News and Articles

• Gloomy Bond Investors Clash With Upbeat Stock Managers

  07/07/2010

  Ben Steverman a reporter in Bloomberg's Chicago bureau, summarized the uncertainty of even the experts in the market as we go through turbulent times.

  Bond and stock investors often differ, but at a key moment for the economy, the contrast between their outlooks is stark. It's often said that stock investors, eager for gains, see the glass as half full, while bond investors, careful about losses, see the glass as half empty. Now, however, their views are so different that you might wonder if they're peering at the same glass.

  The Standard & Poor's 500 index is down 8.3 percent so far in 2010. But speak to the managers of many stock mutual funds, and they sound enthusiastic about the opportunities.

  Jason Doiron, co-manager of the Sentinel Conservative Allocation Fund (SECMX), predicts "a long, slow grind" for an economy burdened by debt. "It's going to take time to repair the damage that leverage caused [to] corporate, personal, and government balance sheets." In such an environment, bonds could have the advantage. "Bonds will do well with a lower economic growth rate than stocks will," says USAA Investment Management bond manager Matthew Freund.

  During these times, diversification into bonds, equities, real estate and commodities is critical to having a portfolio that will deliver good returns at low risk. The reality is that both sides have a point and you need to back both horses and not put everything on just one of them.

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• The 401K Issues for Employers and Employees

  07/02/2010

  Ruthie Ackerman of Financial Planning gave a concise summary of the 401K problems facing employers and employees. The crux of the problem is how to provide an effective retirement vehicle for employees who are jaded and underprepared to invest for their retirement. Employers are trying to improve the choices but have to be careful not to confuse employees with too much choice of ever increasing complexity of funds.

  Fifty seven percent of employers automatically enroll workers in 401(k) plans, but slightly less than half of those that reduced or suspended matching contributions when the financial crisis hit in September 2008 have restored them, according to a survey released Wednesday by Towers Watson.

  The survey, conducted in April and May with 334 companies with 1,000 or more employees, also found that target-date funds are the biggest default investment option for 401(k) plans. Seventy two percent of employers use target-date or “lifecycle” funds as the default option and another 13% use balanced or lifestyle funds.

  The Department of Labor is in the process of putting together a checklist to help plan sponsors evaluate and choose target date funds, Alfred said. But the plan sponsors may follow that checklist and find the funds from their providers don’t fit the criteria. “So either the plan sponsors leave the providers or providers become more flexible in offering other target date funds in their plans,” he said.

  The good news is that of those employees that were auto-enrolled last year, few declined to participate after they were automatically enrolled, according to the survey. Eighty five percent of companies report that less than 10% of employees opted out of the 401(k) plan.

  A BlackRock survey announced Tuesday at a presentation in New York found that employees depended heavily on their companies matching contributions to steer their own savings goals. In fact, 45% of respondents to the BlackRock survey said that the employer’s matching contribution was “very influential” on their saving habits. Here’s the problem: When asked what they thought a good rule of thumb for a savings rate is, 40% said 10% and 25% said 12%. But the average contribution rate for employees is about 6-7%--or roughly what the normal employer match tends to be.

  This is a woefully underserved market with a desparate need for simple and transparent solutions for the employee to increase returns and reduce risk without forcing the employer to have a massive and expensive array of funds.

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• Treasuries suddenly are popular

  07/02/2010

   

  Tactical asset strategies have seen a move away from equities into treasuries and real estate. RANDALL W. FORSYTH of Barrons asked and answered the question "Why are treasuries suddenly so popular?"

  In round terms, the iShares Barclays 20+ Year Treasury Bond exchange-traded fund (TLT), is up more than 10% since April while the PowerShares QQQ ETF (QQQQ) that tracks the Nasdaq 100 is down more than 10%.

  This hasn't been a short-term phenomenon. 10-year Treasury zero-coupon STRIPS have outperformed both stocks (using the Standard & Poor's 500) and commodities (as measured by the GSCI total return index) over the past three, five, 10, 15 and 20 years.

  So, why own Treasuries when Blue Chips such as Intel and Microsoft yield more? Simply because those stocks lost 3% and 4%, respectively, in Tuesday's rout. Other Dow stocks such as ExxonMobil (MOB) and Altria (MO) also lost 2% even though they handily outyield Treasuries.

