“The Fed: Serving in the Economic Interest”
ABN-AMRO Funds
(now Aston Funds)
Can a folded newspaper foretell the actions of the Federal Reserve Board?
Some members of the financial media – tongue firmly in cheek – would once have had us believe so. Until he retired early this year, former Fed chairman Alan Greenspan was continuously scrutinized for clues about his state of mind. These “leading indicators” ranged from the way he carried his newspaper to the type of fruit juice he ordered at breakfast. The new chairman, Ben Bernanke, is not yet the subject of such amateur psychoanalysis, but the investment community actively speculates about his point of view.
Why the intense interest?
The answer lies in the Federal Reserve itself and its power to regulate the nation’s money supply. The word “Fed” is generally used to refer to the Federal Open Market Committee (FOMC), a 12-member group that meets eight times a year to review U.S. economic conditions and set monetary policy. The FOMC is one part of the Federal Reserve System, which was established in 1913 as the central bank of the United States.
The Fed uses two tools to manage monetary policy. First, it determines the amount of money banks cannot loan and must hold in reserve in the 12 Federal Reserve Banks. Second, it controls certain interest rates – the discount rate (the interest rate banks pay on loans from a Federal Reserve Bank) and the federal funds rate. The public is most familiar with the federal funds rate, which is the interest rate banks pay each other for overnight loans.
When the Fed raises or lowers interest rates, it becomes more or less expensive for banks to borrow money. Banks, in turn, pass any changes along to customers. If rates go up, businesses and consumers must pay more in interest on their new or adjustable-rate loans. If rates go down, their interest payments usually fall.
How do changes in interest rates affect investors?
The Fed’s interest-rate policies have a significant impact on the financial markets. . . .
“Betting on a Longer Life”
ABN-AMRO Funds
(now Aston Funds)
Americans are living longer. Driven by advances in medical treatment and increased access to health care services, the average life expectancy in the United States has risen from 47.3 years in 1900 to more than 77.3 years in 2002.
A longer life means you can look forward to more years of retirement. According to the American Association of Retired Persons (AARP), the number of Americans 65 years of age and older increased by a factor of 11 during the 20th century; by 2030, about one out of every five people will be a senior citizen. You may even reach the century mark. After reporting 37,306 centenarians in 1990, the U.S. Census Bureau projected that 834,000 Americans would be 100 years or older by 2050.
Can your money take you the distance?
Since the odds favor a long retirement, you should be prepared to cover your living expenses for 20, 30, even 40 more years. The Congressional Budget Office projects that median-income couples, retiring at age 66, need at least $298,000 in net assets to maintain their pre-retirement standard of living. But with the personal saving rate in the United States at a record low of approximately 0.5% of post-tax disposable income, Americans may not be saving enough.
In fact, many pre-retirees – those between the ages of 55 and 64 – are worried that their nest egg is not large enough to last through their retirements. Your savings should be adequate to pay for your day-to-day expenses, without forcing you to give anything up, while plentiful enough to fund your retirement plans and dreams. You may also want to make sure that some of your money remains at the end of your life as a legacy for your children and grandchildren.
Planning for Your Retirement Needs
A plan can help you lay the groundwork for financial independence. It may also give you peace of mind – the knowledge that you have a strategy for accumulating the money you need to manage daily cash flow, the cost of your retirement activities, and future healthcare expenses. Focus first on the following issues . . .
“What’s An Investor to Do?”
Aston Funds
In mid-September, the credit crunch in the financial markets turned into a full-blown crisis, driving down stock and bond prices (except for U.S. Treasuries) and threatening to tip the U.S. economy into a recession. How did this come to pass? And what do investors do now?
The Origins of the Financial Crisis
The current financial crisis has its roots in the housing
boom, a time when many lenders gave mortgages to homebuyers without
verifying their ability to repay. Although low interest rates may
have encouraged this practice, “subprime” lending was not much of
a problem until rates began to rise. When they did, adjustable-rate
mortgages reset at significantly higher levels and a growing number
of homeowners could not meet their mortgage payments.
Meanwhile, subprime lenders had reduced their own risk by selling these loans to investment firms, which pooled them with higher quality loans into mortgage-backed securities and sold them to individual and institutional investors. Once homeowners started to default on their loans, some of the underlying mortgages became worthless, but no one knew for certain which securities had been affected. Concerned about losses, banks and financial institutions began hoarding cash. They stopped lending – even to each other, unsure about the exposure their peers had to credit problems. Companies that needed financing for their day-to-day operations could not obtain a loan. Neither could Americans who wanted to buy a car or fund college tuition. The financial system was critically impacted.
The Impact on Investors
The result was a dramatic selloff in the stock and bond markets
as investors fled to safety in U.S. Treasuries. (U.S. Treasuries
are backed by the full faith and credit of the federal government.)
Even bailout legislation didn’t ease the crisis of confidence.
Finally, after governments around the world said they would guarantee
loans made between banks, banks and financial institutions slowly
began lending again.
Nevertheless, market volatility persists. On almost a daily basis,
there have been huge swings in the Dow Jones Industrial Average.
In addition, the aptly nicknamed “Fear Index” – the VIX, which
tracks options trades that investors use to protect against future losses
– has reached to its highest level since the 1987 stock market crash,
according to he Wall
Street Journal.
In these challenging times, it can be easy to lose one’s bearings.
Here are a few things to think about.
To learn more about staying on track in this difficult investment environment, contact your financial advisor.
“Jordan Alexander and Stephen Friscia:
Fundamental Small Cap Value Team”
Bear Stearns Asset Management
They don’t follow the crowd. Jordan Alexander and Stephen Friscia like to blaze their own trails. “We are contrarians by nature,” says Jordan, “and that makes us a good team.”
As co-portfolio managers of the Bear Stearns Asset Management (BSAM) Fundamental Small Cap Value team, Jordan and Steve look for stocks that are undervalued and overlooked. In other words, they go where the crowd isn’t. “Our approach shows us opportunity where other investors don’t see it,” says Steve.
The two recognized that they shared the same value investment philosophy when they met during the summer of 1998. At the time, equity investors had little interest in companies that had strong cash flows and were managed with prudent capital discipline. “The market was biased toward companies that grew revenues at above-average rates,” remembers Jordan, “even if they generated little or no cash flow.” Adds Steve, “Investors rarely scrutinized the investments a firm made as long as revenues continued to grow. In our opinion, their fascination with such companies was not sustainable.”
Jordan and Steve believed that the level of cash flow an entity generated over time is what determined its value. Furthermore, they thought it was critical for management to redeploy that cash flow in a way that enhanced shareholder value. So when they became a team in 1999, the managers adopted an investment approach that focused on a company's fundamentals and a thorough examination of its financial statements. To this day, financial statement analysis is the foundation of their investment process.
Both have a deep appreciation for what they can learn from reading financial statements. And because of their accounting backgrounds, they are both highly skilled at analyzing them. Jordan is a CPA and spent five years in public accounting. Steve also began his career as an accountant. “We think our accounting knowledge gives us an edge in identifying investment opportunities and implementing our value strategy,” says Jordan. . . .
“The Greek Debt Crisis:
A Dramatic Challenge for the European Union”
Prudential International Investments
Greece seemed to be on relatively solid footing a decade ago when it was one of the fastest-growing economies in the European Union (EU). By promising to keep its budget deficit low in accordance with EU rules, the nation was able to obtain low interest rate loans. But appearances were deceiving. In fact, Greece was running a large budget deficit, significantly larger than many believed. Its financial troubles raised concern that it might default on its sovereign debt, which in turn focused investor attention on other indebted EU nations. Some observers began to speculate about a “contagion” that could undermine healthier EU economies, drive up borrowing costs, destabilize the euro, and depress European stock and bond prices.
The roots of the crisis
Greece has been an EU member since 2001. Under the terms of the 1992 Maastricht Treaty, which established the European Union, individual national governments have the authority to borrow and spend but agreed to restrict their budget deficits to 3% of gross domestic product (GDP).
Some say Greece “cheated its way into the euro in 2001 by fiddling its statistics and failed to curb its budget shortfall in the boom years.” But Greece is not the only EU nation to break its pledges. In 2003, for example, France spent its way out of a recession, saying “it had agreed only to ‘the principle of Europe.’” At the time, nations like Portugal, Greece and Italy suggested that they should not have to make budget cuts if France did not.
After the 2004 Olympics, Greece admitted it had understated its budget deficits for 2000, 2001, and 2002. But the spending continued, fueled by low-interest loans, strong economic growth, and a booming housing market. By the time the nation’s new socialist government assumed power, the Greek economy was in recession and the deficit had ballooned to 12.7% of GDP. The news led to a loss of confidence in Greek sovereign debt and to a rating downgrade by the three major credit ratings agencies—Moody’s Investors Services, Fitch Ratings and Standard & Poor’s Ratings Service.
To rein in the deficit, Greek Prime Minister George Papandreou announced an austerity program that included a freeze on civil servants’ salaries, cuts in public-sector entitlements, increase in fuel taxes, and the closing of tax loopholes. Unless the Greek government successfully cuts spending and raises revenue, it could face EU sanctions and additional ratings downgrades, which would increase its borrowing costs and deepen its recession. Despite strikes and mass protest by labor unions, the Greek public appears to support the government’s plans. According to a poll in the Ethnos newspaper, “some 57.6 percent of Greeks believe measures taken so far are ‘in the right direction,’ while 75.8 percent think unions should show restraint until the end of the crisis.” . . .
“On Solid Ground: Sound Fundamentals Support the U.S. Real Estate Securities Market”
Prudential International Investments
Thousands of words have been written and hours of television and radio time have been devoted to speculation about the condition of the United States (U.S.) real estate market. Some of the loudest voices have pointed to record-high house prices and predicted a dramatic decline – in other words, the bursting of a “housing bubble.”
And certainly, U.S. housing is experiencing a slowdown. In 2006, existing-home sales are expected to fall by -8.6% – although it will still be the third-best performance on record – with an additional -0.6% decline in 2007. New-home sales are likely to drop by -16.8% this year and by another -8.7 percent in 2007, largely because of less construction by builders.
But what does this mean to people who invest in REITs and real estate securities?
Not a great deal. The performance of these investments is tied most closely to the commercial – not the residential – real estate market.
Commercial and Residential Real Estate Are Dissimilar Investments
Commercial properties include office and rental apartment buildings, retail stores and shopping malls, industrial facilities and hotels. They are not single-family homes. That said, commercial and residential real estate are both tangible assets, large parts of the investment universe and can offer a hedge against inflation. However, they have more disparities than similarities in terms of current return, total return, demand drivers and supply cycles.
Because they have different fundamental drivers, their upturns and downturns do not tend to occur at the same time. Furthermore, investors in commercial real estate are exposed to a diverse range of return-risk opportunities, both in the home market and abroad.
As The Wall Street Journal says, “While the commercial real-estate market has exhibited some signs of a bubble in recent years – driven by low interest rates and an influx of investment – it has differed from the residential market. A key difference is that supply and demand have been more tied to vacancies and rents and not as closely linked to the rising interest rates that have cooled the housing market.”
In fact, commercial real estate is on solid ground, according to the National Association of Realtors (NAR), with generally tightening vacancy rates and sound fundamentals. NAR reports that commercial lending volume is up, and delinquencies are down. High construction costs are holding speculative activity in check, and the value of newly finished construction is running nearly 10 percent above a year ago. . . .
