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The Weekly Bottom Line

by Sergio Mariaca on Mar 1, 2019 5:44:50 PM |Share:

Here is what happened in the Capital Markets this week.

The Weekly Bottom Line (please click link to open)

The Weekly Bottom Line, courtesy of TD Economics, includes a review of market performances, recent key economic indicators, a calendar of upcoming key economic releases, and other relevant data. The highlights from this week’s report include:  

·        The U.S. economy grew a robust 2.9% in 2018, the best performance since 2015, but growth moderated at the end of the year and at the start of 2019. The government shutdown and soft consumer spending in December are expected to translate into near 1% growth this quarter.

·        Extending the barrage of negative housing data, housing starts plunged by 11.2% (m/m) in December to 1.08 million (annualized).

·        Manufacturing data remained soft. The U.S. ISM manufacturing index declined in February, and manufacturing contraction in Europe and Asia broadened further. Soft global activity reinforces the Fed’s patient stance.

 

The Weekly Bottom Line

by Sergio Mariaca on Feb 22, 2019 5:00:00 PM |Share:

Here is what happened in the Capital Markets this week.

The Weekly Bottom Line (please click link to open)

The Weekly Bottom Line, courtesy of TD Economics, includes a review of market performances, recent key economic indicators, a calendar of upcoming key economic releases, and other relevant data. The highlights from this week’s report include:  

·        The barrage of negative U.S. data continued this week, with weakness in December durable goods orders and a decline in existing home sales in January.

·        Still, markets were hopeful that progress would be made in the China-U.S. trade talks, which could help remove a cloud of uncertainty that has weighed on investment.

·        The data affirms that the Fed made the right choice to shift off of gradual rate increases, and wait patiently to see if the U.S. economy remains resilient in the face of global weakness. We expect these signs to become clearer in the spring.

 

Déjà Vu All Over Again

by Sergio Mariaca on Feb 18, 2019 8:00:00 AM |Share:

investing investments diversification investment fads portfolio

 Investment fads are nothing new. When selecting strategies for their portfolios, investors are often tempted to seek out the latest and greatest investment opportunities.

Over the years, these approaches have sought to capitalize on developments such as the perceived relative strength of particular geographic regions, technological changes in the economy, or the popularity of different natural resources. But long-term investors should be aware that letting short-term trends influence their investment approach may be counterproductive. As Nobel laureate Eugene Fama said, “There’s one robust new idea in finance that has investment implications maybe every 10 or 15 years, but there’s a marketing idea every week.”

What’s hot becomes what’s not

Looking back at some investment fads over recent decades can illustrate how often trendy investment themes come and go. In the early 1990s, attention turned to the rising “Asian Tigers” of Hong Kong, Singapore, South Korea, and Taiwan.  A decade later, much was written about the emergence of the “BRIC” countries of Brazil, Russia, India, and China and their new place in global markets. Similarly, funds targeting hot industries or trends have come into and fallen out of vogue. In the 1950s, the “Nifty Fifty” were all the rage. In the 1960s, “go-go” stocks and funds piqued investor interest. Later in the 20th century, growing belief in the emergence of a “new economy” led to the creation of funds poised to make the most of the rising importance of information technology and telecommunication services. During the 2000s, 130/30 funds, which used leverage to sell short certain stocks while going long others, became increasingly popular. In the wake of the 2008 financial crisis, “Black Swan” funds, “tail-risk-hedging” strategies, and “liquid alternatives” abounded. As investors reached for yield in a low interest-rate environment in the following years, other funds sprang up that claimed to offer increased income generation, and new strategies like unconstrained bond funds proliferated. More recently, strategies focused on peer-to-peer lending, cryptocurrencies, and even cannabis cultivation and private space exploration have become more fashionable. In this environment, so-called “FAANG” stocks and concentrated exchange-traded funds with catchy ticker symbols have also garnered attention among investors. 

