Tim Maverick, Senior Correspondent As The Wall Street Journal recently pointed out, both the S&P 500 Index and the Dow Industrial Average have not hit a new high in over a year. In fact, the stock market averages are little changed from the levels of late 2014 – not a shock, considering U.S. companies have been in an earnings recession for almost the same length of time. Investors are beginning to lose their patience with this stagnant stock market. Through the week of May 11, 2016, they’ve pulled $67.7 billion from U.S. equity mutual funds and exchange-traded funds (ETFs) in 2016, alone. For a market observer, like myself, this stuck-in-the-mud market status doesn’t come as a surprise. Just look at the history behind these dangerous stagnant periods. Muddy Market History According to the Bespoke Investment Group, this will mark the 21st time, since 1930, that the market has gone a year without making a new high. This is one of those dirty little secrets kept under lock and key by brokers and CNBC, alike. The stock market, on occasion, has gone through long periods without making any headway: Thanks to the Great Depression, the market levels of 1929 were not seen again until 1954. The 1970s were no picnic, either, thanks to the oil shock and rampant inflation. In January 1966, the Dow hit the 990 mark, a level that it did not re-visit until 1982. More recently, the Nasdaq hit a closing record of 5048.62 on March 10, 2000. It took another 15 years, in April 2015, for the market to surpass those numbers. While I don’t expect a long-term drought like these earlier periods for the current stock market, history proves that, in times like these, the S&P 500 Index funds are not a reliable path along which to set your hard-earned money. Can you afford to have your money just lying around for a decade or more, only to come up earning nothing? The only reason these funds’ recent history looks remotely positive is due to the flood of central bank liquidity since the financial crisis has floated big-cap boats. Even a casual examination of global markets shows that the central bank actions are losing their punch. And, despite all the liquidity, big cap stocks have been merely treading water since late 2014. Staying Afloat So what can investors do? It’s crucial to find the right investments – as shelter from the storm of earnings recession and rich valuations well above the 10-year average – that still offer some upside and keep your money working. The best place for earnings continues to be the bond market. An undeniable fact is: Thanks to zany central bank policies, there are, globally, nearly $10 trillion in government bonds that trade with a negative yield. That fact will – despite whatever the Fed may or may not do – keep a firm bid under U.S. Treasuries. With my forecast of a 1% yield on 10-year Treasuries within a year, the iShares 20+Year Treasury Bond ETF (NYSEARCA: TLT ) looks very appealing. Further, with the European Central Bank starting its corporate bond buying binge later this month, the Powershares International Corporate Bond Portfolio ETF (NYSEARCA: PICB ) also looks like a winner. This ETF has more than a 50% exposure to European corporate bonds. It’s also important to note that periods of poor stock market returns tend to coincide with strong performances in gold and silver. As pointed out by my Wall Street Daily colleague, Jonathan Rodriguez: gold seems to have broken out on a technical basis. I would play gold through the VanEck Merk Gold Trust ETF (NYSEARCA: OUNZ ), which allows investors to actually convert their holdings into physical gold, if they wish. Thus, this investment can become tangible and, therefore, even more reliable. However, the best way to play stocks, currently, is to stick with the dividend payers. One ETF to grab dividends globally is the WisdomTree Global Equity Income ETF (NYSEARCA: DEW ), which is up about 3% this year in addition to paying quarterly dividends. U.S. stocks make up roughly 55% of the portfolio, led by well-known names like General Electric Company (NYSE: GE ), Exxon Mobil Corporation (NYSE: XOM ) and Johnson & Johnson (NYSE: JNJ ). The returns from the funds I’ve mentioned project steady gains and I believe they will easily outpace stagnant S&P 500 funds.
We have been discussing for weeks the effects of globalization on all economies, financial markets, companies and money managers. Last week I listened to the speakers at the Sky Bridge Alternatives Conference in Las Vegas talk about the demise of the hedge fund industry. I say: Instead of dwelling on the past, let’s look at what is needed today to be a successful money manager regardless of asset class. In this article I will look at the mindsets and beliefs of a successful money manager. In the next article, I will examine the skill set and track record necessary to successfully manage money. Then in a third article, I will discuss the personal attributes necessary in the character of a successful money manager. In order to be successful, a money manager must have the right mindset and system of beliefs. To be specific, a successful money manager must: Have core beliefs that can be articulated and supported by the facts. You do not want a manager who reacts to every piece of news and trades out of his positions. Look for someone who gathers all the data; understands the inter-relationships between all markets utilizing a systematic approach; reflects and pauses before reacting; considers first the proper asset allocation with risk controls; and finally does in-depth independent research on each investment Think long term. Stop thinking as a trader. You cannot be overly concerned about daily performance, because in fact, it will impact/jeopardize your long-term returns. Market psychology is such that investors like the idea of buying low and selling high but unfortunately act in reverse. It is ironic that hedge funds were so hot after 2008 when risk management and protecting assets were the major emphasis but are so cold now as hedge funds have under-performed in an historic 7-year up market. Think globally regardless of asset class and have a holistic perspective. Linear thinkers who trade rather than invest unfortunately dominate the markets causing excessive volatility and confusion. Have cardinal rules for investing that can be applied to all economic environments, asset classes, regions, industries and companies. Think like a master chess player focusing both three or four moves down the board while contemplating the very next move. Be good for all seasons, which means protecting assets in down markets, performing reasonably well in up markets, therefore outperforming over market cycles. This is the mindset a money manager must have to be successful. He must think globally and long-term. In my next article, I will discuss the skill set of a successful money manager and also offer advice about what the track record of a manager you hire should be. Invest Accordingly!
