Markets
Japanese stocks have been mired in a multi-decade bear market since 1990. Remarkably, Japanese equities had an annual gain of -0.3% between 1990 and 2023. Some of the major reasons for this poor performance was that stocks become extremely expensive at the peak in 1990, companies were less profitable than European and US competitors, deflation was raging, and the currency was also very strong which hurt exports.
Now, we are at the opposite end of the spectrum in many ways. Japanese companies are flush with cash and have low levels of debt. Deflation is no longer a threat, while the Japanese yen has weakened and become quite competitive with other countries. On the aggregate, profit margins have risen from 3% to 5.5% since the early 90s. In turn, Japanese stocks have returned 7.4% annually since 2010.
Another positive development for equities is that activist investors have been successful in unlocking shareholder value on balance sheets. The government is also actively encouraging consolidation within fragmented industries and companies to focus on maximizing shareholder value.
Despite these initiatives, Japanese stocks still remain quite cheap with half of companies trading below book value. Yet, there is some compelling evidence to believe that Japanese stocks have more upsides given this combination of catalysts.
Finsum: Japanese stocks are quite cheap relative to the rest of the world. In addition, there have been quite a few positive developments in recent years in terms of corporate behavior and government policy.
If you’re tinkering with the idea of bonds, consider this: the challenges on the fixed income landscape, according to money.usnews.com. For those who aren’t initiated, individual bonds – which trade over the counter – it can be a tough road to hoe.
That’s where bonds funds come in. For investors, they’re an entrée to diversified bonds. And what about the complexities of direct bond investment? There are none.
"Given the higher risks and costs associated with portfolios of individual bonds, and the time they take to manage, most investors are better served by low-cost mutual funds and exchange-traded funds, or ETFs," said Chris Tidmore, senior manager at Vanguard's Investment Advisory Research Center. "This is particularly true in the case of municipal and corporate bonds, which are less liquid and harder to purchase than Treasury bonds."
Meantime, calling it a day was Eric Needleman, global head of Fixed Income, who plans to do so by year’s end, according to an announcement by Stifel Financial Corp., reported yahoo.com.
"We are deeply grateful for Eric’s dedication, leadership, and the lasting impact he has made on our firm,” said Stifel Chairman and CEO Ron Kruszewski. “He set a standard of excellence that will continue to define Stifel's approach to the fixed income business.”
In one corner of the investment world: the traditionalists; in the other, the alternatives.
A survey of 191 investment professionals from February 14, 2023 to April 7of this year showed a mounting interest in alternative investments among professionals, at 28%, predating the pandemic, according to thestreet.com.
"As traditional stock and bond asset classes suffered from losses and volatility in 2022, it's not surprising that interest in alternative investments increased among financial professionals. However, overall use of alternatives remains relatively low,” 2023 FPA President James Lee, CFP, CRPC, AIF, said in a press release.
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While alternative investments are catching the attention of some financial advisers, the survey highlighted that over 90 percent of investment professionals currently use or recommend exchange-traded funds (ETFs).
Unlike traditional assets, of course, alternative investments aren’t subject to US Securities and Exchange Commission regulatory requirements, according to coresignal.com. That’s significant since it translates in further room for speculative investment practices.
There’s a scant link between alternative assets and the stock market – not to mention other conventional investments, according to coresignal.com. Consequently, they’re not required to react to market conditions as they shift. For conventional securities, it’s a different story.
Alternative investments, fueled by high fees and minimums, typically are accessible to institutional investors exclusively.
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Volatility’s not your game? You’re sure now?
Well then, to tamp down volatility in a portfolio – or generate steady income -- fixed income assets are popular alternatives to dividend stocks, according to money-usnews.com. And the assets pay out a defined stream of income.
It typically assumes the form of bonds, which, essentially, are IOUs investors can reach into their wallet for from a number of sources, like, for example, governments and corporations.
That said, bond investing isn’t as easy as one-two-….you get the ides. Instead, since individual bonds are traded over the counter and mucho calculation is required to price correctly, it can be complex.
"Given the higher risks and costs associated with portfolios of individual bonds, and the time they take to manage, most investors are better served by low-cost mutual funds and exchange-traded funds, or ETFs," said Chris Tidmore, senior manager at Vanguard's Investment Advisory Research Center in Wayne, Pennsylvania. "This is particularly true in the case of municipal and corporate bonds, which are less liquid and harder to purchase than Treasury bonds."
Meantime, this for U.S. investors in exchange traded funds: you might want to mull over taking the splash into medium-term fixed income ETFs. according to marketwatch.com. Why, you might ask? They could not only dispense “attractive carry,” they also could translate into a “buffer” against the volatile returns in the U.S. equity market. That’s in light of the fact that the Fed’s path toward interest rate hiking’s immersed in a lack of clarity, Gargi Chaudhuri, BlackRock’s head of iShares investment strategy for the Americas, said.
When opportunity knocks, what do you do?
Pretend you’re not home?
Well, in this case, volatility like never before seen in the bond market’s a prime chance generated for selective fixed income sectors, according to pgim.com.
Greg Peters, a managing director and co-chief investment officer of PGIM Fixed Income thinks the time’s idyllic for active fixed income managers.
Investing, well, yeah, so it’s rumored, is a difficult road to negotiate as it is. But introduce volatility into the mix and, right again: whoa.
The uncertainty of current economic conditions has landed fixed income assets smack dab on center stage, according to thestar.com.
Typically, fixed income assets, of course, don’t come with as much volatility and, consequently, compared to equities, the degree of risk’s dialed down.
With the possibility of handsome yields and capital gains in the eye of southbound economic conditions, Principal Asset Management Berhad believes that high-quality fixed income presents attractive opportunities for investors.
When it comes to equity investments, incorporating fixed income investments into their portfolios puts investors in a position to balance out the risk.
Last month, investors must have spent more than a little time at their neighborhood ATM. After all, during that period, they poured $62.1 billion into ETFs, according to zacks.com.
That’s setting some pace, at that, considering it’s almost tripled February inflows, according to the BlackRock report. The first quarter net inflows as a result: $148.5 billion.
Fixed income ETFs fueled most of the inflows. Marking the largest gain since October, it hauled in approximately $38 billion.
Meantime, the Innovator, an outcome-based ETF issuer, recently was more than a little busy. It launched a unique suite of barrier ETFs that extends protection by scooping up U.S. Treasurys and selling equity options, according to cnbc.com.
“Advisors are realizing that bonds aren’t the safe haven that many thought they would be,” the firm’s CIO, Graham Day, told CNBC’s “ETF Edge.” “If you can pair [a barrier ETF] with the fixed income, it offers a tremendous amount of diversification benefits.”
And talk about two birds with one stone. These ETFs nip credit risk in the bud and yield liquidity every day, Day explained.