Displaying items by tag: risk

(New York)

The markets look troubling right now. They are just about to cross to a new high at the same time as they have just breached the record for the longest ever bull market. P/e ratios are way above historical averages and stocks have risen 400%+ (including dividends) since their lows in 2009. At the same time, there are ample geopolitical headwinds, tightening rates, and trouble in tech. Is it time to take risk off the table? Maybe, but don’t act rashly. The key is to take small, gradual, and reversible steps. If you end up being right, you will have minimized your losses, but if you end up being wrong, you won’t kick yourself from missing gains.

FINSUM: Advisors say that these kinds of strategies are well-received by most investors, so simple risk mitigation efforts can go a long way to minimizing the psychological discomfort one feels at the potential peak of the market.

(New York)

How about some high growth and low risk stocks for your portfolio? Sounds too good to be true, but Barron’s has run a piece today highlighting the top picks of a midcap fund manager who is aiming for that profile. The idea of the Touchstone Mid Cap Growth Fund (TEGAX) is to find good growth at a reasonable price. The fund has returned 13.6% per year over the last five years. Their top holdings include: Worldpay, Pioneer Natural Resources, FleetCor Technologies, TransUnion, Tiffany, and Cooper.

FINSUM: These are some very diverse picks. Examining the fund’s methodology, we like their approach and suspect these stocks are worth a look.

(New York)

One of the biggest arguments of the junk bond market is this: one needs to be careful of junk bond indexes because they automatically skew investors to the companies with the most debt, making portfolios inherently more risky. The argument has a seemingly sound logic which is similar to the “skew” often referred to in equity ETFs. However, the reality is the complete opposite, as the companies with the most debt actually tend to be larger and have more conservative levels of leverage. The larger companies with the highest total debt in the high yield market tend to have lower default rates, so there is actually no correlative relationship between more debt and higher risk. The analysis is from S&P Global Market Intelligence.

FINSUM: This is very useful analysis, because the more debt = more risk fallacy is an easy-to-fall-into mental trap.

(New York)

All the press is on the growth of ETFs, but today some surprise data has come out—mutual fund inflows are outpacing ETFs this year, at least according to Pershing. So far this year mutual funds on Pershing’s platform have seen about $8 bn of inflows, while ETFs have seen just over $6 bn. The explanation for the trend, according to BNY Mellon Pershing is that “As advisors look to diversify their investment strategies to actively manage against emerging risks in the market, we are starting to see mutual fund inflows close the gap with ETFs”.

FINSUM: Active management and once-a-day liquidity do seem to give mutual funds an advantage in the risk avoidance department.

(New York)

Many advisors still dismiss green investment, and do so for a number of reasons. Some of these include the asset class as having lower returns, or just being a “niche” interest that is too small of a market. While the perception on returns has already been readily proven to be a fallacy, there is another area where green investment could help clients—in a downturn. Recent evidence from the US downturn showed that green funds tended to perform much better than the market overall during the selloff, suggesting that the underlying securities are more resistant to losses than their conventional share counterparts.

FINSUM: This is hardly a mountain of evidence, but it is certainly suggestive of a potential benefit for green shares.