Opinion

John Wasik

Column: Bond moves to make as U.S. Fed fires warning shot on rates

Jun 25, 2013 12:10 UTC

CHICAGO (Reuters) – Now that the U.S. Federal Reserve has announced it might wind down its stimulus program, and as rates rise, it’s critical to adjust your portfolio.

Bond prices fell as yields rose to a near two-year high on Monday. The U.S. Treasury sell-off was sparked Fed Chairman Ben Bernanke’s comments the central bank might begin scaling back purchases of Treasury and mortgage securities later this year.

The impact of rising interest rates, which depress bond prices, are measured directly through duration. Duration measures a bond portfolio’s sensitivity to rates. For each one-percentage point uptick in rates, the duration gauge shows you how much money you can lose in principal. Generally, the longer the duration, the greater the chance you’ll lose money.

Say you have an investment-grade bond with a duration of 14.5 years that carries a 4.5 percent coupon and matures in 30 years. If rates tick up two percentage points, you could lose 26 percent of the bond’s market value. Every bond portfolio prospectus or website should give you duration measures. They can also be found on any financial portal online.

Of course, this is an extreme example, but you need to be careful to insure your portfolio is insulated from interest-rate risk, which is highest for long-maturity bonds.

Bond moves to make as U.S. Fed fires warning shot on rates

Jun 25, 2013 11:59 UTC

CHICAGO, June 25 (Reuters) – Now that the U.S. Federal
Reserve has announced it might wind down its stimulus program,
and as rates rise, it’s critical to adjust your portfolio.

Bond prices fell as yields rose to a near two-year high on
Monday. The U.S. Treasury sell-off was sparked Fed Chairman Ben
Bernanke’s comments the central bank might begin scaling back
purchases of Treasury and mortgage securities later this year.

The impact of rising interest rates, which depress bond
prices, are measured directly through duration. Duration
measures a bond portfolio’s sensitivity to rates. For each
one-percentage point uptick in rates, the duration gauge shows
you how much money you can lose in principal. Generally, the
longer the duration, the greater the chance you’ll lose money.

Finding value when the market misbehaves

Jun 18, 2013 12:01 UTC

CHICAGO (Reuters) – Traders are nervous as Wall Street waits for the Federal Reserve to reveal its next quantitative easing move. Last week marked the third week out of the last four in which major indexes turned negative.

What if you ignored the market’s mood, though? Would it make a difference?

If you can find managers focused on buying and holding the best stocks – no matter how the rest of the market is behaving – you might reap higher gains over time.

Is your stock strategy working?

Jun 11, 2013 16:34 UTC

CHICAGO (Reuters) – For Eugene Fama, the University of Chicago professor and father of modern finance, the key to investing is relatively simple – stay in a low-cost, diversified portfolio to capture virtually all market returns with a mix that’s right for the amount of risk you can stomach.

Yet few people really believe that will work – they don’t like staying still – so they chase active managers or pick stocks themselves, usually buying and selling at the wrong times. They deceive themselves into thinking that they can outwit the smartest managers in the world and their costs won’t sink them.

With the stock market flattening out and perhaps taking a breather from its first-half surge, it’s worth taking a look at Fama’s basic tenets to avoid such bad behavior. (I recently had the chance to speak to him during a conference at the university sponsored by Loring Ward, an investment manager based in San Jose, California.)

Column: Housing rebound boosts timber stocks

Jun 3, 2013 20:42 UTC

CHICAGO (Reuters) – If a tree falls in the forest, can you make a little money? As the U.S. housing rebound continues, you can watch the value of your real estate rise. In addition you can reap gains from resource companies that own and process timber.

Since most U.S. homes are still framed with wood, timber becomes a more valuable commodity as new construction booms. Home prices gained the most in seven years in March, according to a recent S&P Case-Shiller housing index report. Housing starts in April rose 16 percent over the previous month with new building permits up 14 percent, according to the U.S. Census Bureau.