“The U.S. Election: An Economic
and Market Outlook”
Prudential International Investments
On November 4, 2008, the American people elected Senator Barack Obama President of the United States. He and Vice President-elect Joseph Biden face significant economic, financial, and geo-political challenges.
Meanwhile, the Democrats have extended their control of Congress. As a result, the new president – who takes office on January 20, 2009 – will have to pursue his agenda in conjunction with Congressional majorities that may be eager to pass legislation that has been blocked in recent years by Republicans.
We asked John Praveen, Ph.D., Chief Investment Strategist of Prudential International Investments Advisers, LLC, for his insight on what investors can expect from an Obama-Biden administration…
Q. What are the implications for
the markets?
A. We expect financial markets to be nervous
at first about an Obama presidency. During the campaign, Obama
supported increases in corporate and dividend taxes, capital
gains taxes and income taxes for households making over $250,000.
These are not pro-growth policies, hence the anxiety in the
stock market. Obama also supports an increase in government
spending that could further increase the fiscal deficit – a
negative for bonds.
Nevertheless, an Obama administration combined with a larger Democratic majority in Congress increases the chance of a second fiscal stimulus package, which could help pull the U.S. economy out of recession. Further, given current economic and market weakness, Obama may have to postpone any tax increases until the economy is stronger.
President-elect Obama has assembled a very credible team of economic advisors (both formal and informal) that have market-friendly credentials and proven records of economic and financial market leadership. They include former Federal Reserve chairman Paul Volcker; Berkshire Hathaway chairman Warren Buffett; past Treasury secretary Robert Rubin; former Treasury secretary Lawrence Summers; and New York Fed president Timothy Geithner. The financial markets could be relieved if Obama’s economic advisors encourage him to adopt more pro-growth and fiscally moderate policies. They would also welcome the speedy appointment of a strong, market-tested Treasury Secretary.
Several sectors and industries could potentially perform well during an Obama administration, including industrials, life insurance and annuities providers, information technology, alternative energy companies, and some health care segments. Underperformers could be financials, health management organizations (HMO), utilities, telecommunications, consumer discretionary, and oil and gas companies.
Q. What is Obama’s position on
the financial crisis?
A. He voted in favor of the Troubled Asset
Relief Program (TARP), the rescue package that would buy up
to $750 billion in assets from troubled banks. Obama has blamed
deregulation as a key cause of the recent financial turmoil.
Consequently, his administration and the Democrat-controlled
Congress are likely to impose additional regulations on the
financial markets. In our opinion, there is greater risk from
poorly conceived regulation than from less regulation.
The President-elect has offered a number of proposals in response
to the crisis, including legislation to discourage payday lending and mortgage
fraud and a standardized metric for mortgages that could make comparisons
easier. He also wants to close bankruptcy “loopholes” for mortgage companies
so that courts can modify an individual’s mortgage payments.
Other proposals include a moratorium on mortgage foreclosures; penalty-free withdrawal from retirement accounts in 2008-2009; TARP extended to student loans and other types of loans; additional spending on schools; more aid to states and automakers; bankruptcy reform; and a refundable tax credit for mortgage interest. In response to the current recessionary conditions, Obama has also called for additional infrastructure spending (high-ways, mass-transit, and construction) to stimulate the U.S. economy. . . .
“How to Improve the Odds of Investment Success”
Meeder Asset Management
To err may be human, but investing mistakes can – and should – be minimized.
We all make mistakes.
Even Warren Buffett, arguably one of the greatest investors of all time, has made his share of them – a fact that he often points out himself. Yes, human error is a fact of life, but it is hard to be philosophical about your own investment missteps when the consequences can be so costly.
What if you didn’t have to be philosophical about it?
What if you could minimize the mistakes you make instead? In our experience, the best way to avoid the most common investment pitfalls – and to improve your chances of success – is to make an unwavering commitment to a clearly defined set of investment principles.
Here are six principles well worth adopting:
Don’t travel without a map.
Set your goals, create a plan and stick with it. When you develop an investment strategy, you are laying the foundation for your financial future. Start by assessing your needs and articulating your objectives. Then design a plan for the long run, one that can help you with investment decision-making. A long-term strategy also can help keep you grounded – whatever is happening in the markets or in the world around you.
Don’t put the cart before the horse.
The first step in building a portfolio isn’t buying stocks, bonds and mutual funds. It is determining how to allocate your investments appropriately. Like many investors, you may benefit most from a broadly diversified portfolio that incorporates a variety of different asset classes and investment styles. You should also factor in all your retirement savings vehicles in an asset allocation strategy. . . .
“Offering Sanctuary to Investors – An MTBIA Equity Theme”
M&T Investment Group
Investors, even professionals, are notorious for fixating on short-term events and missing the big picture. Average holding periods for stocks have decreased as high-turnover hedge funds dominate trading activity and investors lurch from one quarterly earnings report to the next. A longer-term perspective can be more valuable because it helps investors distinguish between mean reversion opportunities and long-term secular declines. It also creates context for a disciplined investment process.
At MTB Investment Advisors, Inc. (MTBIA), we use a three-dimensional security selection process. Our quantitative and qualitative analyses – two of these dimensions – represent our bottom-up efforts. Our top-down work of theme, pattern and trend recognition is the third. We have a strong conviction that the most attractive investment ideas are found at the nexus of these three independent, but interrelated screens.
Our top-down thematic work has uncovered seven equity investment themes – Beyond Demographics, Supply/Demand Imbalances, Information Management, Industry Consolidation, The Global Marketplace, Security Takes Center Stage, and Sanctuary.
The Theme of Sanctuary
Sanctuary offers safe haven and comfort to individuals coping with stress, high levels of accountability, reduced privacy, and vulnerability. By consuming certain goods and services, Americans pursue respite, retreat, and rejuvenation.
Sanctuary is a powerful theme with competitive implications for a large number of industries. In our analysis we uncovered that certain companies are able to capture consistently a disproportionate share of spending and command higher margins than their competitors can. We investigated the reasons why consumers were willing to pay a premium for those companies’ products, and concluded that consumer-spending patterns were changing. Increasingly, Americans are buying products and services that provide them with comfort and gratification. Some are ergonomic, some aesthetically pleasing. Some of these products are both, and others are experiences rather than possessions. What they have in common is that they are used by consumers to reward hard work and to obtain ease and well being.
Companies that fulfill Americans’ desire for Sanctuary have the potential for long-term market power and relevance because they respond to consumers’ behavioral shifts and are properly positioned to exploit the consumption process. . . .
“Practice Management: The Loyalty Equation”
Investment Management Consultants’ Association
The chicken or egg – which came first?
That old saw (paraphrased, of course) applies equally well to investment management consultants. Which comes first? The clients or the practice?
Your immediate reflex may be to say . . . the clients. And of course, if you don’t have clients, you don’t have a practice. But without a well-run practice, you may find yourself scrambling to keep clients or replace those you’ve lost with new ones. Then again, if you are committed to “best practices” in how you run your business, clients must come first. The clients and the practice are irretrievably entwined.
The right strategies will inspire loyalty in your clients. But loyalty as a client retention practice cannot succeed unless you manage your practice to accomplish it day to day, month to month, year to year.
Build a business model that supports your clients’ needs. When you make a commitment to building an advisory business, it means you have decided to focus less on the daily management of investment decisions and more on the relationships you have with your clients. That means your workday should change too.
Answer these three questions:
If you answered yes to these questions, then your business model is probably inadequate. . . .
“Penetrating the Media’s Psyche”
International Association of Business Communicators
Ever sit open-mouthed in amazement while reading a news story? Ever get so irritated that you hurl pillows at your television? If so, you’re not alone.
“We’re all tired of the teasers, of the stories that go nowhere,” says Gerard Braud of Gerard Braud Communications. “Reporters set up a situation, promise hard legwork but when you see the story, you get facts that are either loosely related or aren’t related at all. It’s a big letdown.”
For communicators, however, it can be much worse than a letdown. It can be a disaster. “Reporters will act as judge and jury if you let them,” says Braud.
“Too many reporters have only three things on their mind. 'One, this story has to be great because I want to impress the boss. Two, I want to win an award. Three, I want to put this story on my resume so I can get a more prestigious, higher paying job.’”
Braud knows. Before starting his consulting firm, he worked for 15 years as a reporter in print, radio and television. “I left the business because stories were getting more and more superficial,” he says. “Reporters were also lumping all sorts of unrelated facts together to make it appear that something sinister was going on in corporate America. Where communicators see a company working in the best interests of its employees and customers, reporters connect the same dots to come up with a picture of the monster that lives under the bed.”
So Braud urges corporate America to be a “control freak.” That means executives must end their denial about the severity of negative news, while corporate communicators have to go above and beyond what they do now to protect their company. “A lot of communicators just go through the motions,” he says. “They write a crisis communications plan, but they don’t test it or review it annually. They conduct media training but don’t hold refreshers on a regular basis. They often don’t role play with executives before an interview. Like Tiger Woods, you must practice your technique constantly. That’s the only way to win.” . . .
Put Critical Information to Work
Pitney Bowes Inc.
You deliver for your clients.
Let us deliver for you.
As cases become more complex, your challenges have multiplied. Law firms and corporate legal departments like yours are called upon to collect and manage increasing amounts of information. At the same time, you must remain nimble so you can respond – sometimes at a moment’s notice – to clients, opposing counsel and the court.
We know what it takes. For decades, Pitney Bowes has provided an integrated approach to help law firms and corporate legal departments address these challenges. From document management to litigation support to e-Discovery and print management, we design customized solutions and use leading-edge technology to streamline processes, improve accuracy and enhance efficiency.
In litigation, there is no room for error.
At Pitney Bowes, we understand that you have to get it right the first time. Our team of Legal Solutions specialists is experienced, knowledgeable and highly skilled. You can count on us to be as dedicated to you as you are to your clients, adapting to your needs at every step of the litigation process. Our commitment to excellence will never waver – whether we are in your offices or partnering with you on a case-by-case basis.
Pitney Bowes Legal Solutions. People, expertise and innovative technologies to help you deliver. . . .
U.S. Equity Dividend and Premium Fund Brochure
Goldman Sachs Asset Management
“As I near retirement, should I move assets out of equities and into bonds?”
Retirees often reallocate assets from equities to bonds in an effort to protect assets from equity market volatility and generate an income stream. Often, however, the total return from bonds alone is not sufficient to keep pace with retirement spending needs or inflation.
At GSAM, we believe retirees may obtain attractive after-tax cash flow through certain types of equity investments — while continuing to benefit from equities’ growth potential.
“I don’t expect high double-digit stock market returns going forward. What investment strategy may help me optimize my portfolio’s growth potential in a lower, but still positive, return environment?”
From 1982 - 2000, U.S. large cap stocks averaged 16.88% per year. Today, many market watchers believe that the U.S. market has potentially entered a period of single-digit returns. Of course, no one can predict future market performance.
In such an environment, we believe investors should consider a strategy that seeks to capitalize on all potential components of total return, including dividend income and premiums generated from call options.
“How can I obtain an attractive cash flow?”
Investors who need income often choose bonds for their regular interest payments. However, when interest rates rise, bonds lose value since bond prices move inversely to yield. In addition, income from most taxable fixed income securities is subject to the maximum tax rate of 35%.
We believe that investors who derive cash flow from qualified dividends and long-term capital gains — which are subject to a lower 15% tax rate — can capture potentially superior after-tax results.
The Goldman Sachs U.S. Equity Dividend and Premium Fund
This diversified, high-quality portfolio invests primarily in dividend-paying equity investments in large-capitalization U.S. equity issuers. In seeking to generate an attractive yield, the portfolio management team emphasizes higher dividend-paying stocks within each industry and sector of the S&P 500 — while maintaining similar industry and sector weights.
