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This Is A Great Time For Investors To Rebalance Their Portfolios (Morningstar)
After the run up in stocks this year, many are expecting a correction. But investors shouldn’t try and time the market, says Christine Benz at Morningstar. Instead, they should consider rebalancing their portfolios and raising a little cash.
“I’ve been advising for a while that one tack investors should be looking at right now is to be thinking about rebalancing their portfolios. So assuming that they have some sort of strategic asset allocation framework that they’re working within, look at where your current weightings are versus those targets. A portfolio that was 50% equity, 50% bond five years ago would now be about 64% equity, 36% bond. This is an S&P 500, high-quality bond portfolio.
“If you’ve been very hands-off through this rally, chances are you’ve seen your equity holdings step up and up and up, probably higher than your target weightings. I think of rebalancing as kind of a “chicken” tactical asset allocation play. It’s a way to be a little bit tactical, be sensitive to the fact that stock valuations aren’t what they once were, but it’s not market-timing, because you’re not taking all of your equity holdings off the table.”
A group of female Merrill Lynch advisors is opposing a $US39 million settlement tied to a gender discrimination suit, reports Trevor Hunnicutt at Investment News. The advisors are opposing the suit on the grounds that it is “meager” and that it would actually “enshrine the very policy that the plaintiffs challenged in this lawsuit as discriminatory.”
Investors Shouldn’t Fear Rate Hikes (BMO Capital Markets)
Brian Belski at BMO Capital Markets maintains a S&P 500 price target of 1900 for 2014 and thinks that stock performance will be centered around the Fed. When the Fed first hinted that it could taper its $US85 billion monthly asset purchase program the S&P 500 lost nearly 5% in the following month. Belski writes that most investors “re going to view tapering as a tightening of policy (even though it is not), given the market’s reliance on the Fed during this bull market.”
But he says investors should “welcome rate hikes.” This is because their research shows that “after the initial shock of the first rate hike subsides, the S&P 500 goes on to deliver rather impressive gains in the subsequent periods.” This is because a rate hike signals that economic growth prospects have improved and higher rates will dampen inflation. “We would view any Fed related weaknesses as an excellent longer-term buying opportunity.”
Of late it seems that more and more short funds are closing their doors and more bears are turning bullish and saying it’s ok to have stock exposure, writes J.C. Parets at All Start Charts. The latest the National Association of Active Investment Managers (NAAIM) shows that investment managers haven’t loaded up on U.S. stocks this much and this aggressively since 2006.
“I like this particular poll is because of the wide range of investment styles among the managers participating in the survey,” Parets writes. “These include managers that trade frequently and can switch long and short positions daily. Other managers trade less and for the most part just keep their core positions. But it’s a better representation of the real world, and not just the long only, “hope for the best”, type of passive managers.”
Here’s One Chart Every Stock Market Investor Should Pin To The Wall (JP Morgan Asset Management)
Pointing to a chart of S&P 500 intra-year declines against calendar year returns, JP Morgan Asset Management’s Paul Quinsee shows that even in big years investors have to stomach a hit to realise buy and hold returns. These hits could be as much as 10-15%.
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