The fund graveyard

Unsurprisingly, however, numerous funds across the investment landscape were launched over the years only to subsequently close and fade from investor memory. While economic, demographic, technological, and environmental trends shape the world we live in, public markets aggregate a vast amount of dispersed information and drive it into security prices. Any individual trying to outguess the market by constantly trading in and out of what’s hot is competing against the extraordinary collective wisdom of millions of buyers and sellers around the world.

With the benefit of hindsight, it is easy to point out the fortune one could have amassed by making the right call on a specific industry, region, or individual security over a specific period. While these anecdotes can be entertaining, there is a wealth of compelling evidence that highlights the futility of attempting to identify mispricing in advance and profit from it.

It is important to remember that many investing fads, and indeed, most mutual funds, do not stand the test of time. A large proportion of funds fail to survive over the longer term. Of the 1,622 fixed income mutual funds in existence at the beginning of 2004, only 55% still existed at the end of 2018. Similarly, among equity mutual funds, only 51% of the 2,786 funds available to US-based investors at the beginning of 2004 endured.

What am I really getting?

When confronted with choices about whether to add additional types of assets or strategies to a portfolio, it may be helpful to ask the following questions:

  1. What is this strategy claiming to provide that is not already in my portfolio?
  2. If it is not in my portfolio, can I reasonably expect that including it or focusing on it will increase expected returns, reduce expected volatility, or help me achieve my investment goal?
  3. Am I comfortable with the range of potential outcomes?

If investors are left with doubts after asking any of these questions, it may be wise to use caution before proceeding. Within equities, for example, a market portfolio offers the benefit of exposure to thousands of companies doing business around the world and broad diversification across industries, sectors, and countries. While there can be good reasons to deviate from a market portfolio, investors should understand the potential benefits and risks of doing so.

In addition, there is no shortage of things investors can do to help contribute to a better investment experience. Working closely with a financial advisor can help individual investors create a plan that fits their needs and risk tolerance. Pursuing a globally diversified approach; managing expenses, turnover, and taxes; and staying disciplined through market volatility can help improve investors’ chances of achieving their long-term financial goals.

Conclusion

Fashionable investment approaches will come and go, but investors should remember that a long-term, disciplined investment approach based on robust research and implementation may be the most reliable path to success in the global capital markets. 

The Weekly Bottom Line

by Sergio Mariaca on Feb 15, 2019 2:48:35 PM |Share:

Here is what happened in the Capital Markets this week.

The Weekly Bottom Line (please click link to open)

The Weekly Bottom Line, courtesy of TD Economics, includes a review of market performances, recent key economic indicators, a calendar of upcoming key economic releases, and other relevant data. The highlights from this week’s report include:  

·        December retail sales came in significantly weaker than expected, falling 1.2% m/m, with the decline being broad-based. Consumption in Q4 is now tracking around 2.6% annualized – softer than expected, but still a pretty good showing.

·        The retail sales report provides a weak handoff to 2019. The fact that the government shutdown extended into January and consumer confidence retreated on the month, further reinforces the notion for a soft print in first-quarter spending and GDP.

·        Core inflation remained at 2.2% (y/y) in January, where it has sat for five of the past six months. And there is little indi­cation that it will move in either direction soon. This should provide comfort for the Fed to remain patient. 

The Weekly Bottom Line

by Sergio Mariaca on Feb 8, 2019 4:59:00 PM |Share:

Here is what happened in the Capital Markets this week.

The Weekly Bottom Line (please click link to open)

The Weekly Bottom Line, courtesy of TD Economics, includes a review of market performances, recent key economic indicators, a calendar of upcoming key economic releases, and other relevant data. The highlights from this week’s report include:  

·        Global central banks have followed the cue set by the Fed, as they too take a break from tighter monetary policy to assess mounting risks to global growth.

·        Activity in the U.S. services sector cooled a bit in January as government-funding uncertainty and trade tensions weighed on business sentiment. Nonetheless, non-manufacturing activity remained well in expansion territory.

·        Senior U.S. trade officials are off to Beijing next week to work on a trade deal, even as a meeting between the two countries’ presidents seems unlikely before the March 2nd deadline. All eyes will be on Washington to avert yet another government shutdown as the temporary funding gap expires on February 15th.

 

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