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According to the Liquidity-Stress Index from Moody’s Investors Service, corporate liquidity is not at concerning levels, even after the high-yield bond selloff last month. The index rose from 3.9% to 4.1% in August, Michael Aneiro reported for Barron’s. Aneiro said another Moody’s index showed that risk of violating debt covenants is staying low.
“Good earnings performance, successful maturity extensions and covenant relaxation continue to support the liquidity positions of speculative-grade companies. While we are watching to see whether recent softness in the new issuance market will pose a meaningful headwind, the post-Labour Day pipeline appears material and spreads are not at levels that suggest a broad pull-back in liquidity,” John Puchalla from Moody’s corporate finance group said in a statement.
Here’s How To Protect Yourself From Short-Duration Risks (AllianceBernstein Blog)
As investors enter into short-duration strategies to defend against rising interest rates, they need to think about the risks that come with them. Ivan Rudolph-Shabinsky from AllianceBernstein recommended being wary in case yield spreads widen, or volatility becomes too high.
“If there’s a credit selloff, investors tend to rush out of high yield and into government bonds and other higher-quality assets. This would cause government bond yields to fall, and investors could see both sides of their portfolios take a hit: the high-yield bonds would suffer and the interest-rate hedges would lose value as Treasury yields fell,” Rudolph-Shabinsky said.
“We think there’s a better approach to build a low-volatility high-yield allocation: buy individual bonds that do have short-term maturities and bonds that are likely to be called in the near future,” he said. “This effectively shortens duration and provides the attractive return profile we described. We think it’s also important to avoid the riskiest credits. In a credit-sell-off, a short-duration portfolio that sidesteps these potential pitfalls is more likely to outperform the market.”
Investors Are Addicted To The ‘Bad News Is Good’ Trade (BlackRock Blog)
On the BlackRock Blog, Russ Koesterich warned against a common error: seeing bad news as good. He explained that because the Federal Reserve implemented quantitative easing in the wake of the 2008 financial crisis, investors have come to associate weak economic news with easy monetary policy.
“In my opinion, however, a change in the Fed’s intended monetary policy is unlikely, at least based on recent economic reports,” Koesterich wrote. “While the U.S. economy does have persistent pockets of softness (such as household spending) and does face significant headwinds (like slow wage growth), it is generally improving. Though the U.S. economic recovery is certainly uneven, when you look at recent economic data overall, it’s evident that the recovery is gaining steam and that the U.S. economy has fully recovered from the first quarter’s economic contraction.”
“So, rather than continue to hope for an unlikely sea change in Fed policy, investors would do better to focus on relative valuation, which has become a key differentiator of performance lately. Despite lingering economic headwinds, market segments with relatively cheap valuations have been attracting buyers, a trend I expect to continue,” he said.
Financial Advisors Should Be Tapping Into Their Staff To Find More Referrals (Wall Street Journal)
Personal recommendations are great for financial advisors, but an article from the WSJ suggested that advisors are missing out on a great source — their staff. Veronica Dagher wrote for WSJ that junior advisors, administrative assistants, and operational staff can all help find new leads for business.
“To get them really involved, ‘firms should create a referral culture,’ says Jylanne Dunne, senior vice president of practice management at Fidelity Investments in Boston,” she wrote.
“This means training staff not just to provide great service, but to be mindful of opportunities and skillful at telling the company’s “story”–that is, a concise description of its mission. And they should be rewarded when they succeed at bringing in new leads,” Dagher said.
Partial Premium Payments Are Costing Your Clients More In Hidden Fees (Wealth Management)
In an article for Wealth Management, Alan Lavine outlined the ways your clients may be paying more than they need to on premium payments. According to a report from Insurance Forum, clients need to take into account both the higher payments, and the Annual Percentage Rate. “Take the example of a policy that charges a quarterly premium of $US270, or $US1,080 per year,” Lavine wrote. “That same policy has an annual premium of $US1,000. Your client’s decision to pay premiums quarterly means a whopping 21.5 per cent annual percentage rate.”
“You’d think the difference is a mere 8 per cent annually, but that’s deceptive, suggests The Insurance Forum’s Joseph Belth, a professor at the University of Indiana,” he said. “Unlike a loan, a policyholder who opts to get an advance on the $US1,000 annual premium by paying quarterly installments lacks the use of that full borrowed $US1,000, Belth says. By knowing the APR, the policyholder can determine whether it’s better to borrow the money to pay the annual premium or opt for fractional premium payments.”
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