To further increase the portfolio’s cash flow, the team also regularly writes call options against the S&P 500 Index. The goal of each call option is to generate a premium that, when combined with the portfolio’s dividend yield, offers investors an attractive after-tax cash flow. Of course, the Fund is subject to equity market risk so that the value of the securities in which it invests may go up or down in response to the prospects of individual companies, particular industry sectors and/or general economic conditions. . . .
Concentrated Growth Fund Brochure
Goldman Sachs Asset Management
“Wealth is created through the long-term ownership of growing businesses.”
– Herb Ehlers, CIO, Growth Team
Why Consider Goldman Sachs Concentrated Growth Fund?
What is the Goldman Sachs Concentrated Growth Strategy?
Goldman Sachs Asset Management’s Concentrated Growth strategy was started in 1984 and capitalizes on the success of our growth strategy and philosophy, which have been in place since 1981.
AN EXPERIENCED INVESTMENT TEAM
The Fund builds on the skills and expertise of the team’s 24 portfolio managers and analysts, many of whom have been managing growth mandates as a team for more than 20 years. Herb Ehlers, Chief Investment Officer, has 35 years of investment experience and has been directing the growth strategy since 1981.
A PROVEN INVESTMENT APPROACH
In-depth fundamental research is used to identify quality businesses that are strategically positioned for long-term growth at attractive prices. By making long-term investments in growing businesses, the team’s strategy has generated strong, consistent returns for more than two decades.
A CONCENTRATED PORTFOLIO OF HIGH-QUALITY COMPANIES
The portfolio will typically hold 30-45 high-quality growth stocks and intends to be more concentrated in individual holdings, industries, and sectors than the typical, broadly diversified growth portfolio. . . .
Fresh Ideas, New Opportunities
GoldmanWalker Group, LLC
An investment idea is only as good as the results it delivers. At the GoldmanWalker Group, we measure success by the investment returns our clients receive.
Our mission is to help you make steady, achievable progress toward your financial goals – even in turbulent markets. Whether you seek a worry-free retirement or the means to substantially affect the financial well-being of your children or grandchildren, you can count on us to provide you with a sound strategy and a realistic, disciplined investing process.
When you come to us, you may have doubts about the conventional wisdom . . . “invest for the long term and you’ll be fine.” You wonder if the truth is a lot more complicated. You are looking for better answers.
At the GoldmanWalker Group, we offer a new perspective and fresh investment ideas.
We believe that investing is more than time in the market, more than asset allocation and diversification, more than the impact of the economic environment or the movements of the financial markets. Investing is about results – about preserving your nest egg while doing everything possible to add to it.
Our clients know we have their best interests at heart. We believe that:
We have better answers. Waiting out a period of low returns is no substitute for proactive research and action. We continuously review a broad range of opportunities and search the world for potentially profitable investment ideas. Where some advisors claim to think outside the box, we really do.
We manage risk. The biggest risk an investor takes is losing money. We minimize the possibility by capitalizing on opportunities that do not add unnecessary, uncompensated risk, limiting the need to recover from losses. Our clients can see a direct relationship between the recommendations we make and the investment benefits that they receive.
We build a community of ideas. Our client relationships are precious to us, not just because we hold a position of trust and responsibility but because we value our clients’ ideas and opinions. While our primary responsibility is to synthesize complex information and identify investment opportunities, we listen to many voices – from those of our clients to analysts on the other side of the world. We use the give-and-take of these intellectual relationships to help our clients deal with their investment challenges. . . .
Investing In Your Future: Strategies for What Matters Most
Kaplan, Litwin, Kaplan & Associates
We start with you.
At Kaplan, Litwin, Kaplan & Associates, we believe that you have two assets – and that neither one of them is your money. Your assets are your health and the relationships in your life. Money is simply a tool you use to make the most of those assets.
Too often, people are asked to focus first on their finances. As a result, they find themselves juggling multiple accounts and retirement plans while managing accountants, attorneys and other advisors who may not be working in a coordinated manner. They may feel overwhelmed by the number of investment and savings options open to them. Many wonder if they are on the right track.
Our clients know we can help them reach their goals through sound, unbiased advice, concierge-level service, and skilled, coordinated teamwork.
We focus on what’s most important.
Before making any recommendations, we invest time getting to know our clients, their goals in life, the opportunities they want to pursue, and the hopes they have for their family. We want to know what they want to do with the money they have accumulated.
We follow a disciplined methodology.
We help our clients develop the written goals and objectives that are the foundation of their long-term financial and investment strategy. A formal investment policy also helps our clients manage the volatility inherent in the financial markets and defines how they should measure their progress against stated objectives.
We offer integrated advice.
Our clients have complex financial challenges, often involving experts in highly specialized disciplines. We consult and – whenever possible – coordinate our work with clients’ accountants, attorneys and other trusted advisors.
We are 100% client-focused.
We take seriously the responsibility and trust that our clients have placed in us and go to great lengths to eliminate conflicts of interest. The longevity of our client relationships attests to our commitment. . . .
Understanding the Opportunities
(Opening and concluding call to action)
MTB Investment Advisors
We make discoveries.
At MTB Investment Advisors, our goal is to identify first-rate ideas for professional decision-makers like you. Using a combination of precision and creative insight, we seek quality investments in the equity and fixed income markets.
We use a disciplined yet opportunistic methodology – a process that is both systematic and continuous. A security will only be considered for your portfolio when it successfully passes through independent but interrelated screens and a final risk assessment.
With guidance from our Economist and Chief Investment Officer, our team of equity and fixed income analysts examines a variety of issues, ranging from the macro to the micro. Our investment professionals have the skill and experience to sort through an abundance of available information and hone in on high-potential investment ideas. Then, based on a clear understanding of your objectives, we put those ideas to work in a separately managed account for your business or institution. Ultimately, these decisions may flow into the model portfolios used in our advisory work with mutual funds.
* * * * * * * * * * * * *
At MTB Investment Advisors, we are committed to a process that is disciplined, measurable and accountable. It is a multidimensional approach that flows through three screens – a thematic macro view, an objective, quantifiable analysis, and an experienced, subjective evaluation. Our strict risk control measures must then validate any discoveries we make.
The same individuals responsible for preserving the integrity of our portfolios support every part of our process. Practical and creative, pragmatic and inventive – our investment team provides professional decision-makers with original ideas, a rigorous methodology and real-world financial solutions.
We share discoveries.
Understanding What’s Important
M&T Investment Group
At M&T Investment Group, we take a multidimensional approach to financial decision-making. From your smallest concern to your biggest dilemma, we can help you deal with your financial challenges. And we will be by your side every step of the way.
Financial decision-making is constantly evolving. We believe that financial structures should be built right the first time to lay a solid foundation for future decisions. Using a team approach, our expert professionals will provide insight into your situation, then develop strategies to protect what you have and build on it.
We are distinguished by the quality of our advice and the scope of our expertise. Our reputation is based on our core competencies – investment management, asset allocation, retirement planning, estate and business succession planning, fiduciary services, private banking and insurance planning.
This guide will give you the flavor of what we do for our clients, who are people just like you. When you are ready to take the next step, we would consider it a privilege to help you.
Investment Management
How do you envision your future? Your family’s?
How do you identify investment opportunities?
Are you worried about losing money in the financial markets?
Gaining Equilibrium. Investing is often the core of a comprehensive, long-term plan. At M&T Private Client Services, our investment process is guided by a dynamic approach to asset allocation. Asset allocation is a portfolio construction strategy designed to deliver returns matching a client’s unique definition of risk. Its purpose is to manage risk from the entire securities market, not just specific sectors or stocks. Our process is based on a talent for identifying investment opportunities and an informed respect for historical returns and the volatility patterns of particular asset classes.
Strategic Allocation. Historically stocks, bonds and cash have performed differently from one another. We use this data to analyze how asset class returns and correlations may behave so as to identify return/risk options suited to your needs. Our goal is to minimize the variability of returns by taking advantage of the way in which those assets respond to changing market conditions.
Tactical Allocation. We overlay our strategic allocation with a qualitative approach. For example, from time to time, stocks and bonds become relatively cheap or expensive compared to one another – often following sustained periods of extreme market euphoria or deep market pessimism. Drawing on the extensive experience of our team of equity and fixed income specialists, we identify the imbalances and try to take advantage of them by making adjustments to our strategic allocation. . . .
Innovative Strategies for Managing Risk
MetLife Structured Risk Solutions
With every challenge comes an opportunity.
We identify opportunities and deliver solutions.
At MetLife, our professionals craft structured risk solutions that allow you to focus on building your organization, achieving your goals, and realizing your vision.
We specialize in managing complex risks, even those that may seem unmanageable. Using a consultative approach, our team of specialists identifies your risks, their root causes, potential additional exposures, and the impact of the unexpected – all of which can interfere with the overall strategic goals of your organization. In partnership with you, we can help limit your risk, mitigate your exposure, and give you the security you need to grow and prosper.
The Benefits of Structured Risk Solutions
MetLife’s Structured Risk Solutions provide innovative risk management strategies to help you manage your liabilities. Our collaborative approach allows you to solve business problems, meet strategic objectives, smooth earnings and reduce balance sheet volatility. We can provide you with time-tested traditional solutions, but we can also help you deal with seemingly unmanageable and often unique risks by going beyond traditional product-driven strategies to design tailor-made solutions with genuine economic advantages. Our customized solutions will help you attain your business and financial objectives, while meeting the challenges of regulatory, tax, and accounting constraints. The case studies in this brochure illustrate some of the specialized solutions that we have crafted for our clients. . . .
Preference: Customized Global Investing
Prudential Investments
Investing means different things to different people. If you are like most investors, you do not fit into a pre-set category. You have unique needs and objectives that determine how and where you choose to invest.
Perhaps you want to fund your child’s education. Or you are putting money aside so that you will have more to spend later in life. Maybe you want to maintain your personal wealth or bequeath your assets to members of your family. Whatever your goals, you cannot rely on traditional savings vehicles.
However, if you want to be a successful investor, you need to understand the consequences of rapidly changing economic conditions, the volatile financial markets, and political developments throughout the world. Furthermore, you do not have the time to consider every investment decision.
Why not turn to an expert – someone who knows how to work with you and your money? Your Financial Adviser can offer you a disciplined framework for investment decision-making. Your assets will be appropriately allocated based on a sound, personalised plan and using some of the finest mutual funds in the world. You will be involved in every decision at every step of the process. And you will have the peace of mind that your assets are in the hands of experienced, skilled professionals. . . .
Capabilities Brochure
Peter F. Reinecke, CPA, CFP
Anticipating Your Needs. Exceeding Your Expectations.
The coach watched from the sidelines as the football team practiced running the new plays he’d designed for the upcoming game. Because he had thoroughly analyzed the opposing team, he knew their strengths and weaknesses; he knew that the execution of the new plays was critical to success in the next game.
Unfortunately, the players were not buying into the coach’s strategy. He could see that they were stuck in their old routine and even though they knew they weren’t as successful as the other team, they found it hard to make changes. Still, it was his job to help them try. “Don’t count on a second chance,” he reminded them. “When time runs out, the game is over.”
