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As interest rates rose in 2013, investors began to pull their money out of taxable bond funds. Investors in taxable bonds redeemed $US121 billion in 2013, leading many to characterise the sell-off as a bond-mageddon. But Fran Kinniry at Vanguard writes that investors should be careful about reacting to short-term movements.
“What is largely ignored when discussing investor cash flow is the level of base assets, or the starting period of the assets under management.” The $US1.8 trillion in assets in taxable bond funds at the beginning of 2013 was 6.5 times higher than the $US286 billion in these funds at the start of 1994.
“Given such a large asset base, there will likely be proportionally more cash flow into and out of these funds,” Kinniry writes. “When we compare cash flows to the base assets, an entirely different picture develops. As a percentage of base assets (green bars), the — 6% cash flows from taxable bond funds in 2013 fell far short of the — 16% cash flows in 1994.”
MyRA Isn’t The Best Option For Young Investors(Morningstar)
During his State of the Union address, president Obama announced a new retirement savings program called MyRA. This is a program of small Roth IRAs for those who do not have access to company retirement savings plans. And people can contribute at very low levels. But Christine Benz, director of personal finance at Morningstar, says it isn’t the best option for young investors.
“I think that’s a big criticism here, actually. If you want to get people out there investing and maybe they’re young savers, what you want to try to do is take advantage of the fact that they’ve got a really long time horizon. Those are your best candidates for stocks. So, it’s sort of unfortunate that they will be stuck with government bonds–a fairly low-returning, low-risk asset class–when smaller, younger savers are really the best positioned people to take some risk.”
The Best Performing Advisory Firms Are Good Pitchers (Investment News)
77% of the highest-performing advisors firms bring clients on board in two meetings or less, according to the new Fidelity RIA Benchmarking study cited by Liz Skinner in Investment News. About 25% of them manage to win over a client in the first meeting itself. The highest performing firms are those that are in the top 25% in terms of growth, profitability, and productivity.
“The best performers have an efficient sales process,” said David Canter, executive vice president and head of practice management for Fidelity Institutional Wealth Services. “They have a good process for delivering their presentation and they are very consistent and clear about the firm’s story and value proposition.”
“American investors have been the largest dollar diversifiers over the last decade,” said UBS’s Syed Mansoor Mohi-uddin in a new research note. “That has cut US home bias to historically low levels.”
In the early 1980s and 90s U.S. bond fund managers cut their exposure to foreign assets in the face of higher interest rates at home and a crisis in the emerging markets.
“The 2008 financial crisis and the start of the Eurozone debt crisis from 2010 has also led episodes of US investors pulling back from foreign markets over the last few years. But with the Fed setting interest rates almost at zero since the end of 2008, domestic fund managers have still largely kept the proportion of foreign assets in their portfolios at high historic levels over the last years as Figure 4 shows.”
Stock market veteran Laszlo Birinyi told Bloomberg’s Nick Taborek and Callie Bost that the S&P 500 will climb to 1,900 next quarter. Birinyi was one of the first analysts to advise clients to buy stocks when they began to bottom after the financial crisis. He told Bloomberg that the benchmark gauge for U.S. equities will rise almost 6% by July. “I don’t like when the market just shrugs these things off. …It’s OK to just stop and take a deep breath. The market should have some sort of a negative reaction when you have problems in Turkey and Argentina. That didn’t make me uncomfortable,” Birinyi said. “We’ve had a little bit of a detour and the road isn’t as smooth as it has been, but we still think the rally is intact.”
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