North American sawmills are running at the fastest pace in six years, up nearly 7 percent over last year, according to CIBC World Markets, a Canada-based investment bank. Growth in China is also contributing to the rebound. More than 60 percent of log exports from the Pacific Northwest head to the People’s Republic.

Housing rebound boosts timber stocks

Jun 3, 2013 20:39 UTC

CHICAGO, June 3 (Reuters) – If a tree falls in the forest,
can you make a little money? As the U.S. housing rebound
continues, you can watch the value of your real estate rise. In
addition you can reap gains from resource companies that own and
process timber.

Since most U.S. homes are still framed with wood, timber
becomes a more valuable commodity as new construction booms.
Home prices gained the most in seven years in March, according
to a recent S&P Case-Shiller housing index report. Housing
starts in April rose 16 percent over the previous month with new
building permits up 14 percent, according to the U.S. Census
Bureau.

North American sawmills are running at the fastest pace in
six years, up nearly 7 percent over last year, according to CIBC
World Markets, a Canada-based investment bank. Growth in China
is also contributing to the rebound. More than 60 percent of log
exports from the Pacific Northwest head to the People’s
Republic.

Column: Ways to hedge your bets in the bond market smackdown

May 31, 2013 14:52 UTC

CHICAGO (Reuters) – For investors who piled into bond funds this year, the past week has been an abject lesson of how to get bruised in short order.

An uptick in yields smacked bond prices, which move inversely to yields. Funds investing in high-yield and long-maturity issues got hit the worst. Yields on 10-year Treasury Notes hit a peak of 2.23 percent, the highest since April of last year, before dropping to 2.16 percent on Wednesday.

The pre-June bond swoon is a harbinger of things to come. The U.S. economy is heating up after years of decline, which will trigger greater demand for credit and lower bond prices.

Ways to hedge your bets in the bond market smackdown

May 31, 2013 12:02 UTC

CHICAGO (Reuters) – For investors who piled into bond funds this year, the past week has been an abject lesson of how to get bruised in short order.

An uptick in yields smacked bond prices, which move inversely to yields. Funds investing in high-yield and long-maturity issues got hit the worst. Yields on 10-year Treasury Notes hit a peak of 2.23 percent, the highest since April of last year, before dropping to 2.16 percent on Wednesday.

The pre-June bond swoon is a harbinger of things to come. The U.S. economy is heating up after years of decline, which will trigger greater demand for credit and lower bond prices.

Column: Five trends that favor stocks over bonds

May 29, 2013 12:05 UTC

CHICAGO (Reuters) – With the S&P 500 Index up more than 16 percent this year and health care, its top sector index, up 24 percent, it seems counterintuitive that so many investors are clinging to the low single-digit returns in bonds.

Money certainly isn’t gushing into stock mutual funds, even though the Dow Jones industrial average and the Standard & Poor’s 500 Index have hit a series of record highs.

Between April 24 and May 1, investors pulled more than $4 billion out of U.S. equities while pumping almost $1 billion into bonds, according to the Investment Company Institute, the trade group for mutual funds, exchange-traded funds and other U.S. investment companies. The following week, more than $7.3 billion was invested in bond funds, compared with only $363 million in U.S. stocks.

Five trends that favor stocks over bonds

May 29, 2013 11:59 UTC

CHICAGO, May 29 (Reuters) – With the S&P 500 Index up more
than 16 percent this year and health care, its top sector index,
up 24 percent, it seems counterintuitive that so many investors
are clinging to the low single-digit returns in bonds.

Money certainly isn’t gushing into stock mutual funds, even
though the Dow Jones industrial average and the Standard
& Poor’s 500 Index have hit a series of record highs.

Between April 24 and May 1, investors pulled more than $4
billion out of U.S. equities while pumping almost $1 billion
into bonds, according to the Investment Company Institute, the
trade group for mutual funds, exchange-traded funds and other
U.S. investment companies. The following week, more than $7.3
billion was invested in bond funds, compared with only $363
million in U.S. stocks.

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