There are also very few second chances in life. As a business owner, you understand that all too well. You know from personal experience how costly an error or oversight can be, and you have gone to great lengths to minimize that occurrence. You care deeply about your family and your business. As a result, you have invested a great deal of yourself in them. Each has presented challenges, some financial in nature, and you have always tried to do your best. If you are like most of our clients, you always strive to do better. You have seen or heard about companies that overcome the challenges you are now facing. What did they do? More importantly, how did they do it?
Our clients want honest answers to questions like these. They realize that what they do – or don’t do – today can affect their financial future, as well as the security of their families and their businesses. They come to us because we give them the answers. Because we take the time to listen to their questions and concerns, we are in a position to provide them with a comprehensive evaluation of their financial game plan and give them objective recommendations to help them reach their goals. . . .
The New Standard in Planned Giving Services
TIAA-CREF Trust Company, FSB
[Callout Box]
Struggling With Limited Resources
Many of America's colleges, universities and other nonprofit organizations, are facing increasing fiscal challenges. With operating costs rising and public funding stagnant or decreasing, they have embarked on cost-cutting programs to preserve their financial health. They have appealed to their supporters for more cash contributions. At institutions of higher learning and research, tuition and fees continue to rise. And even if more taxpayer dollars were suddenly allocated – as some have recommended – it is unlikely to fully fund the shortfall.
But there is another option – planned giving. Consider the situation in higher education. The entire endowment of U.S. universities and colleges in 1998 was less than $300 billion, with most of that money concentrated in a few hundred schools. However, over the next 20 years, more than $15 trillion will pass from one generation to another – an opportunity that colleges and universities cannot afford to miss.
TIAA-CREF Trust Company believes that planned giving offers educational and non-profit institutions an attractive alternative for increasing their long-term funding. In the past, only the largest institutions have been able to dedicate the resources necessary to develop effective planned giving programs. By making TIAA-CREF Trust Company a partner in planned giving activities, an institution can have access to the resources and experience needed to make this possibility a reality.
UBS PACE Real Estate Securities Investments Portfolio
UBS Global Asset Management
Enhance diversification with UBS PACE Real Estate Securities Investments Portfolio
Real estate is known for its potential diversification advantages because it tends to perform differently than the stock and bond markets. Its potential to generate steady income and create long-term wealth also makes it attractive to investors. However, most people do not have the financial resources to purchase a large and diverse number of brick-and-mortar properties. Real estate investment trusts, known as REITs, were developed to make investing in real estate more accessible to the average investor.
REITs offer investors a way to realize the potential benefits of real estate ownership in the form of a liquid investment. These securities combine the growth potential of equities with the potential for a stable, predictable income stream. What’s more, equity REITs are intended to represent the commercial real estate market, which has different performance cycles than residential real estate, potentially providing diversification to personal property or mortgage-backed securities holdings.
With hundreds of REITs available in the marketplace, sorting through the universe presents a challenge for most investors. Now they can access the potential diversification benefits of REITs and other real estate securities through the UBS PACE Real Estate Securities Investments Portfolio, which is managed by Goldman Sachs Asset Management (GSAM), one of the most experienced global real estate securities managers in the industry.
Portfolio Highlights
The UBS PACE Real Estate Securities Investments Portfolio seeks total return comprised of long-term growth of capital and dividend income by investing primarily in real estate investment trusts (REITs) and other real estate equity securities. The Portfolio has the flexibility to invest up to 20% internationally, which sets it apart from many US real estate securities funds.
How investors can benefit
Marketing Brochure
Wall Foss Financial, LLC
At Wall Foss, we recognize that everything we do has a direct and lasting impact on our clients’ financial situation. That’s why we built our firm on a standard of excellence that can be expressed in a single sentence: “We will always work in our clients’ best interests.” Just ask them. They will tell you that we’ve made a difference in their lives and their businesses, rewarding their trust by serving their interests with meticulous work and straight talk.
At Wall Foss Financial, our vision has always extended beyond the numbers. Since our doors opened in 1986, we have dedicated ourselves to helping our clients identify and respond to a range of business and financial challenges. And we’ve built a team of professionals that’s truly unique. Before we invite someone to join our team, we look, first and foremost, for character and personal integrity. Then we look for passion, a passion for providing exceptional client service. So our people have a whole lot more to offer our clients in addition to their specialized training in such areas as finance, accounting, taxes, financial planning and investing.
What about you?
The management of your financial affairs may be a challenge, even at the best of times. After all, you have a business to run, a life to lead and a family to raise. But you know that avoiding or postponing your financial decision-making will have dramatic and sometimes unpleasant consequences. So you turn to a variety of advisors to assist you, each managing a different element of your financial affairs. Now you face a different challenge. Each advisor has one piece of the puzzle, and you must fit all the pieces together to get a clear picture of your financial life. This approach is confusing, at best, and risky, at worst. Remember, it’s your life, your business and your future. Don’t risk them on piecemeal solutions. You have another choice. . . .
The Value of International Equities
JPMorgan Funds
International investing affords access to some of the world’s most attractive companies, many of which are domiciled outside the United States. Now JPMorgan Asset Management’s global research advantage seeks to bring your clients a value strategy by which they can tap into these opportunities, offering them the prospect of enhanced returns as well as a diversification advantage.
In addition to providing the traditional features of a separately managed account, this strategy also seeks to offer all the opportunities provided by foreign markets. Finally, the JPMorgan International Value strategy is not limited to the ADR universe and purchases shares of a registered fund vehicle which invests its assets in ordinary shares. In short, this strategy seeks to offer an effective complement to other international core and/or growth strategies.
With over a century of international equity management experience, JPMorgan has a solid performance track record. The JPMorgan International Value strategy seeks to offer your clients:
“Large Company Value Fund”
Annual report (April 30, 2010)
American Century Investments
Performance Summary
Large Company Value returned 46.68% for the 12 months ended March 31, 2010. By comparison, its benchmark, the Russell 1000 Value Index, returned 53.56%. The broader market, as measured by the S&P 500 Index, returned 49.77%. The portfolio’s return reflects operating expenses, while the indices’ returns do not. The average return for Morningstar’s Large Cap Value category (its performance, like Large Company Value’s, reflects operating expenses) was 50.25%.
As the performance figures above indicate, the stock market staged a remarkable comeback during the reporting period. Economic conditions improved in response to government stimulus, corporate earnings were better than expected, and improving conditions in the capital markets helped the more highly leveraged or financially strapped companies. These factors led many investors to shift into riskier assets, and many of the period’s largest gains were made by the lower-quality businesses that fared the worst during the financial crisis. Furthermore, the names that lagged the rally tended to be the stable, less risky businesses favored by Large Company Value. In this environment, the portfolio received positive results in absolute terms from all 10 of the sectors in which it was invested. On a relative basis, holdings in the consumer discretionary and health care sectors detracted. The portfolio’s position in utilities contributed positively.
Consumer Discretionary Detracted
Within the consumer discretionary sector, security selection was a drag on relative performance. Although the portfolio benefited from its investments in the media industry, these results were offset by a lack of exposure to car maker Ford Motor and auto component companies. Ford, which was up significantly in the benchmark, has restructured its business and steadily gained market share. Among diversified consumer services stocks, a notable detractor was H&R Block, which experienced a decline in its tax-preparation business.
Health Care Hampered Results
The portfolio’s overweight in health care dampened relative progress. Health care stocks gained, but their progress was constrained as investors priced in worst-case scenarios for health care reform. As fears abated, the sector’s performance strengthened.
Security selection also slowed relative results. A notable detractor was Abbott Laboratories, which develops and manufactures laboratory diagnostics, medical devices, and pharmaceutical therapies. Earlier in the reporting period, Abbott reported a deceleration in prescription growth for Humira, its blockbuster drug for the treatment of rheumatoid arthritis. Eventually sales of Humira rebounded strongly, but the drugmaker’s shares underperformed other pharmaceutical names.
A Defensive Bias Also Slowed Progress
A factor influencing Large Company Value’s relative underperformance was the annual reconstitution of the portfolio’s benchmark index, the Russell 1000 Value. The reconstitution, which occurred during June 2009, gave greater weighting to cyclical sectors and stocks—in other words, those that tend to rise during good economic times. Because of our investment approach, we did not respond to this shift in weightings by increasing the portfolio’s cyclical sensitivity, which hampered relative performance.
Utilities Provided a Boost
Large Company Value continued to benefit from a significant underweight in the utilities sector, reflecting our belief that many of these stocks have been overvalued for some time. The stance added value during the market rally when utilities underperformed all but one other benchmark sector.
Consumer Staples Provided Notable Contributor
The consumer staples sector was the source of key contributor Pepsi Bottling Group. Its share price surged on news that PepsiCo, which already owned one third of the bottling company, had launched a takeover bid. We sold the position after the announcement.
Outlook
We continue to be bottom-up investment managers, evaluating each company individually and building the portfolio one stock at a time. As of March 31, 2010, Large Company Value is broadly diversified, with ongoing overweight positions in the health care, information technology and consumer staples sectors. Our valuation work is also directing us toward smaller relative eightings in financials, utilities and materials stocks.
“Quarterly Commentary - Equity Income”
American Century Investments
Equity Income returned +3.49% during the first quarter of 2010, underperforming its benchmark, the Russell 3000 Value Index, which gained +7.05%. The Lipper Equity Income Index returned +5.03%, while the S&P 500 Index, representative of the broad market, advanced +5.39%.
Portfolio Overview
The stock market extended its rally during the quarter, recovering from a selloff in February. Despite persistently high unemployment, economic conditions improved. Fourth-quarter 2009 corporate earnings came in stronger than expected. In this environment, and aided by continuing improvement in the credit markets, lower-quality stocks extended their performance, a situation that was at odds with Equity Income’s investment approach, which focuses on higher-quality, income-producing securities. Many of the companies held by the portfolio have contained costs and gained market share, allowing them to raise their dividends, but a large number were left behind in the low-quality rally. Looking at the quarterly results, Equity Income’s relative performance was more a result of what it didn’t own, rather than what it did. Progress was hindered by the portfolio’s positions in the financials, consumer discretionary, and industrials sectors. Investments in health care and utilities contributed to relative results.
Financials Hampered Results
The financials sector was a source of relative weakness. For some time, the management team has approached financials with caution and conservatism, as evidenced by our underweight position and strategic stock selection among commercial banks and diversified financial services companies. For example, the portfolio did not own Bank of America’s common stock, preferring the bank’s less-risky convertible security, which outperformed the benchmark.
Consumer Discretionary, Industrials Detracted
Positions in the consumer discretionary and industrials sectors—the two strongest sectors in the benchmark—detracted from performance. In consumer discretionary, Equity Income did not own any media companies, which outperformed as advertising revenues improved. Similarly, the portfolio was slowed by underweight positions in automakers and specialty retailers, which also turned in strong results for the three months.
Performance was dampened by security selection in the industrials sector. Industrials posted strong gains as economic conditions improved and global industrial production increased. The portfolio did not hold shares of General Electric (GE), which significantly outperformed during the quarter.
Health Care Contributed
In health care, an underweight position and security selection led to enhanced relative performance. The portfolio particularly benefited from its smaller-than-the-benchmark position in Pfizer.
Utilities Added Value
While the utilities sector provided a negative return for the benchmark, stock selection there delivered positive results for Equity Income. The portfolio’s mix of electric utilities was especially advantageous.
The Months Ahead
Equity Income continues to seek current income and capital appreciation for investors who want to take a conservative approach to the stock market. The management team remains committed to its dual discipline of seeking higher-quality companies whose shares appear to be undervalued for reasons unrelated to the firms’ fundamental or financial health, and pursuing a relatively high income stream.
