You're Fooling Yourself If You Think Volatility Is Dead

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Volatility Isn’t Dead At All (Advisor Perspectives)

The VIX index, a measure of volatility has fallen from mid-30 levels in Q4 2011, to 13 in May 2013, according to Paresh Upadhyaya and Michael Temple at Pioneer Investments, but that doesn’t mean that volatility has disappeared. Instead they argue that volatility is down in some assets and has ticked higher in others like currencies, commodities and even bonds.

…Fixed income – driven by Treasuries – is becoming more volatile, and we expect this to continue as we enter a new interest-rate regime. Improving economic activity, higher employment, and increased lending that will translate into greater monetary velocity will ultimately lead to higher inflation levels. The question that the market will grapple with is whether or not monetary accommodation by central banks will be removed in a timely manner, and how that will affect both fixed-income and other “risk-on” asset classes. 

…While we believe that the markets will ultimately accommodate this transition, the shift will result in higher volatility across a number of asset classes. They might not, however, be the ones investors are used to looking at!”

The Smart And Stupid Argument On The Active-Passive Management Debate (The Reformed Broker)

Investors still wonder if passive or active investment strategies are the best way to go. In the past five years, passive investors have outperformed active investors. Josh Brown writes that there is both a smart and stupid argument to be made for active management. 

Quoting Marketocracy’s Ken Kam who writes that no one investment style works all the time, and that managers become great as they hone their skill to one investment style, Brown writes that this is the smart argument. 

Kam also writes that, “I think index funds make sense for those who see clear skies ahead for the stock market. For those who see a storm coming, having a human pilot at the helm makes a lot more sense.” This Brown thinks is of the “stupid variety.” Brown for his part says he is agnostic on the debate, but that he believes that “less is more” and that “passive is superior to active most of the time, but a little of the latter can go a long way if applied systematically and repeat-ably.”

Doug Kass: Here’s Why I’m Buying Gold (Real Money)

Despite the sell-off in gold, hedge fund manager Doug Kass is buying the precious metal. His main reasons for buying it are that expectations on gold have got too low and it now has “contrarian appeal.” He also attributed it to the growing consensus that global economic growth recovery projections are too optimistic, that U.S. dollar strength may start to fade, and that inflation is inevitable. He also thinks the eight standard deviation move seen in mid-April when gold entered a bear market is extremely rare.

“There is probably no better time to consider diversifying one’s portfolio into a depressed asset class (e.g., gold) than when the crowd is optimistic about a vigorous and self-sustaining global economic recovery and when the world’s stock markets are at record high prices.”

Hedge Funds Are Cranking Up Their Bets On Emerging Markets (Bank of America)

While some on Wall Street have called the end of the emerging markets bull run, macro hedge funds have been increasing their bets on emerging markets. 

“Based on our exposure analysis, Macros bought EM exposure to the highest since October 2011, while maintaining their net long positions in [Europe, Australasia, and the Far East],” writes BofA Merrill Lynch analyst Stephen Suttmeier.

Macro hedge funds exposure to emerging markets

Concerns Of Fed Tapering Is Prompting Wealth Managers To Tweak Portfolios (The Wall Street Journal)

Concerns over when the Federal Reserve will start to wind down quantitative easing, rising Treasury rates, and market volatility has prompted wealth managers to adjust their portfolios, according to the WSJ.

Brad McMillan, CIO at Massachusetts-based Commonwealth Financial Network said he was seeing two trends. From the WSJ: “Investors, fearful of getting caught in the much-anticipated pullback, are seeking to de-risk their stock portfolios a bit. At the same time, they’re starting to sell off income-generating investments such as real estate investment trusts and utilities, as the promise of high payouts from bonds makes such investments relatively less attractive, he said.”

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