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Monday, July 14, 2014
Wednesday, December 11, 2013
Non-Investment Grade Bond Returns Top 7% For 2013
2013 will be remembered as a pretty terrible year for bonds in general, with the exception of one category: Non-Investment Grade Bonds. The average return across the high-yield market in 2013 to date just topped 7%, reaching 7.07%, per the latest reading on the Bank of America Merrill Lynch High Yield Master II Index. That puts the market in line for a rare coupon-clipping year, in which the market’s year-end return is pretty close to its average coupon at the start of the year (6.1% in this case), which seems simple enough that it should happen all the time but is actually incredibly rare for Non-Investment Grade Bonds.
Coming off such a seemingly predictable 2013, many investors view "junk" bonds as among the less-risky ways to get yield heading into 2014. The major risk for the high-yield market is default risk, but the current default rate is just 2.4% and that isn’t expected to change much next year. The typically more stable higher-rated bond sectors (Treasuries, municipals, TIPS) have been notably volatile and lousy in 2013, thanks to their heightened interest-rate risk. But some see more downside than upside in the high-yield market after several straight years of gains, noting that credit risk is going to come back with a vengeance eventually, even if that doesn’t happen in 2014.
The average "junk" bond today trades at 103.4 cents on the dollar and yields 5.61%.
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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.
The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville. The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.
Tuesday, December 10, 2013
BlackRock: The Most Likely Taper Timing
Economic news was generally positive last week, with the highlight being a strong November payrolls report. In response, many investors are wondering if the positive data means that the Federal Reserve (Fed) will soon begin tapering its asset-purchase programs.
What’s my take? As I write in my new weekly commentary, while a December taper is certainly still possible – I’d put the odds of it at around 30% – I see an early 2014 as the more likely timing. Here are three reasons why:
1. While November’s nonfarm payroll numbers were better than expected, they were not so good as to cement a December tapering. November’s jobs data marked the second straight month in which more than 200,000 jobs were created, and the unemployment rate significantly dropped to 7.0%. However, while job creation has modestly accelerated from last year’s levels, it’s still not so strong as to necessitate an early end to quantitative easing (QE).
2. Wage growth remains weak. Though job creation is accelerating, it’s not accelerating fast enough to push wages up. Hourly earnings are only growing by 2% on a year-over-year basis, while another report showed that U.S. personal income fell by 0.1% in October. Anemic wage growth is a long-term structural problem, since without faster rising wages, consumer spending is unlikely to improve.
3. Inflation remains subdued. The Fed has significant latitude to take its time. Most measures of inflation are closer to 1% rather than the Fed’s long-term target of 2%. If anything, over the next year, deflation is probably a greater threat than inflation.
The bottom line: Thanks to a slowly improving labor market, anemic wage growth and a still reluctant consumer, economic growth is likely to remain modest and inflation low. As such, while it’s still possible that the Fed will announce tapering of its bond purchases this month, early 2014 seems the more likely timeframe.
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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.
The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville. The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.
Sunday, December 8, 2013
Women Fear Shortage Of Money To Retire
Fifty-six percent of women expressed confidence that they are saving enough for retirement, compared with 65 percent of men.
For those women who received financial advice, 40 percent changed the asset allocations in their retirement accounts, while 62 percent began monitoring their savings and 58 percent modified their spending habits, the survey says.
The survey included 1,000 respondents nationwide.
Overall, when it comes to financial planning, women are more focused on unexpected events, such as divorce or loss of a loved one, rather than milestones like getting married or planning for retirement, according to Teresa Hassara, executive vice president and head of the Institutional Business at TIAA-CREF.
Source: Financial Advisor magazine
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The views expressed here are that of myself or the
cited individual or firm and do not constitute a recommendation,
solicitation, or offer by D2 Capital Management, LLC or its affiliates
to buy or sell any securities, futures, options or other financial
instruments or provide any investment advice or service. D2, its
clients, and its employees may or may not own any of the securities (or
their derivatives) mentioned in this article.
The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville. The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.
Saturday, December 7, 2013
Investment Strategist Favors Large-Cap Sector
"Many large-cap companies are growing with a limited amount of leverage. Their ability to grow at this rate shows that they are doing it in a much more organic fashion and are not overextended with debt to finance their growth," Swanson said at a recent MFS year-end investment outlook luncheon.
Large-cap stocks returned on average 11.77 percent annually from 1926 to 2011.
"In the last year or so, large caps have been hurt by a general slowdown in Europe and in emerging markets because they derive a significant portion of their revenue from outside the U.S.," Swanson said. "As Europe and emerging-market countries recover and the U.S. remains in a slow-growth mode, these companies are poised to do well, especially the higher-quality large caps that don't have a significant amount of leverage on their balance sheets."