“All Cap Value Performance Analysis”
(4th Quarter 2006)
Epoch Investment Partners
For the quarter ending December 31, 2006, Epoch’s All Cap Value strategy returned 7.1%, matching the return of the Russell 3000 Index. For the year, it was up 16.2% versus 15.7% for the Russell 3000.
The market rally, which began in response to the Federal Reserve’s August decision to pause in its string of rate hikes, turned into a full-blown frenzy during the fourth quarter. What had looked like a relatively good year for the stock market turned into an excellent one. Indeed, the appreciation of your portfolio and both indexes during the fourth quarter boosted annual returns by more than 60%.
Because of our emphasis on economically sensitive stocks, we were well-positioned for the rally. Still, its magnitude was difficult to match. As you know, we choose stocks that generate consistent and growing free cash flow. Total return is a result of the intelligent use of that cash to either grow the business or return value to shareholders over a market cycle. Given our preference for consistency over financial and economic leverage, our investments tend to do well in most environments – except for speculative rallies when expanding P/E ratios tend to drive returns. The fourth quarter saw such a speculative rally; a 7% return is only achieved by P/E expansion because earnings (cash flow) and dividends (shareholder yield) do not grow that quickly in three months.
We believe that by December 31st the market had become overly optimistic about a “Goldilocks” economic scenario, in which both GDP and inflation moderate to a “just right” level and the Fed begins making interest-rate cuts to reignite economic growth. The “Goldilocks” scenario seems unlikely to us.
For the quarter and the full year, our position in Materials contributed to performance. Most of the stocks we hold in this sector are “late cycle” cyclicals, which we selected in anticipation of good performance at this point in the economic cycle. Our overweight to the sector also added to returns as Materials companies experienced very strong demand during the quarter. However, a solid effort in Consumer Staples during the fourth quarter was not enough to turn around our performance in that sector for the full year.
Because of strong stock selection, our holdings within the Consumer Discretionary and Information Technology sectors had the largest positive effect on results for the year. In Consumer Discretionary, we favored leisure/entertainment companies in gaming, media and gambling over retail/consumer goods companies, which was a successful strategy. Although our allocation to Information Technology detracted from performance in the fourth quarter, our position significantly outperformed for the year. While each of our holdings has a different investment thesis, our companies generally benefited either from corporate spending increases or consumer product cycles. Most of the companies own valuable intellectual property, which results in greater profitability than their peers’ more commoditized product offerings. . . .
“Structured Small Cap Growth Fund”
Annual report (October 31, 2009)
Goldman Sachs Asset Management
Portfolio Management Discussion and Analysis
Below, the Goldman Sachs Quantitative Investment Strategies Team discusses the Fund’s performance and positioning for the twelve-month period ended October 31, 2009.
Q How did the Goldman Sachs Structured Small Cap Growth Fund (the “Fund”) perform during the Reporting Period?
A During the Reporting Period, the Fund’s Class A, B, C, Institutional, IR and R Shares generated cumulative total returns, without sales charges, of 12.40%, 11.56%, 11.56%, 12.90%, 12.78% and 12.03%, respectively. These returns compare to the 11.34% cumulative total return of the Fund’s benchmark, the Russell 2000 Growth Index (with dividends reinvested), during the same period.
Q What key factors were most responsible for the Fund’s performance during the Reporting Period?
A As expected, and in keeping with our investment approach, our quantitative model and its six investment themes had the greatest impact on relative performance. We use these themes to take a long-term view of market patterns and look for inefficiencies, selecting stocks for the Fund and overweighting or underweighting the ones chosen by the model. Over time and by design, the performance of any one of the model’s investment themes tends to have a low correlation with the model’s other themes, demonstrating the diversification benefit of the Fund’s theme-driven quantitative model. The variance in performance supports our research indicating that the diversification provided by our different investment themes is a significant investment advantage over the long term, even though the Fund may experience underperformance in the short term.
Overall, the Fund outperformed its benchmark during the Reporting Period, with our Momentum theme contributing the most to relative results. Momentum predicts drift in stock prices caused by under-reaction to company-specific information. Sentiment, which reflects selected investment views and decisions of individuals and financial intermediaries, also added relative value, though to a lesser extent.
The largest detractor from Fund results during the Reporting Period was our Quality theme. Quality evaluates whether the company’s earnings are coming from more persistent, cash-based sources, as opposed to accruals. Profitability, Valuation and Management also hampered results. Our Profitability theme assesses whether a company is earning more than its cost of capital. Valuation attempts to capture potential mispricings of securities, typically by comparing a measure of the company’s intrinsic value to its market value. Management assesses the characteristics, policies and strategic decisions of company management.
Q How did the Fund’s sector allocations affect relative performance?
A In constructing the Fund’s portfolio, we focus on picking stocks rather than on making industry or sector bets. Consequently, the Fund is similar to its benchmark, the Russell 2000 Growth Index, in terms of its sector allocation and style. Changes in its sector weights generally do not have a meaningful impact on relative performance.
Q Did stock selection help or hurt Fund performance during the Reporting Period?
A We seek to outpace the Russell 2000 Growth Index by overweighting stocks we expect to outperform and underweighting those we think may lag. We also build positions based on our thematic views. For example, the Fund aims to hold a basket of stocks with better Momentum characteristics than the benchmark. During the Reporting Period, our stock selection had a mixed impact on the Fund’s relative performance.
Q Which investments contributed the most to the Fund’s relative returns during its fiscal year?
A Stock selection in the information technology, financials and industrials sectors added to the Fund’s relative performance. In particular, the Fund benefited from overweighted positions
in lawn and garden products manufacturer Central Garden & Pet Co., business intelligence software maker MicroStrategy Inc. and office furniture and hearth products provider HNI Corp. We chose to overweight Central Garden & Pet Co. because of our positive views on Quality and Valuation. The overweight in MicroStrategy Inc. was the result of our positive views on Profitability and Quality, while the overweight in HNI Corp. was assumed because of our positive views on Profitability and Sentiment.
Q Which individual positions detracted from the Fund’s results during the Reporting Period?
A Security selection in the consumer discretionary, materials and utilities sectors hampered the Fund’s relative results. Particularly detracting from relative performance were an underweighted position in Dendreon Corp. and an overweighted position in Emergent Biosolutions, Inc., both biotechnology companies. The Fund’s overweighted position in pharmacy services company Pharmerica Corp. also dampened relative performance. Our negative views on Profitability and Valuation led us to underweight Dendreon Corp., while our overweighted position in Emergent
Biosolutions, Inc. was the result of our positive views of Profitability and Management. The Fund was overweight Pharmerica Corp. because of our positive views on Profitability and Sentiment.
Q What was the Fund’s sector positioning relative to its benchmark index at the end of the
Reporting Period?
A As of October 31, 2009, the Fund was overweight the information technology, health care, materials and consumer discretionary sectors relative to the Russell 2000 Growth Index. The Fund was underweight the industrials, telecommunication services, financials, consumer staples and utilities sectors and was relatively neutral in the energy sector at the end of the Reporting Period.
“Bond Fund Commentary”
Semi-annual report (February 2005)
JPMorgan Asset Management
How did the portfolio perform?
The JPMorgan Bond Fund, which seeks to provide high total return consistent with moderate risk of capital and maintenance of liquidity, returned 2.71% (Institutional shares) for the six-month period ending February 28, 2005. This compares to the 1.26% return of its benchmark index, the Lehman Brothers Aggregate Bond Index.
Why did the portfolio perform this way?
Although our residential mortgage security selection enhanced performance, our mortgage sector weighting was a modest negative. Our duration and yield curve positioning was also a positive, as was our positioning in investment grade corporate bonds. Also adding to performance were our international positions and our allocation to securities that were below investment grade, such as high yield and emerging markets debt.
How was the portfolio managed?
The U.S. economy continued to expand following an oil-induced soft spot earlier in 2004. Business spending increased while consumer spending and the housing market remained robust. These positive developments offset deterioration in the international growth environment and the associated negative impact on net exports. Fourth-quarter GDP grew at 3.8% versus 4.0% during the third quarter; data from the first quarter of 2005 suggested that firm growth would continue. Although inflation remained tame, higher commodity prices hinted that the inflation rate could increase. Unemployment fell to 5.2%, its lowest level in more than three years.
Pledging to “respond to changes in economic prospects,” the Federal Reserve Board continued to raise short-term rates at a measured pace, tightening by a quarter-percent in November, December, and February; by the end of the period, the Fed funds rate (the rate charged by banks for overnight loans) stood at 2.50%. Short-term rates rose over the period on expectations of Fed tightening. However, rates for longer-term maturities moved lower, contributing to significant flattening of the yield curve between two and 30-year maturities. We managed duration based on our belief that the Fed would tighten less aggressively than market expectations. Because we expected that short-term rates would rise more quickly than long-term rates, we implemented curve-flattening trades. After spreads tightened, we actively traded residential mortgages around a neutral position. Mortgage security selection focused on coupon selection. We took advantage of opportunities to purchase both asset-backed and commercial-backed securities at attractive prices.
Despite strong fundamentals, we reduced the portfolio’s allocation to investment-grade corporate bonds, maintaining a modest overweight to attractive BBB names, European Tier 1 and Asian bank paper, telecom, insurance, and natural gas credits. We also reduced our exposure to the markets in high-yield and emerging markets debt as spreads in both tightened substantially. In the emerging markets, we focused on fundamentally strong countries. We maintained a Eurozone curve-steepener position and added an outright long Euro/short U.S. dollar position in five-year maturities.
“The Economy, the Markets and the Outlook for 2004”
MTB Investment Advisors
The economic recovery is upon us. In fact, it appears to have been underway for some time. Financial Focus asked William Dwyer, chief investment officer of MTB Investment Advisors, to talk to us about the impact of the recovery, the performance of the financial markets, and what investors might want to consider going into 2004.
Q. During the spring and summer of 2003, we were hearing better economic news than we heard in 2002. What is your take on what’s happening in the U.S. economy?
A. In September of 2002, we said that the economy was improving and that it was a great time to invest in the equity market. Equity values were inordinately low relative to the economic environment we were anticipating. What we predicted has happened. The Dow Jones Industrial Average is up 2,000 points. Now we’re looking for a continuance of growth in the economy – for the gross domestic product (GDP) of the United States to actually pick up steam in the second half of 2003 and carry into 2004 at an above-average rate.
We believe that GDP numbers for the third and fourth quarter as well as for the first half of 2004 will be about 3.5% to 4%. The growth is being driven by significant tax reductions that were initiated over the last 12 to 18 months. On an annualized basis, those cuts have probably put close to $130 billion of spendable money back into the economy during the third quarter of 2003.
That means personal income levels have moved close to 8%, which is abnormally high. If Americans spend half of the money and invest the other half, the economy will grow better than 3%. So consumers are in reasonably good financial shape. The only thing holding them back is confidence, and although their confidence has improved, it is not back to what we would classify as normal. The reason is the unemployment level and the turmoil that terrorism has brought into our lives.
Corporate profits are accelerating, and have been accelerating for more than the last four quarters. But back in 2002, few were willing to recognize it. We’re seeing it in spades right now, and the second quarter will probably come in at about 9.5% to 10% earnings growth. The third quarter should come in at 15% and the fourth quarter could show more than a 20% year-over-year earnings improvement. That will drive the stock market up. The higher the stock market goes, the more confidence from wealth-improvement the average consumer is going to have. . . .
