Prepare for Long Period of Low Returns

A recent article in CFA Institute offers insight from AQR’s Antti Ilmanen on how investors can adapt to a low-interest rate environment. The article reports that at a recent conference in Denmark, Danmarks Nationalbank Board of Governors chair Lars Rohde said it would be wise for “the financial sector and investors to prepare for a long period of very low interest rates.” “Past this point,” the article notes, “a brave new world awaits, one in… Read More

Emerging Markets Are a Buy

An article in Fortune reports that, while many including such finance experts as Jeremy Grantham of GMO, Mark Mobius and Rob Arnott of Research Affiliates sing the praises of emerging market stocks, “to commonsense civilians and other skeptics, they look and feel like a trap. Who’s right?” The article outlines some of the risks and opportunities inherent in EM: By wagering on China, Mexico and India, investors are “embarking on a potentially lucrative but almost… Read More

Six Precepts for the Long-Term Investor

On the subject of long-term investing, a recent Economist article outlines six precepts every investor should keep in mind: You can’t start too early—compounding is a compelling reason to start saving when you’re young, the article argues. Risk and reward are related, but don’t think the latter is guaranteed.Risk, the article explains, is not about volatility but rather about loss of capital. “That is why investors should always have some money in cash or government… Read More

Research Affiliates on the Dangers of Using Past Returns to Predict the Future

In the first of an eight-part series, Research Affiliates addresses market returns and the dangers financial planners face with respect to setting expectations for clients. Specifically, the article highlights the following key points: Using historical returns to forecast the future is one of the most common shortcuts in financial planning” although, the article points out, the topic hasn’t received the same attention as fees, the need for rebalancing, performance chasing, or diversification. The article addresses… Read More

Bill Gross Likens Market to Retirement Community

In an interview with CNBC earlier this month, Janus Henderson portfolio manager Bill Gross said that the stock market’s “halcyon days are over” as central banks around the world take away the high levels of stimulus they’ve provided over the past ten years. “I’m not supporting a bear market,” Gross said in the interview, “but sort of a market where you move into an old-age retirement community where the pace of activity and prices behave… Read More

Morningstar Ratings and Future Fund Performance

In a recent paper published by the firm’s quantitative research team, the Morningstar Rating, also known as the “star rating”, is summarized and evaluated with respect to accuracy. Morningstar now publishes star ratings on more than 217,000 managed investments across 72 countries. The rating system was introduced in 1985 to help investors and advisors better understand and assess the “crowded mutual fund landscape.” It evaluates the performance of a variety of funds (on a risk-adjusted… Read More

Returns Look Low Going Forward

“In an industry dominated by promises of higher return investors need to ask higher than what?” This question is posed in a recent Barron’s article (provided by Research Affiliates) which argues that many investors face less than 5% annualized returns on their retirement nest eggs over the next decade. The following portfolio types are discussed: Classic 60/40: This blend of U.S. stocks and bonds has been, according to the article, “perhaps the most comfortable to… Read More

Bryon Wien’s Sobering Thoughts on World Markets

“The ‘Leave’ outcome is a setback for growth in Britain, Europe and around the world at a time when economies are generally struggling. Not a good sign for markets for the rest of the year,” writes Blackstone strategist Byron Wien in a recent article for Barron’s. Wien references the opinion of Bard economic historian Walter Russell Mead, who believes that Brexit and nationalism are generally born of a “systemic crisis” related to: Economic vulnerability of… Read More

There’s a Hole in the CAPE Ratio

When predicting future real returns of stock markets, the cyclically adjusted price/earnings ratio (CAPE) is a good place to start. The formula, first proposed by guru Benjamin Graham, is pretty simple: the current price of a stock market (or single stock) divided by the average earnings of the last 10 years (both adjusted for inflation). An article in this month’s “Enterprising Investor” speaks to how this calculation has recently come under scrutiny. Wharton professor Jeremy… Read More

To Bolster Returns Large Investors Will Have to Come Up the Risk Curve

Gone are the days when a conservative bond portfolio will provide a decent return. Low interest rates and a sluggish economy are forcing investors to accept higher risk to get the same returns they would have twenty years ago (by buying and holding investment-grade bonds). The Wall Street Journal recently reported that research conducted by Callan Associates, Inc. (which advises large investors)  shows that in order to make a 7.5% return today, a portfolio’s bond… Read More