XLB

The Wisdom of Oaktree’s Howard Marks

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Image Source: emmolos The latest memo from Oaktree’s Howard Marks here should be read and then read again. The section on passive investing is an absolute treasure. “Passive investing is done in vehicles that make no judgments about the soundness of companies and the fairness of prices.  More than $1 billion is flowing daily to “passive managers” (there’s an oxymoron for you) who buy regardless of price.  I’ve always viewed index funds as “freeloaders” who make use of the consensus decisions of active investors for free.  How comfortable can investors be these days, now that fewer and fewer active decisions are being made?” — Howard Marks, Oaktree Capital Financial Tech Services: ACIW, EPAY, FDC, FIS, FISV, FLT, GPN, MA, MELI, … Read more

Adviser Fees on Indexed Assets Can Eat Up Your Nest Egg?

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Indexing sounds like an easy way to track the market’s performance, but if your indexed assets are held in financial advisors’ accounts, it can come with a big cost: significant underperformance. Over 20 years, we estimate in this hypothetical example that the cumulative cost as a result of a 1% annual financial advisor fee on indexed assets can amount to as much as 66% of a saver’s initial investment — just for holding an index fund. Please be careful out there!

Systemic Risk in These Frothy Times

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Let’s talk about index investing, market valuations, and mention how a few ideas in the Best Ideas Newsletter are doing. By Brian Nelson, CFA For most investors during most parts of the economic cycle, index investing (VOO), or holding a broad basket of stocks that approximate the returns of a large market index may make a lot of sense. I have always said this from the very beginning: Individual stock selection is not for everyone. What may not be well-known, however, is that index funds have experienced multi-year periods of both outperformance and underperformance relative to actively-managed funds since the dawning of the very first index fund many decades ago. I’m worried that some investors today may not have this … Read more

Image: Returns Following the Trump Victory

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To download the table for easier viewing, please select the link . Financials: Trump’s Treasury Secretary choice Steven Mnuchin wants to repeal most of the burdensome Dodd-Frank legislation. A steepening yield curve is helping banks and may drive improved net interest margins in coming periods. Goldman Sachs is ripping higher, leading the Dow’s charge.   Crude Oil: The world is moving to a better balance in supply/demand dynamics in the energy markets. OPEC is talking, has agreed to cuts, and expectations for improved economic growth are helping energy resource pricing. High-beta companies such as Continental Resources are rallying hard.   Energy: Capital spending cuts are bolstering free cash flow in the upstream space as energy resource pricing improves. Reduced regulations could help … Read more

Pop the Bubbly? Everyone Is Getting Rich

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Image Source: Bryan Rosengrant “Imagine a bank that pays negative interest. In this upside-down world, borrowers get paid and savers penalized. Crazy as it sounds, several of Europe’s central banks cut key interest rates below zero in 2014, and now Japan has followed…some 500 million people in a quarter of the world economy (are) living with rates in the red.” — Bloomberg By Brian Nelson, CFA In April 1979, Paul Volcker became the Chairman of the Federal Reserve, and after a series of rate hikes, the federal funds rate reached a high of 20 points by the end of the year and into 1980. Though the move was to combat double-digit inflation at the time, it’s worth pondering what such … Read more

The Market – On Its Head

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By Brian Nelson, CFA The sector/theme returns have almost been turned on their head as some of the worst performers in the first few weeks of 2016, namely materials (XLB), energy MLPs (AMLP, AMZ), and energy (XLE), have transformed into leaders through the latest data update, April 21. As we outlined in “Alerts: Adding More High-Quality Exposure, (April 2016)” the dividend “track record” growth craze is on, in our view, and yield-rich exposures from utilities (XLU) to the dividend-growth focus itself (SDY) have rallied more than 9% in the year thus far. The metals gold (GLD) and silver (SLV) have also proved to be good trades out of the gates thus far in 2016, up ~18% and 23%, respectively, though … Read more

What’s Working in Today’s Market?

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By Brian Nelson, CFA As emerging markets around the world suffer from commodity-price-led economic weakness, capital continues to find a safe-haven in US government bonds (TLT, TBT), but for those equity-oriented funds that mandate a fully-invested status, not something we’re particularly advocates of, assets within US equities have favored “lower-beta” utilities (XLU) and consumer staples (XLP) sectors while cyclically-dependent and credit-levered sectors such as the financials (XLF) and materials (XLB) have suffered thus far in 2016. The industrials (XLI) and energy (XLE) sectors have also encountered higher-than-normal selling pressure in the first few weeks of the New Year, as investors evaluate the global economic landscape and what a prolonged period of low energy prices may mean for the lowest quality … Read more

Moody’s Puts Oil & Gas and Mining Sectors on Review

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By Kris Rosemann On January 22, Moody’s placed 120 oil and gas companies (XLE) from across the globe on review for a credit rating downgrade. The list ranges from massive global producers such as Royal Dutch Shell (RDS.A, RDS.B) and Total (TOT) to nearly 70 US exploration and production and services (“E&P”) companies. It also includes 55 mining companies (XLB) that have been punished by the recent rout in commodity prices. Alcoa (AA), Rio Tinto (RIO) and Vale (VALE) are a few notables that made the list for a potential downgrade. The news is not completely unexpected, however, and may likely be a response to several executive teams pointing to legacy (outdated) counterparty/customer ratings as reasons to not be concerned … Read more

BHP or Rio Tinto? Is That the Right Question?

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Dr. Copper is speaking, and we don’t like what he’s saying. For those long-tenured market participants, a look at the copper markets (JJC, CPER, CUPM) generally provides insight into the health of the global economy. Copper is used in just about everything related to construction and manufacturing, and the price of the metal signals the relationship between its supply and demand. A strong copper price, therefore, indicates that demand for the metal is healthy, and that in most cases and by extension, the general economy is healthy as well. What we are witnessing in the copper markets, however, is something else, and on a high level, no different than the shellacking the crude oil markets have been experiencing in recent … Read more