Retail earnings in the first-quarter earnings season and retail sales data for April were completely diverging, with the former mauling investor sentiment and the latter ushering in sweet surprises. The reason for this deviation was disappointing results from several traditional brick-and-mortar operators, while web-based shopping surged. In a nutshell, consumers’ purchasing pattern is changing. Department stores like Macy’s (NYSE: M ), Kohl’s (NYSE: KSS ), J.C. Penney (NYSE: JCP ), Nordstrom (NYSE: JWN ) and many others soured investor mood this earnings season. With this, while many started to wonder if consumers are running short of cash and doubt economic well-being, a 1.3% jump in retail sales (sequentially) in April cleared all misconceptions. As per Trading Economics , sales growth was witnessed in 11 out of the 13 major categories. Sales at motor vehicle and parts (up 3.2%), gasoline stations (2.2%) and non-store retailers (2.1%) were the major growth drivers. In fact, April retail sales beat economists’ forecast of a 0.8% rise . Online Retailers Crushing Earnings Estimates The online e-commerce behemoth Amazon (NASDAQ: AMZN ) came up with stellar Q1 results. The company trumped the Zacks Consensus Estimate on both lies by wide margins. Higher-than-expected results were credited to increased demand for quick-turnaround delivery and gadgets like the Kindle and Echo as well as a fast-growing cloud computing business. Another top player in this field, eBay Inc. (NASDAQ: EBAY ), beat on both lines. In fact, the company partnered with BigCommerce to benefit online retailers. Chinese e-commerce giant Alibaba Group’s (NYSE: BABA ) revenues came in higher than our estimate, though profitability was a letdown. This clearly explains online-retailers’ edge over the mall-based retailers. Inside the Rise of Online Retailers As of now, online retail sales make up one-tenth of total retail and about 5% of annual e-commerce revenue in the U.S. The space is developing fast with the increased usage of smartphones and other mobile Internet devices. As per Statista , in 2013, 41.3% of global internet users had purchased products online; the figure is expected to grow to 46.4% by 2017. More than the U.S., the real growth opportunities lay in the underpenetrated emerging markets. Forget Retail, Be Bullish on Online Retail This situation makes it crucial to have a pure-play online ETF. Amplify Exchange Traded Funds thus launched a new product, namely the Amplify Online Retail ETF (NASDAQ: IBUY ), about a month ago. Except this, it is hard to get targeted exposure to online retail. But several consumer discretionary and internet funds serve this idea to a large extent. Below, we highlight all of them in detail. IBUY in Focus This new fund holds about 44 stocks and charges 65 bps in fees. The fund is heavy on the U.S. (75%), followed by China (8%). The fund’s top three holdings are Overstock.com (NASDAQ: OSTK ), Del and Wayfair (NYSE: W ). No stock accounts for more than 3.39% of the portfolio. Emerging Markets Internet & Ecommerce ETF (NYSEARCA: EMQQ ) The fund gives exposure to the internet and ecommerce sectors of emerging economies. Its top three holdings are Tencent ( OTCPK:TCEHY ) (8.47%), Alibaba (8.36%) and Naspers ( OTCPK:NPSNY ) (6.8%). The fund charges about 86 bps in fees. Since Goldman sees a boom in the Chinese internet segment, this ETF is worth a look given its notable exposure to the Chinese e-commerce segment. Apart from these two, investors can also look at the First Trust Dow Jones Internet Index ETF (NYSEARCA: FDN ), with considerable exposure on Amazon (11.93%) and eBay (3.69%). Among the broad retail ETFs, the VanEck Vectors Retail ETF (NYSEARCA: RTH ) deserves a look, as it invests about 15.43% weight in Amazon. Original Post