What Have You Done Lately?

December 22, 2011

How rational is this behavior on the part of investors?

[Bill] Gross is known as the bond king and has been likened to both Peter Lynch and Warren Buffett. That’s how good he’s been at buying and selling bonds over the years. But earlier this year he made a big bet that interest rates would rise, and when rates fell instead his fund began to lag badly.

The fund is up less than 4% this year, about half the gain of the average comparable bond fund in what has been a good year for most bond investors. In the bond world, where yields typically drive returns, such underperformance is epic. Gross ranks in the bottom 10% of bond fund managers this year.

His long-term record remains stellar. But in a what-have-you-done-lately world, investors have begun to exit his fund. Last month, his fund had net outflows of $500 million as the universe of comparable funds enjoyed net inflows of more than $10 billion. Gross likely will record his first calendar year of net outflows when 2011 draws to a close. His fund was launched in 1987.

HT: Real Clear Markets, Time

1 Comment | Investor Behavior | Permalink
Posted by Andy Hyer

Japan: Prepare For The Unthinkable

December 22, 2011

Not that it could implode (everyone expects that), but that it might be a great buy. Brett Arends writes:

The moment you read the word Japan, I’ll bet your eyes glazed over. I’ll bet you thought about flipping the page to see if there was something more interesting elsewhere in this month’s issue — on Greek bonds, maybe, or Apple. (Or gold?) You’re not alone. No one wants to hear about Japan. Fund managers have lost money on Japanese shares every year they can remember, except 2005. Tokyo has been in a bear market for 20 years — about as long as commodities were.

How are the mighty fallen! Twenty-two years ago, Japanese stocks accounted for nearly half the value of the world’s stock markets. The land occupied by the Imperial Palace in Tokyo was valued more highly than all of California. The Japanese were conquering the world. No one could stand in their path.

Today, according to FactSet, Tokyo’s share of global stock values is down to 7.5 percent, the smallest it’s been in decades.

His article then makes the case for Japan being a good value:

Most important of all, the stock market is cheap. Possibly very cheap — at a time when nearly everything else looks pricey. The Nikkei 225, Japan’s major stock market index, trades at just 10 times forecast earnings. The dividend yield is up to 2.3 percent — a hefty amount in a country with zero inflation.

Japanese equities today trade for half of annual revenues, according to FactSet. (The figure for the U.S.: 1.2 times revenues.) And they trade for less than book value, while U.S. stocks trade for twice book.

We all know that good values can become even better values, so that alone shouldn’t justify buying Japan. However, I think it is an interesting exercise to take an absolutely hated investment (Japan in this case) and ask yourself if your investment process is flexible enough to capitalize on a change in a long-term trend.

One way to see if Japan’s apparently attractive valuations translate into strong relative strength is to watch the amount of exposure given to Japan in the PowerShares DWA Developed Markets Technical Leaders Portfolio (PIZ):

Source: PowerShares, PIZ

While the current exposure to Japanese equities in PIZ is less than the weight given to Japan in the MSCI EAFE Index (21.58%), Japanese exposure has increased from the 4% weight in PIZ at the beginning of 2011 to its current weight of 11.51%.

Please see www.powershares.com for more information about PIZ.

Leave a Comment » | Markets, Tactical Asset Alloc, Thought Process | Permalink
Posted by Andy Hyer

Fore!

December 22, 2011

Further evidence that money goes where it is treated best comes from the Wall Street Journal:

…Vietnamese see golf rather differently: as a way to hold on to their money after years of booms and busts.

With property prices sliding and the local stock market in free fall, some people here are investing in golf club memberships in a last-ditch bid to protect their savings from being ravaged by soaring inflation and a fading currency.

Prices for club memberships around Hanoi have risen from around $6,000 in 2004 to roughly $30,000 now, with some of the plushest, complete with swimming pools, villas and tennis courts, reaching $130,000. That’s not as expensive as top clubs in Japan or Singapore, but it is still a large slice of change in a country where the average income is around $1,200 a year.

“Buying a membership is better than putting cash in the bank, better than putting it in the stock market, and better than putting it into gold,” said Do Dinh Thuy, a 48-year-old management consultant, amid the steady thwack of balls being driven out onto a local range here in Hanoi’s suburbs. He recently bought a third membership, “and that one’s not for playing—it’s for investment.”

When nothing else is working and you can’t get capital out of the country, apparently even golf memberships can be viewed as a store of value. Supply and demand is an amazing thing. It seems the value of golf memberships is soaring because the Communist Party leaders are restricting new courses in the name of national interest.

Leave a Comment » | Investor Behavior, Markets, Thought Process | Permalink
Posted by Mike Moody

From One Who Knows

December 22, 2011

MarketWatch’s Chuck Jaffe:

Years of working in the media have convinced me that a large measure of market talk about “what moved the market today” is hogwash. Truthfully, if the market moves by a percentage point or two on any given day, most pundits are taking nothing more than an educated guess as to what caused the move. They know their thinking —right or wrong — will be largely forgotten the next day, when there will be another opportunity to say something that sounds smart (thereby making the investment firm sound smart, no matter how accurate the information).

Thankfully, there are better alternatives to investing based on the daily opinions of journalists.

Leave a Comment » | Media | Permalink
Posted by Andy Hyer

Fund Flows

December 22, 2011

The Investment Company Institute is the national association of U.S. investment companies, including mutual funds, closed-end funds, exchange-traded funds (ETFs), and unit investment trusts (UITs). Members of ICI manage total assets of $11.82 trillion and serve nearly 90 million shareholders. Flow estimates are derived from data collected covering more than 95 percent of industry assets and are adjusted to represent industry totals.

Leave a Comment » | Markets | Permalink
Posted by Andy Hyer