’s revelation last week that it would not be trimming its bond-buying stimulus program, the storm clouds menacing the stock and bond markets parted.

Investors in both markets relish the prospect of cheap money continuing to fill the coffers of banks and corporations. The Fed has been buying Treasury securities at the rate of $85 billion a month to keep interest rates low and stimulate the economy.

U.S. stock market indexes hit all-time highs on September 18 in the wake of the Fed’s announcement, followed by gains on overseas exchanges the following day. The Standard & Poor’s 500-stock index is up almost 22 percent year to date through September 20. Bond prices have also recovered, as yields fell from the 3 percent range in recent weeks to about 2.74 percent. As yields fall, bond prices rise.

Five investment lessons from the Lehman Brothers blow-up

Sep 17, 2013 12:00 UTC

CHICAGO, Sept 17 (Reuters) – Five years ago I was watching
the world financial system implode after the failure of Lehman
Brothers in real time. Since I’m largely a buy-and-hold
investor, I grimaced while my retirement savings took a
pummeling in 2008-2009.

What have we learned since that calamitous year? There were
certainly a few gut-wrenching surprises as well as some enduring
truths that still hold in personal investing for the future.

1. Gravity is stronger than diversification

For years, we adherents to the Modern Portfolio Theory of
diversification have practiced the fine art of blending our
portfolios with assets that don’t typically move together. In
2008, many, including me, were surprised when commodities funds,
which were supposed to move in the opposite direction of stocks,
followed stocks into the abyss. When nearly everything declines
in a global meltdown, there are few safe havens.

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