“Corporate Bond Fund and Extended Duration Bond Fund”
Annual Report (July 31, 2009)
Delaware Investments
The fiscal year was largely a story in two parts. The first half brought perhaps the worst financial markets we have ever witnessed. Alternatively, the second half offered some of the most attractive fixed income opportunities in years.
Fund performance
Delaware Corporate Bond Fund Class A shares returned +11.04% at net asset value and
+5.98% at maximum offer price (both returns include distributions reinvested) for the fiscal year ended July 31, 2009. For the same period, the Fund’s benchmark, the Barclays Capital U.S. Corporate Investment Grade Index, returned +9.14%.
Delaware Extended Duration Bond Fund Class A shares returned +15.17% at net asset value and +9.90% at maximum offer price (both returns include distributions reinvested) for the fiscal year ended July 31, 2009. For the same period, the Fund’s benchmark, the Barclays Capital Long U.S. Corporate Index, returned +13.23%.
The most significant difference between the two funds is their return potential and risk profiles as determined by the average duration of the bonds in each Fund’s portfolio. We generally keep Delaware Corporate Bond Fund’s duration between 4 and 7 years. Delaware Extended Duration Bond Fund typically has a duration of between 8 and 11 years. Duration is a measurement of a fixed income investment’s sensitivity to changes in interest rates. The larger the number, the greater the likely price change for a given change in interest rates.
Unprecedented turmoil
Chaotic and uncertain are the words that seem most appropriate to describe the investment environment at the beginning of the fiscal year. The bond market was volatile primarily in response to problems that plagued the financial industry. Specifically, investors lost confidence in the value of the collateral backing many types of structured product debt. These conditions forced many financial institutions that had invested heavily in these securities to take massive write-downs on their balance sheets. Systemic risk increased as a result, as lack of confidence among counterparties permeated the sector. Lending and transactions ground to a halt. Other events had a significant impact, including:
In this environment, we continued to reduce credit risk in the Funds, a decision that helped performance when the turmoil worsened during the late summer and autumn of 2008, with a series of unprecedented events that included:
The Federal Reserve Board moved quickly to shore up the financial system, pumping liquidity into the markets and cutting the target federal funds rate — the rate at which banks lend to each other overnight — from 2.00% to a range between a 0.25% and zero. The Fed also launched several unconventional programs, such as the Term Asset-Backed Securities Loan Facility (TALF) and the Public-Private Investment Program (PPIP), which were designed to restore the flow of credit and to buy toxic mortgage-backed and agency securities.
Soaring risk aversion
The failures, mergers, and bailouts of major financial institutions decimated the overall investment grade corporate bond market during the first half of the fiscal period as investors tried to discern which companies had the best ability to survive and which were burdened by debt and liquidity needs. Credit spreads — often viewed as a way to determine a security’s perceived level of risk — widened dramatically during that period. Historically, spreads over the past 10 years for example have averaged approximately 1.30 percentage points over the rate available on Treasurys. In contrast, the Barclays Capital U.S. Corporate Investment Grade Index briefly touched 6.22 percentage points over Treasurys in November and high yield bond spreads reached as high as 19.00 percentage points above Treasurys. Because yields rise when prices decline, these extremely high spreads for higher-risk bonds reflected the extreme risk aversion by investors that was present across the board.
Financials, especially subordinate financial securities, were at the epicenter of the fixed income markets’ troubles, but by the end of 2008 every sector — most notably metals and mining, energy, retail, restaurants, and manufacturing — had experienced the effects. As would be expected in a challenging economic environment, defensive-oriented sectors such as utilities and noncyclical companies proved more resilient.
Under these conditions, the Funds’ emphasis on quality issuers and defensive sectors proved helpful. We focused on companies that we believed had a level of operational and financial flexibility, as well as those that we considered to be leaders in their respective industries. In the financial sector, we favored institutions with a large deposit base and the ability to attract new capital.
We sought what we believed were the best individual bonds based on our proprietary, in-depth fundamental research, our capital structure and covenant analysis, and our detailed review of management teams and industry trends. We added significant positions in sectors that we considered more recession-resistant (such as pharmaceuticals, healthcare, supermarkets, communications, and utilities) than most. In addition, we steadily reduced the Funds’ holdings in high yield debt from a 13% weighting on Aug. 1, 2008, to 4.5% on Dec. 31, 2008. Broadly, however, our goal throughout this part of the fiscal year, as is typically the case, was maintaining a well-diversified and liquid portfolio.
Emerging opportunities
Market conditions greatly improved in early 2009 as investor demand for corporate risk rapidly expanded. New issuance rose in part because the economic crisis appeared to convince management teams to increase their cash balances and find other funding avenues besides the commercial paper market. Wider spreads were acceptable to borrowers as long as capital was provided. Additionally, issuance rose simply to meet investor demand, as corporate yields exceeded 8%. The demand was supported by a number of “deep pocket” investors such as large insurance companies, given their need for yield, ratings, liquidity, and duration. Additionally, traditional asset managers, sovereign wealth funds, and nontraditional investors such as equity funds also increased exposure to credit risk.
Eventually, even challenged sectors were able to access the capital markets. We took this type of issuance to be a direct reflection of investors’ more positive attitude toward investment grade debt and a general belief that the market was close to bottoming. Another key development was the ability of the major banks and financial institutions to access the capital markets without the additional safety and assistance of a government guarantee.
Improved sentiment
As systemic concerns regarding the condition of the U.S. financial system faded, interest in investment grade corporate bonds grew increasingly fervent. Meanwhile, valuations remained attractive, and the Barclays Capital U.S. Corporate Investment Grade Index during the second quarter recorded its highest-ever return when measured in terms of its excess performance above Treasury bond returns.
Although we generally continued to prefer liquid issues, we began to explore some out-of-favor sectors for potential opportunities as conditions improved. We also continuously searched for “relative-value” opportunities throughout the market.
Eventually, we rotated out of defensive sectors such as healthcare, pharmaceuticals, and utilities, as we believed that valuations became too expensive given the risk. We reinvested in basic industries such as metals and mining, energy, pipelines, and financials. Our underexposure to less-liquid securities and previously out-of-favor sectors like regional banks and real estate investment trusts (REITs), however, detracted from the Funds’ performance.
The high yield sector was another source of strength. With high yield bonds trading at what we believed were historic cheap valuations, we boosted our holdings to levels near those we held at the beginning of the fiscal year.
The Funds generally benefited from our commitment to holding corporate bonds from across the credit spectrum, especially during the darkest days of the market, and we believe that our focus on bottom-up fundamental research and overall risk management helped the funds perform well against their benchmark indices in what was a very eventful year in the bond market.
“Investing in a Topsy Turvy World”
YMCA Retirement Fund
Investors are scratching their heads. Still puzzled by the duration of the 9-year-old bull market, they are struggling to understand why U.S. financial markets are not following historical patterns. Some claim that the New Economy (the technology sectors of the market) has changed the rules by driving stock prices up without the traditional regard for earnings performance. Others worry that this New Economy is mostly the result of investors’ insatiable appetite for technology and Internet stocks, as well as the continued economic boom.
Eventually, they say, there will be a sharp drop in stock prices and a return to historic norms. In fact, the equities market did suffer a 17 percent downturn during the first quarter but it quickly rebounded, a phenomenon most investors have come to expect. Investors are so confident that stock prices will recover from selloffs, fewer and fewer are seeking safety in the traditional haven of the bond market. Even two interest rate increases by the Federal Reserve, as well as inflationary signs, have failed to dampen investor enthusiasm for equities. . . .
“Advisor Transition Letter”
Individual Financial Advisors
Dear Client Name,
Two years ago, I relocated to [city] to pursue my love of [a sport], to live my dreams of working and playing at the highest level. The move was the best decision I could have made for myself. Now I have decided to relocate my investment advisory practice – and I believe it is the best decision I could be making for my clients.
My new hometown has been everything I hoped it would be. But in addition to enriching my personal life, it has given me a new perspective on my business, particularly about the way I want to serve you and your needs. As more and more broker-dealers ask their employees to march in lockstep, I have come to recognize that I do not want to be a foot soldier in anyone’s army. I want to be answerable first and foremost to my clients. . . .
Capabilities Brochure
Coe Financial Services
“With so much to know and so many options to consider, how do we know what’s best for us?”
“Staying on top of things is difficult. With all our investments, how do we know if they fit together?”
“If something happened to us, how would our family cope?”
“What is the best way to make sure we are financially healthy? We want to make sure we are on track and will have enough to do what we want to do.”
“Where can we find someone we can trust who is looking out after our interests?”
“Can we reduce how much we pay in taxes?”
At Coe Financial Services, we believe life is a gift and that it comes with both challenges and responsibilities. One of those challenges is money. It requires attention because its mismanagement can produce devastating consequences. However, money can also facilitate opportunities. We see it as a tool to accomplish the things that are important to you, including financial security, education, travel, and helping family members or charities.
For many years, Coe Financial Services has helped people with their finances. We know each person is unique and has special concerns. That’s why many of them want an ongoing, long-standing professional relationship. Our clients feel better knowing they have an advisor who understands what matters to them. They appreciate having their financial affairs organized and simplified. They value having someone they trust answering questions and addressing financial issues.
Coe Financial Services could help you, too. . . .
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Profiting from the Tax Cut
JPMorgan Asset Management
In 2001, American taxpayers received the largest tax cut they had seen in nearly two decades. As checks arrived in mailboxes all over the country, pundits debated whether taxpayers would invest the money or spend it. But the summer rebate is only part of the story. The Economic Growth and Tax Reconciliation Act of 2001 has many provisions that could benefit your clients, particularly when it comes to income tax, estate, retirement and education planning.
Are your clients ready to take advantage of these opportunities?
Preparation is critical. Your clients need to talk to their financial advisor(s) – as soon as possible – to discuss the steps they might want to take within their financial plans. Many tax reductions in the new law are “back loaded,” meaning that the provisions will be phased in over the next 10 years. The act also includes a “sunset provision;” all new provisions will expire after December 31, 2010 and the rules that were in effect before the act was passed will be reinstated.
Table of Contents
1. Income Taxes
2. Marriage Penalty Relief
3. Estate and Gift Taxes
4. Retirement Plans
5. Education Savings Incentives
Preparing for the Unexpected
JPMorgan Asset Management
The tragedies of September 11th have changed the way most Americans look at the world. No longer as secure as they used to be about their physical safety, they are asking themselves what they need to do to protect themselves and their families.
As an advisor to your clients, you are in a unique position to help them. And while it can be uncomfortable to talk about the impact of a tragedy, recent events make it more important than ever.
Ask yourself: How much value do you add by helping your clients safeguard the future of their most precious asset – their loved ones? This guide was created to help you talk with your clients.
Action Step 1. Send this guide to your clients with a note. Tell them that in light of recent events, you recommend they take a look at their financial situation and make sure that they are prepared for an emergency.
Action Step 2. Follow up with your clients on the telephone or in person. When you speak with them, be sure to have a short list of estate planning attorneys and financial planners. These should be people you respect and whose work you know. Not only will you be referring your clients to qualified professionals, you will be building relationships with advisors in other disciplines.
Action Step 3. Assess your clients’ financial strategies. Review with them their investment goals and asset allocation. Evaluate their retirement and tax planning needs. Ask them about their insurance needs to determine if they have adequate coverage. Make all necessary changes. . . .
“Official Website”
Szepko International
For a world in motion, for your business in motion – put global strategies to work.
Szepko International specializes in intercultural business optimization. We have a global perspective with an eye for business. Our team of experienced specialists will analyze your needs and goals, assess the obstacles and barriers, and address your unique business concerns with solutions that encompass intercultural strategies, verbal and virtual communication issues, and conflict resolution techniques.
