GARY SHILLING: 9 Investments For The Prevailing Risk-On World (A. Gary Shilling's Insight)
Gary Shilling argues that going into May we're still in a 'risk on' investment climate despite "many warning signs related to economic growth and financial markets here and abroad." In this environment he likes nine investments. 1. Treasury bonds; 2. Selected income-producing securities; 3. Small luxuries; 4. Consumer staples and foods; 5. The U.S. dollar against the Canadian and Australian dollars; 6. Selected health-care providers and medical office buildings; 7. Low P/E stocks; 8. Productivity enhancers; 9. North American energy producers ex renewables.
Meanwhile, he thinks select commodities, especially copper, are unattractive. "We've re-established our short on the Australian dollar. That country's strong link to China still makes it vulnerable to slowing economic growth and a possible financial shock there," according to Shilling. "We've also restored our short on emerging market stocks. Serious problems remain … especially for the poorly-managed Goats," he writes. The term refers to countries like Turkey, India, South Africa, Indonesia, Argentina, and Brazil, that have high current account deficits, weak currencies, and high inflation. "And we've added a short on small, speculative stocks in view of the high prices and ongoing declines." He also thinks a shock like a financial crisis in China could push us into a risk off.
Advisors Are Wary Of Alternative Mutual Funds (The Wall Street Journal)
Alternative mutual funds, are funds that have more nontraditional investments and strategies that are more like hedge funds, than the traditional buy and hold. These funds have been growing fast, from about $38 billion in 172 funds at the end of 2008, to $160 billion in 429 funds at the end of February 2014. But many advisors are wary of these funds because they are complex, expensive, lack transparency, and because they have "short track records," reports Daisy Maxey at The Wall Street Journal.
"The concept is borrowed from hedge funds and hedge funds have really high fees and very poor track records," Christopher Van Slyke, a founding partner of WorthPointe, told Maxey. "So why we would want to bring that set of circumstances to the masses for mutual funds, I have no idea." Van Slyke also added that the fees - which can range from 1.9% to 4.6% according to Morningstar - are so high that they offset any good ideas these funds have.
The Most Famous Bond Fund In The World Continues To See Money Flow Out Of It (Morningstar)
PIMCO, the world's largest bond fund run by Bill Gross, just saw its 12th straight month of new outflows. Data from Morningstar shows that investors pulled $3.12 billion from PIMCO's flagship Total Return Fund in April, bringing the total in net outflows to $55.26 billion since May 2013. PIMCO has come under the scanner following the surprising departure of Mohamed El-Erian and reports about Gross' management style. The fund is also trailing 68% of its peers.
Business Insider, Morningstar
UBS Wealth Management Americas was about to replace Michael Williams, its San Francisco branch manager, until his brokers decided to protest, reports Mason Braswell at Investment News. Some brokers were willing to resign if Williams was replaced, and management eventually caved to the pressure. "I've never seen anything like it," a veteran adviser in the office told Braswell on condition of anonymity. "I've seen a lot of guys come and go, and I've never seen a group of brokers stand unified."
GMO: The Stock Market Looks Irrationally Exuberant (Business Insider)
Money management firm GMO has a proprietary measure of sentiment made up of a wide range of measures, and they say it looks stretched. "Our finding, which comes as no great surprise, is that sentiment has reached an extreme level, fast approaching two standard deviations above its long-run average, which goes back to 1950," writes GMO's Edward Chancellor. "In fact, the current score on our composite measure has only been exceeded in 1968 (during the 'Go-Go Years,' also known as the 'Great Garbage Market'), and between 1998 and 2000 (during the TMT bubble).
"Clearly, the U.S. stock market is not as manic as it became during the late stages of the Dotcom bubble - IPO issuance and first-day returns and mutual fund flows are far below their record levels at the turn of the century," added Chancellor. "M&A activity is also less frantic. Still market sentiment going into this year was above the level of December 1996 when Alan Greenspan first noted (but did nothing about) the market's 'irrational exuberance.'"
GMO