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Clients Should Remember The Importance Of Investible Benchmarks (Advisor Perspectives)
Clients should look for “investable benchmarks” not just indexes that are frequently used as benchmarks, writes Jason M. Laurie of Altair Advisers in a new Advisor Perspectives column. “One of the most significant flaws is that indexes, not index funds, are widely used as benchmarks to compare performance,” writes Laurie.
“That may seem like a distinction without a difference, but it is not. Indexes are theoretical; they represent a group of securities without any costs and free from all the practicalities of implementing a portfolio, whereas, index funds are the real thing. Not surprisingly, the performance of an actual index fund may differ considerably from that of the index benchmark it is attempting to replicate.”
Laurie admits that picking such benchmarks isn’t easy. “Choosing investable benchmarks requires an advisor to review all available funds and ETFs to find those that best mimic active strategies, but on a passive basis,” he writes. “Benchmarks should be selected based on their historical performance, standard deviation, portfolio characteristics, fund size, liquidity and fees in order to find new benchmarks that most closely resemble their investment targets.”
Here’s How Much The Average Money Manager At A Hedge Fund Made Last Year (Institutional Investor’s Alpha)
Institutional Investor’s Alpha is out with its annual hedge fund report which shows that compensation for hedge fund portfolio managers surged last year. Only 16 hedge funds outperformed the S&P last year, which ended up 30%. “Fuelled by fat bonuses, total compensation for senior portfolio managers rose 27.6 per cent, to $US1,465,468, according to the 2014 Hedge Fund Compensation Report by Institutional Investor’s Alpha. Junior-level portfolio managers did even better, with their compensation surging 81.3 per cent over 2012, to a mean of $US887,717. “
Non-traditional bond funds, like unconstrained bond funds, are popular when interest rates are low. Unconstrained bond funds or ‘go anywhere funds’ allow managers to choose debt securities in the U.S. or abroad; government and corporate. Raman Srivastava, manager of the Dreyfus Opportunistic Fixed Income Fund, told Jeff Benjamin at Investment News, that the popularity of these funds is being “driven by a search for fixed income without the duration risk, as people look for a way to diversify against the main risk in fixed income.”
“A key question for investors to be asking are how a portfolio manager intends to deliver the returns they have become accustomed to [in nontraditional bond funds].”
“In my opinion, there are three main things to look for in a strategy: It needs to be able to move tactically across all parts of fixed income. You have to be active. …Secondly, security selection will be much more important than in the past. …And finally, you have to have the right tools to be able to manage risk, because you have to be able to take risk up and down.”
38% of retirees surveyed by Nationwide Financial Retirement Institute said they wished they had waited longer before collecting their social security benefits. “Social Security can represent up to 40 per cent of the total income the average worker receives throughout retirement and when and how to file are some of the most important financial decisions they make in their lifetimes,” David Giertz of Nationwide Financial told FA Mag.
SocGen: Here Comes A Decade Of Crummy Stock Market Returns (Business Insider)
Societe Generale’s analysts updated their 10-year outlook for the global stock markets and they think investors should not expect the double-digit annual returns we’ve seen recently. “US equities face three headwinds: cyclically-adjusted valuations (CAPE, starting date 1881) have returned to very expensive territory, corporate margins stand at historically high levels, and after already five years of growth from the 2009 trough, we estimate that the probability of another recession kicking in is close to 100% within the forecast timeframe (the longest cycle ever was 120 months, or 10 years),” they write.
“But US equities have supports as well, such as impressively strong balance sheets and the beginning of a new M&A cycle, backed by a highly reactive central bank.” They project the S&P 500 will get to 2,500 by 2024, which is about 3% growth per year.
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