  This is more than a quarter-end phenomenon, although the calendar clearly is exaggerating the market's swings. The decline in all risk assets, notably commodities along with equities, points to economic weakness and, perhaps, outright contraction. That would suggest lower stock prices and Treasury yields in the near term.

  Over the next 10 years, I would rather own stocks of great American multinational companies that create wealth rather than the debt of the U.S. government, which absorbs wealth. Over the next 10 months, I'm not so sure. And on that score, I'm afraid I have too much company. Even so, I'd rather protect principal for now in order to have the cash to buy these great companies later at bargain prices.

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• The ETF Race is On

  06/30/2010

  Last week, the news out of Chicago was that there might soon be a day when at least half of the mutual-fund community converts its traditional funds into ETFs. The changes about to hit both the fund and ETF business were on display last week at Morningstar's annual conference in Chicago, and ordinary investors should be aware of what is coming, because it will change the landscape of the business. Three separate announcements fueled the speculation.
  
  Vanguard Group, the world's largest fund company by assets, announced 19 new funds with ETF shares, essentially adding an ETF share class to existing traditional mutual funds. The biggest name among the issues going to the ETF side is the Vanguard 500 Index (trading symbol: VFINX), the granddaddy of the index-fund world. The real news behind the Vanguard announcement is price competition for the ETF business.
  
  Next came the news that Grail Advisors is introducing an actively managed bond ETF run by DoubleLine Capital -- active competition means the ETF landscape is starting to look more like the rest of the fund world.
  
  Finally, Huntington Asset Management filed plans to roll two of its funds into ETFs.

  ETFs are, effectively, funds that trade minute by minute like stocks. Typically, they have been based on index investing—and many use leverage to replicate an index and juice its potential returns—but there have been a number of active fund managers making the leap into the ETF world. By nature, ETFs are more transparent and cheaper to operate than traditional funds.

  MyPlanIQ supports a wide range of ETF plans and can help deliver higher performance and low cost and risk to the individual investor.

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• Participants Consider 401(k) More Important in Wake of Financial Crisis

  06/30/2010

  More than half of 401(k) plan participants believe their plan has become more important since the financial crisis of 2008, but many are failing to sufficiently save as much as they think they should be saving, according to BlackRock survey.

  “There is a gap between intentions on savings and action on savings,” said Alan Mason, managing director and portfolio manager with BackRock’s multi-asset client solutions group, at a presentation in New York on Tuesday.

  The overwhelming majority of the 1,000 401(k) participants surveyed reported retirement savings as their top priority (74%), compared to other needs like healthcare (61%) and debt relief (51%). But 62% of participants also said they believe they will live in retirement more years than they believe their retirement nest-egg will need to last. In other words, there appears to be a disconnection between how long they think they will live in retirement and at what rate they can deplete their savings.

  One key area is ensuring that the 401K returns are maximized. Often participants spend little time determining where to make investments and so their returns are low. MyPlanIQ has a biweekly newsletter that gives plan rankings so that participants can see how their plan performs and what returns are possible

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• John Hussman: Recession Warning

  06/30/2010

• Vanguard Adds 19 Funds with ETF Shares

  06/28/2010

• Understanding and Building Your ETF Portfolio

  06/27/2010

• Retirement Planning Options for Freelancers

  06/27/2010

• IRA Assets Overtake 401(k)s

  06/25/2010

• Don't Fear Inflation if it Comes

  06/25/2010

• Poorer Countries Taking Over Global Economy

  06/25/2010

• Seven Lessons from the "Beautiful Game"

  06/23/2010

• Experts Spotlight 8 Key Retirement Topics

  06/23/2010

• ETF Selection in CNBC Diversified Global Core Model Portfolio

  06/22/2010

• Long 401(k) Menus Prove Hard to Digest

  06/21/2010

• Five Simple Ways You Can Boost Your Nest Egg

  06/21/2010

• Usable, Understandable 401K Asset Allocation

  06/16/2010

• Big 401(k) Mistakes That Hurt Savings

  06/14/2010

• Lawmakers Seek to Prevent Americans Outliving Savings

  06/13/2010