We know that getting it right will directly impact your bottom line. Our training programs, coaching relationships, and strategic plans can help you increase sales, grow profits, and boost market share. You can rely on receiving a customized solution, not an off-the-shelf strategy. Szepko International will help you put all the pieces together.
Behavioral Finance and the Post-Retirement Crisis
Prof. Shlomo Bernartzi, UCLA
Evaluability: When Assessing Their Options, Retirees Gravitate Toward Those That Are Easiest to Understand
In their decision making, human beings do best when presented with apples-to-apples comparisons. Research shows that the ease with which a product’s attributes can be evaluated and compared strongly influences decisions (Hsee, 1996). However, by focusing on the easiest aspects of a decision, people do not always make optimal choices.
Currently, retirement income solutions are presented in such a way that retirees overweight certain attributes at the expense of others. For example, 69% of married women and 28% of married men opt for single life annuities rather than joint and survivor annuities (Johnson et al, 2003). Although some may have good reason to do so, others may be responding to the way the information they receive is presented.
For lifetime income solutions, retirees are typically presented with materials highlighting the monthly payouts provided by each option. For many, the optimal choice is obvious: the highest monthly payout. Why would a retiree choose a product paying $3,000 per month when another product offers them $4,000 per month? A payout of $4,000 per month has the most intuitive appeal. In other words, the dollar amount—the attribute that is easiest to evaluate—trumps all other attributes.
As a result, retirees may fail to recognize the implications of their decision on their spouse. Some guaranteed lifetime income solutions stop payouts after the purchaser’s death while others continue making payments to the deceased’s spouse. Products with higher spousal benefits tend to offer lower monthly payouts during the buyer’s lifetime. So making a choice based only on the initial monthly payouts—the most prominently featured product attribute—can have serious consequences for the surviving spouse.
Payne suggests that a new language is needed to help retirees make better-informed decisions. This language would make a product’s attributes more meaningful and would facilitate an apples-to-apples comparison between offerings. Payne uses the example of energy usage labels on appliances, where the “Jargonese” kWh is given context by providing a scale. Consumers can evaluate a potential purchase by seeing where its performance lies along the scale—closer to the end that represents less efficiency or the end that represents higher efficiency (Cox and Payne, 2005).
Payne’s new financial language would avoid Jargonese and encourage presentation methods that provide context and help retirees compare products. For example, the implications for retirees making a choice between single life annuities and joint and survivor annuities would be clearly spelled out, with the monthly spousal payouts in the event of the buyer’s death listed prominently. This way, it would be easy for the retiree to see which products fail to provide for the surviving spouse. Payne argues that this approach would improve the quality of retirees’ financial decision making.
“Penetrating the Institutional Middle Market:
A Golden Opportunity for CPAs”
William D. Johnson & Associates
(now Blue Horizon Investment Advisors)
The rules have changed. The barriers that kept CPAs from providing investment advice to clients have fallen. Today, America's most trusted advisors have an unprecedented opportunity to expand their businesses.
Some have seized the opportunity by becoming registered investment advisors and offering investment advice to their individual clients. Others have become licensed as brokers with a Series 7. A few have done both. But even these trail-blazers are neglecting a lucrative market – the institutional middle market, including endowments, foundations and small pension funds. They know they lack the training and experience to serve the special interests of fiduciaries. Still, there are alternatives to walking away. To find out what they are, we talked with Bill Johnson, Consulting Director for William D. Johnson & Associates, the office of CapTrust Financial Advisors in West Palm Beach, Florida.
Anyone meeting Bill for the first time notices two things. First, he radiates calm, speaking with conviction about investing and the investing process. Second, he explains even the most complex concept with clarity. He believes his role is to be advocate and advisor.
Selected questions from the interview . . .
“Quarterly Letter”
MTB Investment Advisors
2nd Quarter 2006
To Our Clients, Friends, and Colleagues:
Stock market volatility and the new Fed Chairman dominated the business news during the second quarter 2006. Economic news was generally benign; however, investors may have thought they were on a roller coaster ride. Wall Street pundits have noted the “wall of worry” among investors, and in early May equity markets hit that wall. Stocks continued to retreat until the close of the FOMC meeting on June 29th when stocks zoomed 217 points (the Dow Jones Industrial Average), or 2% for the day.
Investor concerns center on the three “I’s”: Interest rates, Inflation, and International. There is reason for concern in each of these areas; yet, the perception may appear darker than the reality.
Throughout the second quarter, interest rates and the fear of inflation have made headlines. Coming into its June meeting, the Federal Open Market Committee had raised the overnight Fed Funds rate by 25 basis points on 16 consecutive occasions. In addition, the new Federal Reserve Chairman is going through an evaluation by the public. Although Chairman Ben S. Bernanke’s views on inflation were well known from his past writings, and his service as head of the White House Council of Economic Advisers, investors and analysts were not sure how to interpret his comments (both on-the-record and off-the-record) over the past couple of months.
When the June meeting ended, the Fed raised the overnight rate for the 17th time, and it now stands at 5¼%, the highest level since March 2001. However, it was the wording of the statement after the meeting that caught the market’s attention. The Fed said “the extent and timing of any additional firming that may be needed” will depend on incoming data. This replaced the prior wording (from the May 10th meeting) that said, “some further policy firming may yet be needed.” In other words, when they next meet on August 8th, they will have plenty of data to review – and they may just pause and retreat to Jackson Hole for their annual summer meeting. . . .
“Fact-Finding Report and Recommendations”
(Section headings)
Pfife Hudson Group
In September and October 2006, Rose Communications conducted a series of face-to-face meetings and telephone interviews with the managing directors and other employees of the Pfife Hudson Group. The objective was obtain information about the firm, its business model and multiple lines of business, the background and expertise of the company’s founders, and its sales and marketing objectives so we could develop recommendations to help Pfife Hudson raise its visibility, build its brand, and market its services to key constituencies.
Overview
Marketing and Communications Findings
Messaging Recommendations
Marketing Communications Recommendations
Own Your Own Business, Own Your Own Life
Phil Wilkins
Ladies and Gentlemen:
I have enjoyed many blessings in my life. One of them has been my success as an entrepreneur. Another has been the opportunity to share my strategies with other business owners, and sales professionals – in particular, and help them grow their businesses.
My new e-zine “Own Your Business, Own Your Life!” is another way for me to communicate with you and provide you with a high content message to help you achieve your goals.
In this inaugural issue, I want to give you a few tips on how you can create a niche market. Niche marketing will allow you to focus your time and energy on the opportunities with the most potential.
1. Start by listing the knowledge and capabilities you have developed through your education and work life. How can you leverage your education and experiences to attract more clients and demonstrate your authenticity? What interests and hobbies do you pursue? Pick something that you like and enjoy.
2. Look at your list. Where do these people pursue this common interest? Go where they go.
3. Identify the people you already know who fit in these niches (i.e., existing clients, friends, and associates). Who do they know? Where do they meet? How do they communicate? What do they read?
4. Get to know the leaders of organizations, associations, charities, clubs, to which these people belong.
5. What can you do to help the people in this niche? Find opportunities to speak about these topics at their meetings. Write articles for their publications.
By filtering your marketing efforts through your own capabilities and interests, you can make very personal – and potentially profitable – business connections with the types of clients you want to have, enabling you to: Own Your Business, Own Your Life! Phil Wilkins – speaker, consultant, author, entrepreneur. Phil’s Wilkins’ strategies for success can help your company:
For more information, visit www.philwilkins.com, or e-mail Phil at phil@philwilkins.com.
Shadow Accounting: A Practical Path to GIPS Compliance
CheckFree Investment Services
Investment firms are divided about the need to comply with the separately managed account (SMA) provisions of CFA Institute’s Global Investment Performance Standards (GIPS). The Standards, which became effective January 1, 2006, replaced the Association for Investment Management and Research (AIMR) Performance Presentation Standards (AIMR-PPS) provisions and guidance on SMAs, which had been in place for asset management firms in the United States and Canada since 1995. GIPS was created by the CFA Centre for Financial Market Integrity, a unit of the CFA Institute (formerly known as AIMR).
Many money managers have already adopted the Institute’s Standards in their institutional business. According to a survey conducted by PriceWaterhouseCoopers between 2003 and 2005, 72 percent of 94 global asset management firms were either GIPS compliant or were actively working to become so. Some of these same firms, however, have not been eager to embrace the SMA provisions, largely because compliance seems onerous.
The SMA provisions apply to asset management firms that claim to be GIPS compliant, and that have discretionary management responsibility for SMA portfolios where a sponsor serves as intermediary between the firm and the investor. Management discretion is a critical factor in determining whether or not a manager should be compliant.
The opportunity cost of non-compliance
Although some money managers have devoted time, money and personnel towards compliance, others have opted out. In fact, they are free to do so because GIPS® is entirely voluntary. The reasons cited most often: the cost and a complicated, labor-intensive process. In addition, many firms do not have access to the data they need to substantiate portfolio-level performance in their SMA business.
As a result, they have chosen to be GIPS®-compliant on the institutional side but not in their SMA business. If the SMA business has autonomy over the assets it manages and over the investment decision-making process, it does not have to comply with the Standards. However, managers that choose this option cannot claim firm-wide GIPS® compliance, thereby losing a significant marketing opportunity and potentially giving ground to competitors.
That’s because GIPS® is quickly becoming the “global standard for reporting investment performance.” In 2006, the U.K.’s Financial Services Authority recognized the Standards, bringing the number of countries that have adopted GIPS to 26 in North America, Europe, Africa and Asia-Pacific.
Moreover, the CFA Institute is teaching investors to demand that managers report performance according to the GIPS® requirements. For this reason, more managers may find themselves under pressure to comply or face being bypassed by wealthy individuals and sidelined by SMA sponsors that want to market their program as fully GIPS®-compliant. . . .
Capturing the Income Distribution Opportunity
Securities America
Introduction
In 2005, 3.4 million Americans turned 60. The leading edge of the baby boom generation – those born in 1946 – had reached a milestone, according to the media, and was just five years away from the traditional retirement age. Less reported was another milestone, the fact that the first boomers had passed the age of 59½ when they could begin to take distributions from their retirement accounts. By 2017, this group will be more than 70½ years old and will be required to take distributions.
For financial advisors, the baby boomer wave is an enormous opportunity. The U.S. Census counts about 82 million individuals in the boomer demographic; a 2006 research study puts the number at 77 million. Advisors who ask the right questions and recommend the most appropriate strategies are likely to gain new business and improve their existing client relationships.
The dangers, however, are also significant. Consumer Insight Magazine reports that boomers are “the most influential investing group, with 40% of the U.S. population age 50+ controlling 75% of financial assets.” They also have “the deepest pockets, responsible for more than half of all consumer spending.” Combine that characteristic with the cash flow needs of retirement and advisors will need to help boomers properly structure the way they take their retirement account distributions.
If advisors fail in their responsibilities, it could prove devastating to the United States economy as these individuals run out of money and are forced to turn to social programs for their needs. Furthermore, poor distribution planning will likely be an area of increased client complaints in coming years. Advisors who have poorly structured client portfolios and advocated excessive withdrawal rates may be subject to arbitration hearings and regulatory action that could end their careers. With the consequences of failure so high, it is imperative that advisors fully understand the complexities of distribution planning so they may provide sound guidance to their clients.
