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NOVOGRATZ: Brazil’s So Bad, It’s Good (Bloomberg TV)
Brazil has had a rough go of it recently. Its economic growth has been disappointing and inflation is still high. “My bet is that it is so bad that you’re going to see regime change come the October elections,” Michael Novogratz, principal of Fortress Investment Group, told Bloomberg TV’s Stephanie Ruhle at the Sohn Investment Conference. “And because pessimism is at an all-time high, when you go down and visit Brazil every local you speak to is wildly depressed.” Novogratz’s trade idea is that Brazil is so bad, it’s good.
He said the most “promising” thing from a trade perspective is that president Dilma Rousseff’s poll numbers continue to plunge and “our view is she’ll probably lose the election. … She’s praying for the soccer team like all the Brazilians to maybe give the country a lift and her to get some — some momentum from it, but — but our real sense — our serious sense is that she’s on a one-way ticket lower in polls. And as those polls tick lower, Brazilian assets will tick higher.”
Bond investors who worry about rising interest rates shouldn’t turn to an all-short duration strategy for two key reasons says Joe Davis, chief economist at Vanguard. “One would be how confident an advisor or an investor would be in terms of divining where interest rates will go,” Davis said. “And second, relatedly, it’s just the steepness of the yield curve. Intermediate-term yields or intermediate-term bond funds are yielding significantly more than short-duration portfolios today.
“And so if one is going to go short, there’s a give up by some portfolios 200 to 300 basis points. And so the key question is, do interest rates evolve over the next two or three years fundamentally differently than what the bond market expects? I think one would have to have the view that interest rates, and the Federal Reserve in particular, is going to raise rates much more aggressively than the bond market expects for short-duration portfolio strategy to significantly pay off relative to a broader bond market exposure.”
SEC Charges Ohio Investment Advisor With Lying About Client Assets (Investment News)
The SEC has charged Professional Investment Management Inc (PIM) and Douglas E. Cowgill with “material overstatements of client assets and violations of the custody rule,” according to the complaint. The SEC alleges that the Ohio-based investment advisor overstated client assets by $US753,535 in a certain money-market fund, for each of the last three months of 2013.
“PIM is operating without registration with any regulatory authority and has submitted false documents to the commission — with whom PIM is required to be registered,” according to the SEC complaint. “PIM continues to issue false account statements to clients, make redemptions requested by clients misinformed about their holdings, and charge fees to clients based on a percentage of assets under management (which assets are overstated).”
Advisors Should Do Away With Quarterly Reports (The Wall Street Journal)
Katie Stokes, director of financial planning at J.E. Wilson Advisors, thinks that advisors should do away with quarterly reports as a way of communicating with clients. “We now use an online platform to provide and deliver information about our clients’ portfolios,” she writes in a new WSJ column. “Using this software, clients can access the same information they were getting in their typical quarterly report: returns, allocation, holdings, realised gains and losses. But rather than reading–or more likely, throwing out–a paper account of outdated information about their investments, clients can now follow it digitally, in real time.”
After a stellar run in 2013, stocks have had a much more volatile year in 2014. This has made it a particularly difficult time to be a stock picker. “Calendar year 2014 is now 1/3 behind us and for many equity portfolio managers the calendar is turning into an annus horribilis to use the phrase immortalised by Queen Elizabeth II,” Goldman Sachs’ David Kostin said in a note to clients. “Nearly 90% of large-cap growth mutual funds, 90% of value funds, and 2/3 of core funds are trailing their style return benchmarks YTD (1%, 4%, and 2%, respectively).”
“Stock-picking has been extraordinarily challenging this year,” added Kostin. “The typical hedge fund had a YTD return slightly below zero as of April 30. Dispersion of S&P 500 stock returns for the last three months ranks at the 1st percentile compared with the past 30 years.”
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