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5 Red Flags To Help Investors Spot A Bad Bond Fund (Morningstar)
Eric Jacobson, a senior fund analyst at Morningstar points out five red flags that investors should watch for when it comes to bond funds. These can signal if the funds are taking on “more risk of a blowup than others.”
1. Big yields — The bond funds with big yields have typically taken on bigger risks. “Funds that get into the biggest trouble are often those with the biggest yields.” 2. Funds that are too concentrated in one issuer or sector or state — having too much of a good thing is no different than having all of your eggs in one proverbial basket.” 3. Excessive leverage — this can include leverage through derivatives, similar to margin borrowing. This adds volatility and risk to a portfolio. 4. Outlier funds — “If a fund purports to be of a certain ilk but actually looks a lot different than its peers, that’s a red flag.” 5. High fees — Investors often choose depending on what their returns could look like after factoring in fees. “Managers who have to cope with higher expense ratios have added pressure because they start the race behind everyone else. When you’re already behind, it’s extremely tempting to take on more risk in order to just keep up.”
Stocks have had a great run up this year, but many are expecting a melt-up. But Liz Ann Sonders at Charles Schwab thinks there is still room for stocks to go higher. “Deservedly, much attention was given to the “lost decade” that was evident at the lows in 2009. From that low looking back 10 years investors had lost money; a rare occurrence last seen coming out of the Great Depression in the 1930s.
“But notice the long-term pattern of this chart. Investors don’t spend a lot of time hanging around the mean line, but instead the market tends to trend in one direction for multi decades (well-overshooting the mean) before heading back down to well-undershoot the mean. Being less than five years into the upcycle, history suggests we have more room to run.”
The SEC has announced charges against Houston-based Parallax Investments LLC and Tri-Star Advisors, and three executives for “engineering thousands of principal transactions through their affiliated brokerage firm without informing their clients.” The SEC also charged Parallax and its chief compliance officer F. Robert Falkenberg “with violations of the “custody rule” that requires firms to meet certain standards when maintaining custody of client funds or securities.”
Men are more confident about being prepared for retirement, than women, according to a survey by TIAA-CREF. 56% of women said they were confident about saving for retirement, compared with 65% of men. About 50% of the women surveyed said they wanted financial advice that was created by women.
Here’s SocGen’s Famous Chart With The Black Swans (Societe Generale)
Every quarter Societe Generale publishes its black swan chart, which highlights key risks, which though unlikely could be a huge blow to markets. For 2014, this key risk seems to be a replay of the 1994 bond market sell-off.
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