"Large-cap companies most likely to benefit from a bump in earnings in 2014 are not only the economically sensitive technology and industrial stocks but also consumer durables," said David Edwards, president of the New York-based Heron Financial Group. "Generally, large-cap companies have more stable and reliable earnings and small-cap companies have faster growing earnings."
Source: Juliette Fairley, Financial Advisor magazine
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D2 Capital Management uses multiple Large Cap strategies as the core element in our investment portfolios.The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.
The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville. The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.
The Pause Principle
Last week, as we’ve been expecting, the market embarked on a well-deserved break. Much as many of us needed a little downtime following Thanksgiving dinner, the stock market is effectively digesting an extraordinary 2013. Predictably, the softness has brought out all manner of doomsayers ready to declare a crash (or worse) imminent. Many are pointing to the upcoming revival of budget and fiscal negotiations in Washington as the catalyst that will tip an already wobbly market off the edge, but we don’t think so. Neither the Democrats nor Republicans are interested in going through the public flaying that accompanied last time’s brinkmanship.
And no, it’s not a bubble. Bubbles seem to be everywhere these days, if you believe the pundits. We can remember when the word was said in hushed tones around the trading desks, and the only verified one was the technology craze in the late 1990s. Anyone around then can attest to how far away, for now, stocks are from that kind of environment. A strong advance does not indicate a bubble, and neither does high valuations; on the contrary, these things may simply reflect the healthy dose of optimism on which all multi-year bull markets are built. Bubbles, as every contrarian worth his or her salt knows, form when no one is looking for them.
Granted, stocks have been on a roll lately, up for eight weeks in a row and 11 of the last 13. In fact, they’ve been doing better than many would have thought possible given the range of weaker economic indicators that came in during the fall. But on balance, they’re not in nosebleed territory yet.
Remember, too, that less uncertainty – uncertainly about the budget mess, about tapering, about the economy, about ObamaCare, etc. – means higher valuations, since it boosts confidence. So as the fog lifts and investors can gauge the future more easily, it makes sense for valuations to expand.
And if you’re wondering where the fuel is coming from, look no further than bonds. Ever since “tapering” became the first word on everyone’s lips in July of last year, fixed-income investors have been steadily abandoning the bond market. Given that cash yields less than nothing on a real basis, the only alternative has been for these dollars to head into the stock market. By some estimates, some $2 trillion in worldwide fixed-income assets are vulnerable to tapering, so this shift is not even close to being over.
However, nothing goes in a straight line, and there are times when stocks get a little ahead of themselves. This is probably one of them. Add in the traditional profit taking and tax-loss maneuvering at this time of year, and we’re just not that surprised to see the markets taking a breather. Ultimately, it’s better – it suggests there is no strategic shift in trend taking place.
Economically, we think the path forward is fairly clear. Economists generally expect coordinated, albeit moderate, economic growth in 2014 - Europe has emerged from recession, fiscal and policy headwinds in the U.S. are easing, Japan is on the upswing and China’s economy has found better footing. As we’ve written before, 2014 will thus be the first year in ages that all four major economic blocs in the works are growing at the same time. This is significant, because it means the bull market is on solid ground. We doubt the pace of stocks’ advance will keep up with 2013, but it will remain positive.
In the background, the tapering of asset purchases continues to hang over markets. We’ll say one thing – QE may not have done much to spark the animal spirits of GDP growth, but it has certainly helped push up asset prices. Yet inflation continues to either decline outright or remain muted, suggesting easy monetary conditions are going to persist for some time. Indeed, if anything, the Fed and other central banks may be approaching a phase in which measures like QE are not only viewed as simulative measures, but also as a defense against deflation.
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The views expressed here are that of myself or the
cited individual or firm and do not constitute a recommendation,
solicitation, or offer by D2 Capital Management, LLC or its affiliates
to buy or sell any securities, futures, options or other financial
instruments or provide any investment advice or service. D2, its
clients, and its employees may or may not own any of the securities (or
their derivatives) mentioned in this article.
The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville. The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.
Friday, December 6, 2013
The Power of Preferreds
This does not take away from the fact that the ETF is still the largest in its niche in terms of overall assets under management, with $8.86 billion currently. Several other Preferred Stock based ETFs have grown impressively in recent years as well, specifically PowerShares Preferred Portfolio (PGX) which now has amassed $2.08 billion in assets under management.
Preferred stocks are often used by portfolio managers to provide an additional level of diversity in portfolios, and potentially in place of or in conjunction with bond exposure at times.
Source: Paul Weisbruch, Street One Financial
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iShares S&P 500 US Preferred Stock Index Fund (PFF) and the PowerShares Preferred Portfolio (PGX) are components of the D2 Capital Management Multi-Asset Income Portfolio. The funds are currently yielding 5.33% and 6.66% (as of 6 December 2013).The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.
The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville. The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.
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