Seeking an Optimal Solution
According to some studies, many investors have received a lower rate of return than the market average over the last 15 years – largely because they lacked a disciplined investment strategy and tended to move their money frequently. One can only imagine the devastating effect of such behavior if it continues as the baby boomer generation moves from accumulation to distribution.
To provide guidance to advisors and clients about prudent distribution planning, this paper conducts a comparative study of three common income distribution strategies. The goal is not to suggest a recommended withdrawal rate, but to outline, test, and compare the historical success rates of different income distribution strategies. Using historical data dating back to 1927, the probability of each strategy’s ability to produce a successful outcome was tested over 25-year time periods. A successful outcome is defined as the strategy’s ability to:
The Changing Paradigm for Retirement
JPMorgan Asset Management
Accumulation through distribution
As recently as 20 years ago, a financially secure retirement was based on Social Security, a private pension, and personal savings. Today, companies are reducing or eliminating their defined benefit plans; politicians are discussing future reductions in Social Security benefits. These new patterns for the accumulation and distribution of retirement assets make financial planning an ever-more-complex challenge for tomorrow’s retirees.
Retirement is generally considered to be a time of life when people stop working and begin to enjoy a range of leisure activities. Many people even see it as an entitlement – a reward for years of employment. It was not always so. In fact, the very idea of retirement as “the golden years” is relatively recent. It was made possible by the confluence of a number of factors and may turn out to be a unique period in American history.
The way it was
The first employer-provided retirement plan in the United States was the industrial pension plan of the American Express Company, implemented in 1875, and was only for disabled elderly employees. In 1880, the Baltimore and Ohio Railroad established the first formal plan to be financed jointly by employer and employee contributions, covering more than 77,000 workers.
The creation of retirement plans was an important development for working people because the length of one’s working life was directly connected to poverty in old age, “since for the average worker the end of gainful employment spelled the end of financial independence.” At the turn of the century, a 20-year-old white male worker could expect to work 39.4 years and live in retirement for three years.
As Americans’ health improved so did the number of older people in the population. Employers saw a pension plan as a way to retire older workers “with dignity” at the age of 65, making room for younger workers who needed jobs – a realization that led to the establishment of the first defined benefit plans in the 1920s and 1930s. The risk and the responsibility of these plans were borne entirely by the employer. However, with life expectancies at about 65 years, the companies rarely had to pay a pension for decades. In fact, after 35+ years of employment, most retirees lived just three more years, making the ratio of years worked to the number of years in retirement 12 to 1.
Social Security was also enacted in part to boost employment for younger people raising families. The Social Security Act of 1935 covered approximately 60 percent of all American workers and functioned as a “pay-as-you-go” program with the taxes paid by current workers funding benefits for retirees. Tax collections began in 1937; the first benefits were paid in 1940 to workers who retired at 65 years of age and had paid payroll taxes for the previous three years. By 1950, 17 percent of retirees were receiving benefits, a number that rose to 60 percent in 1960 and 85 percent in 1970. . . .
Attacking the pension (deficit) dragon
UBS Global Asset Management
The typical pension plan has been on a wild ride in recent years. The increasing focus on short-horizon pension risks in conjunction with falling interest rates, negative equity market returns, and modest asset return expectations, have been breathing fire down the necks of many pension plan sponsors. This “pension dragon” is certainly a formidable foe, but with a different strategy and the use of innovative investment techniques, plan sponsors may yet send the pension dragon into exile – or perhaps vanquish it forever.
The so-called “perfect storm” of falling equity markets and declining interest rates has been blamed as the cause of current pension problems. But in our opinion, investment policies generally had not been carefully designed relative to the most important benchmark, namely, pension liabilities. And going forward, even when plan sponsors return to funded status, we believe plans need to integrate their liabilities as they establish their investment policies.
At UBS Global Asset Management, we have developed a unique, proprietary process called Asset-Liability Investment Solutions (ALIS) to help plan sponsors more successfully protect both the future retirement security of plan participants and shareholder value. Our approach models investment risk using both assets and liabilities, and enables us to design a customized solution based on a pension plan’s specific situation.
Our approach is based on various fundamental beliefs. We believe that in order to build better investment policies plan sponsors and trustees must:
Deploying Alpha Potential
UBS Global Asset Management
Executive Summary
In pursuit of higher alpha, a growing number of asset managers are choosing to loosen their portfolios’ long-only constraint. They are supported by a growing body of academic research, suggesting that by relaxing the long-only constraint and introducing short selling of overpriced securities, asset managers can enhance the performance of their active equity strategies.
Because of the maximum underweight determined by the underlying benchmark, conventional portfolios usually take long bets on stocks that research identifies as undervalued. Managers must avoid or underweight securities that are considered overvalued, with the size of the maximum underweights limited by the benchmark. As a result, portfolio efficiency is impaired.
At UBS Global Asset Management, we have sought to improve the efficiency of a fully invested stock portfolio. Our simulation, developed in the context of the Fundamental Law of Active Management (FLAM), demonstrates that a levered single fund can capitalize on both alpha and beta.
By applying an allocation rule with no bias for long or short bets, the portfolio manager has the flexibility to exploit the full range of investment opportunities. In a 130/30 portfolio, for example, this approach provides a value added of 1.6% over a corresponding long-only portfolio, with a negligible impact on overall portfolio risk.
[Main copy]
In a post-1990s environment, where markets have moved sideways for quite some time, investors have been searching for higher alpha strategies. While it is no news that alpha and beta exposure can be separated by investing in a hedge fund and an index fund, many investors have shied away from hedge funds because transparency in this arena is limited and fees are usually high.
As an alternative, we propose investors consider a levered single fund that capitalizes on both alpha and beta. Our thesis is supported by academic research showing that portfolio returns can be improved if the long-only constraint is relaxed. In long-only portfolios, asset managers can take meaningful active positions in the stocks that their research indicates are undervalued.
Unfortunately, these managers are limited to either underweighting or avoiding those names that have been identified as overvalued because of the limitations set by the benchmark. Increasingly, some of these managers are easing their portfolios’ constraints to capture more alpha.
Unlocking the long-only constraint
At UBS Global Asset Management, we have sought to improve the efficiency of a fully invested stock portfolio in the context of the Fundamental Law of Active Management (FLAM), which is a cornerstone of modern financial theory. FLAM explains how a portfolio manager’s success is tied to his or her level of skill and the way in which it is applied to investment decision-making.
The relationship between these two factors is expressed as the manager’s information ratio—the value added by the manager per unit of unsystematic risk he or she takes.
By relaxing the long-only constraint and introducing short selling of overpriced securities, investors have the flexibility to pursue an additional source of alpha as part of the portfolio construction process. . . .
Making the Case for Water Investing:
Capturing Long-Term Growth Potential
Allianz Global Investors
Fresh, clean water has no substitute. Other commodities have their surrogates—wheat for oats or coal for natural gas—but water does not. Life-sustaining and essential to industry and agriculture, water is a valuable resource that could be “the next oil” or “the oil of the 21st century.”
As the world’s population multiplies, the demand for water—especially in developing nations—has increased dramatically. And the supply of water is not infinite. In fact, only a tiny percentage of the planet’s water is safe for human use. Furthermore, the hydrological cycle, which children learn about in school, can be interrupted. Water continues to evaporate from oceans and other bodies of water, forming clouds from which rain falls back to the earth and flows into rivers and oceans, then evaporating once again. However, human activities such as intensive agriculture or industry can disrupt this cycle by depleting or polluting water reserves. Climate change also affects water resources; in recent years, rainfall has increased in the northern hemisphere and periods of drought have lengthened in the south.
Under the circumstances, water could indeed become, as Fortune magazine has suggested: “the precious commodity that determines the wealth of nations.” The way a country manages its water challenges could make all the difference to its future. For some, that means building an infrastructure to sustain growth and development. For others, it means repairing and extending an aging infrastructure without diverting limited financial reserves or increasing taxes. The work ahead—and certainly the projects already underway—offers numerous opportunities for investors who buy stock in companies in water-related businesses.
A Precious Commodity in Short Supply
Ninety-seven percent of the world’s water
lies in saltwater oceans. Just 3% is fresh, and much of it is
inaccessible. Some lies deep underground while approximately
2% is frozen in glaciers and polar ice caps. The remainder—about
a half-percent—is what remains for residential, agricultural
and industrial uses. Only 0.007% of the world’s water is “potable”
or safe for consumption, according to the World Health Organization
(WHO).
The freshwater supply is also under stress, strained by dramatic population growth, an increase in water consumption and the desire for improved living conditions. The United Nations (U.N.) estimates that water use for human purposes, including industrial development and increased irrigation, multiplied six-fold over the 20th century—more than twice the rate of population growth, which tripled. In 2001, 54% of the world’s available fresh water was used. If water consumption remains steady, by 2025 70% will be absorbed by population growth alone. Ninety percent will be used if consumption in developing nations rises to the levels of developed economies. . . .
Maximizing the Benefits of International Diversification
Allianz Global Investors
Diversification is one of the most powerful portfolio management tools available to investors and their financial advisors. Its benefits are based on the principle that if assets are moderately to significantly uncorrelated, adverse movements in the returns of some holdings are more likely to be counterbalanced by the returns of other asset classes, thus mitigating the impact of a downturn on the overall portfolio. Simply put, although it does not assure a profit or protect against loss, diversification helps investors realize the optimal return for the amount of risk taken.
An international component offers other specific advantages. Foreign exposure broadens a portfolio’s universe of investments, creating greater opportunity for beneficial shifts in the efficient frontier. It can also reduce the variability of an investor’s return by spreading investments across economic cycles and fiscal and monetary policies that are not perfectly correlated. Plus, international securities may supply some inflation protection when currency exchange rates depreciate. Of course, currency rates could appreciate, causing the investment’s value to decline. There are also other attendant risks to consider with international investing, including greater volatility, and political and economic risks, particularly among emerging markets.
Because of the overall benefits, institutional asset allocation models often recommend significant international equity allocations. Institutional investors, such as pension plan sponsors, have future funding requirements, and are therefore highly focused on optimizing their asset allocation and risk hedge strategies. However, the average small investor—who often has similar considerations, such as future cash flow needs—typically holds only 10% to 12% of his or her equity investments in foreign stocks.
This weighting has remained relatively steady over the past decade despite the strong performance of foreign stocks. In 2007, for example, international equity mutual funds returned an average 16% compared with diversified U.S. equity funds, which returned just over 6%. Lipper also reports that foreign stock funds outperformed domestic stock funds over periods of two, three, five, 10 and 15 years.
Overcoming the “home-country” bias
At the beginning of 2008, the U.S. accounted for only two-fifths
of global market capitalization, suggesting that investors who focused
on U.S.-based stocks were choosing from a more limited universe. According
to The Wall Street Journal, “a stock portfolio that fully reflects
the heft of overseas markets would allocate about three-fifths of its
holdings to non-U.S. shares.” The emerging markets alone account for about
11% of worldwide market value. And yet, despite compelling arguments for
international diversification, U.S. investors remain heavily weighted
toward domestic assets. Academics have a number of theories for this strong
“home-country” bias. Among them are the conviction that sufficient international
exposure can be obtained by investing in U.S. multinationals; optimism,
often misplaced, about domestic economic conditions; and concerns about
inflation, transaction costs, tax implications or the additional risks
of investing overseas. Ultimately, however, financial advisors may find
that their clients prefer to invest close to home for the simple reason
that they feel most comfortable investing in what’s familiar. The challenge
for the financial professional is to make a case for taking full advantage
of the international diversification opportunity. . . .