FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
Investors Are Too Bullish On European Stock (The Wall St. Journal)
Bargain-hunting investors are getting a bit too bullish on European stocks. $1.3 billion flowed into European stock funds in the first six weeks of 2013, according to Lipper data, and that’s way more than the whole first quarter total last year, which is when investors started looking towards Europe after the 2007 financial crisis.
Value investors should be forewarned against taking too big of a plunge into European stock funds, Global Financial Private Capital’s Matt Krueger told the WSJ. He also pointed out that the latest fourth-quarter euro-zone gross domestic product numbers, which were released late last week, paint a picture of a region still contracting.
“The last time you could trade euro-zone peripheral stocks at these types of valuations was about 30 years ago,” said Krueger, “But we still don’t think the rewards outweigh the risks.
Gold Prices Have Totally Broken Down (Business Insider)
The 50-day moving average for gold just fell below the 200-day moving average, which means that gold has gone into a “death cross,” according to FT.
Gold prices fall when fear is low and interest rates high, which is exactly what’s happening right now.
Mergers And Acquisitions Activity Is Double What It Was Last Year (Advisor Perspectives)
Mergers and acquisitions deals declined for the first time since the financial crisis in 2012. But the situation has changes dramatically in the past few weeks—U.S. deal activity was $158.7 billion during the first six weeks of the year, double the amount seen during the same period last year. On January 16 alone companies announced $40 billion of M&A deals.
This provides ample opportunity for merger arbitrage and for activist investors. But fixed income investors are not likely to view these developments in good light.
“The fear is that acquirers will actively re-leverage balance sheets to finance deals, resulting in lower credit ratings and more companies dropping from investment grade to high yield status.”
Greenwich Roundtable took a close look at hedge fund blowups, and analysed what are the most common denominators of the hedge funds that tend to go kaput.
Here’s are a few things you should keep an eye for: 1) Fund was managed by one person with no risk manager. 2) Dangerous extent of portfolio concentration could have been revealed through conversations. 3) Assumption that a former analyst can all of a sudden perform as a portfolio manager at a new fund. 4) Fund grew but operating staff didn’t grow to keep up. 5) Abrupt personnel changes/resignations.
The usefulness of a trend-following system is entirely dependent on its ability to identify and appropriately react to market trends, and not react to false trends, said Frontier Asset Management’s Scott MacKillop, in a write-up, and that is an incredibly difficult task. How well a trend-following system works depends quite a bit on luck.
Which is why it is better to divide one’s assets between a trend-following system and a fully invested portfolio.
“Fully invested portfolios have historically done well when the trend followers have done poorly. They can soften the blow if the trend followers don’t catch the trend just right,” said MacKillop.