Markets Have Only Seen A 'Selective Rotation,' Not A 'Great Rotation'

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There Hasn’t Been A Great Rotation As Much As A “Selective Rotation” (Advisor Perspectives)

The Great Rotation was a big theme at the start of the year with some talking about money rotating out of bonds and into stocks. But Eric Takaha, senior vice president and portfolio manager for Franklin Strategic Income Fund, says there hasn’t been a “Great Rotation” as much as a “Selective Rotation.”

“We’ve certainly seen flows into the stock market, and that’s helped equity performance in 2013. If you look across the fixed income market, we have seen money coming out of some money market instruments and some of the government-related instruments. On the other hand, bank loans have had more than a year of positive inflows, week after week. Even high-yield corporate bonds have seen money coming back in of late.

“I think investors in general are distinguishing between short-term money markets and the very low yields in government bonds versus some of the other fixed income sectors that can offer a bit higher income stream. So while we have seen money going into equities and money coming out of certain fixed income products this year, overall we haven’t seen a great rotation out of all of fixed income.”

Rosenberg: Here Are 2 Signs The Stock Market Is Getting Less Frothy (Gluskin Sheff)

As stocks headed to all-time highs and investors piled into the asset class, some started warning that it looked frothy. But Gluskin Sheff’s David Rosenberg thinks there are two key signs that the stock market is getting less frothy.

1. “First, the the IPO market is clearly cooling off so far in November, and investor bidding once the new issue hits the market has become far less aggressive.” 2 “The bull-bear spread pulled back 250 basis points, which is good from the perspective of getting out of the ‘danger zone’ from a complacency standpoint.”

Three Ways Advisors Can Prepare For Market Volatility (Investment News)

Joe Duran, CEO of United Capital Financial Advisors, thinks advisors should look for opportunities in volatility. Duran thinks there are three key ways to do this. 1. “Prepare for the inevitable.” Warn your clients that stock prices could fall and help them with their blind spots. 2. “Control the controllable.” It is important for the client to understand that neither they nor you own the market but that you can “control their reaction to markets.” 3. “Communicate. Communicate. Communicate.” Communicate with clients in good times and bad.

You Can Create A Portfolio With Passive Risk (Alliance Bernstein Blog)

Passive investments are rarely that, according to Ashwin Alankar of Alliance Bernstein. In fact they are subject to market volatility. But he thinks there are ways to create a portfolio with passive risk. “The trick is to take a dynamic approach that aims to undo the randomness of volatility,” he writes.

“At the index level, the idea is to de-risk exposure to equities to when overall index volatility rises. For example, when Federal Reserve Chairman Ben Bernanke started talking about tapering the asset purchase program in May 2013, the average volatility of the S&P 500 jumped from 12% to 20%.

“In other words, stocks became nearly twice as risky as they were before, so a $US100 investment in the S&P 500 is now risking $US20 instead of $US12. To maintain the initial risk profile, the prudent response would be to get rid of the additional risk by moving $US40 — nearly half of the total — out of the index into cash. That way, even though index volatility has nearly doubled, an investor hasn’t taken on any more risk. By doing this, the varying risk of an index can be flattened to a desired constant in expectations.”

These Are The Top Three Criteria When Picking An Alternative Investment Provider (FA Mag)

The most important factor in picking an alternative investment provider is a high level of integrity and transparency, according to a survey of advisors by Franklin Square cited by FA Mag. 90-two per cent of advisors said this is the most important criteria to consider. 90-one per cent of advisors said consistent investment performance was important and 82% said a low correlation to other asset classes was important.

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