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A multi-manager approach is a good way to diversify a fund, according to Vanguard. “When we decide to add another manager to a fund, we like a complementary manager who will also invest with conviction, independent of the first manager,” said Dan Newhall, a principal in Vanguard Portfolio Review Department. “The combination of managers can help to diversify the fund, while still following the primary investment strategy.” This approach reduces volatility and risk that could occur with a single manager. “We prefer limited overlap and find that there’s often very little correlation of excess returns among the two or more distinctive managers that you might hire,” Newhall said.
Advisors Need To Remind Their Clients Of Three Key Things When It Comes To International Investments (The Wall Street Journal)
International investments can offer good diversification opportunities for investors. But there are few key things that advisors need to explain to their clients, writes Matt Johnson at Brandes Investment Partners in a WSJ column:
1. “One general misperception about foreign investments is that they help protect against short-term volatility in domestic markets,” he writes. “…The problem, of course, is that foreign markets are very sensitive to extreme market movements here in the U.S–day-to-day movements between the two are very closely correlated.” Instead he points out that international investments have long-term diversification benefits.
2. Advisors need to remind clients to think of all foreign markets as emerging markets.
3. Finally, “when it comes to international investing, it is far more important to focus on companies than it is on countries,” he writes.
At time when central banks have kept monetary policy loose and interest rates low, investors are taking on bigger risks in their quest for yield. One look at emerging market debt and you can see the gap “between perception and reality,” writes Richard Bernstein at Richard Bernstein Advisors. “Investors have been lured to these securities by their higher yields, yet the underlying economic and currency fundamentals are deteriorating without commensurate widening of spreads.”
“The ongoing deflation of the global credit bubble will likely prove to be a significant and secular hindrance to emerging market growth, and investors still appear to be underpricing the risks associated with emerging market assets,” writes Bernstein. He thinks it’s ironic “ironic that investors are stretching for yield in risky emerging market debt despite the growing warning signs, but they won’t invest in higher yielding securities within the US even though fundamentals are improving.”
The Bull Market Won’t Top Out Until Masses Are Buying Every Dip (Investment News)
“The bull market of 2009-2014 has to be one of the most disavowed, unloved bull markets of all time,” writes Paul Schatz, president of Heritage Capital in Investment News. “Each and every time it sees even routine weakness, bears come out of the woodwork with calls of 1929, 1987 and 2007 all over again. And then stocks stop declining and continue on their merry way higher. This is exactly how long-term bull markets survive, thrive and work higher.” Schatz argues that the bull market will only begin to top out when the masses start buying every dip.
Citi Raises Its 2014 Target And Unveils Its 2015 Target For The S&P 500 (Business Insider)
Citi’s Tobias Levkovich has revised up his S&P 500 year-end target to 2,000, from his earlier target of 1,975. “Large cap US equities are approaching year-end targets more rapidly than had been anticipated, supported by respectable earnings,” wrote Levkovich. “With the S&P 500 up 4.4% year-to-date and our late 2013 expectation for a 2014 full-year gain of about 7.0%, it seems appropriate to reconsider the market outlook especially in the face of better-than-expected profits.” 12 months from now Levkovich sees the S&P 500 in the 2,040-2,060 range.
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