Tag Archives: alternative

Should REIT Investors Only Use A Buy And Hold Strategy?

Using REITs as an example I respect Brad’s expertise and experience in identifying the better choices of long-term, income-growth REITs. I have no such credentials. So I took his choices as listed in his report, and only included those where my special information could contribute. What I bring to the party is the daily updated next few months’ price range forecasts of market-makers [MMs] for over 2,500 widely-held and actively-traded equities, including hundreds of REITs. Their forecasts are derived from their hedging actions (real money bets) taken to protect firm capital required to balance buyers with sellers in filling volume block trade orders of billion-$ fund management clients who are adjusting portfolio holdings. Those forecasts are forward-looking additions to the reward/risk challenge, providing explicit downside price exposure prospects, as well as comparable upside gain potentials. Conventional risk/reward evaluations usually are based on only one forward-looking dimension: EPS and its growth potential. Everything else is drawn from history. Past P/E ratios and past price behaviors. Worse yet, the downside guess is typically a symmetrical measure (standard deviation) of price change, including upside differences from a mean value as well as downside ones. And the longer-term historical periods measured assume that neither the size of the variances nor their upside to downside balance varies over the time period. The assumption is that “risk” is static. Do today’s market prospects look like they did six months ago? Or a year ago? We also use history as a guide. But we try to make more sensible comparisons, because we have the information at hand to do so. We can look to the history we have collected live as the market has evolved daily in the past 15+ years since Y2K. We know what was being estimated by those arguably best-informed pros in the market, in terms of their stock-by-stock, day-by-day real money self-protecting actions. Real behavioral analysis of folks doing the most probable “right” things, not everyday man making errors of perception. We look to see how prices actually changed following prior forecasts that had upside-to-downside balances like those being seen today. And recognizing that today’s competitive scene continues to evolve, we limit our look back to the most recent five years, 1,261 market days. How that looks for this sample of REITs Click to enlarge This table has columns of holding periods following the date each forecast was made, increasing cumulatively up to 16 weeks of five market days. It has rows showing the annual rates of change (CAGRs) in each of the holding periods, for the forecasts counted in the #BUYS column. Those forecasts are a total in the blue 1: 1 row, so they are the average of the several REITs. The row above the blue row includes about half of the total sample, counting all forecasts where the upside prospect was twice the downside, or better. The next higher row includes only those forecasts where the upside was three times the downside. That process continues to the top row where only the forecasts that had huge positive upside balances, or had no downside at all, existed. The bottom half of the table below the blue row is just the inverse of the top half. In some ways, it is the more interesting part of the table. It shows that for these REITs the MMs pretty well identified the points in time where price problems were upcoming. It also shows that those issues would eventually recover, and at a later date probably be part of the forecasts shown in the upper half of the table. It also justifies the notion that if time is not a problem for the investor (he/she has adequate financial resources to deal with current retirement needs or sufficient time remaining before retirement to get there), then buy and hold works for them as a strategy in these cases. But if time is closing (or has closed) in on the retiree, then an active investment strategy of moving away from troubled REITs and into more favorably positioned ones can provide capital gains, along with the payout income of the alternative. It takes work and attention that is not required with B&H. But the CAGRs that can be added are not trivial. The REIT illustration has broader application Brad makes a strong case that, focused as he is on REITs, they should make up only a minor part of the investor’s portfolio. The table he uses from asset manager 7Twelve, showing year-by-year returns for various asset groups is instructive. Here is a copy of that table: Click to enlarge It has to be enlarged to be readable, but it is worth the effort. The yellow-highlighted years of best asset performance HOLLER * for attention to active asset-class portfolio management if you expect to beat the “market” average. The simple arithmetic average of the best asset gains each year was +31% and the worst averaged -14%. What typically is taken as the “market” average year was +5% simple, but the CAGR for the S&P 500 over the 15 years is about zero. *(A little Maine human: I had an Uncle who sometimes referred to advertising “written in letters large enough that you had to holler to read ’em”). Robyn Conti’s survey of investors in retirement showed that only 55% of them had over $200,000 portfolios. Of that 55, 31% had over $1 million. Some 5% admitted to less than $200,000 and the other 40% may have none. Trying to live better than social security and what a 401(k) plan may provide is pretty tough from even an 11% yield on $200,000 if it all was in REITs at the above table’s average. But as Brad makes clear to all nest featherers, we should use several baskets. Trouble is, the varied asset classes all present active-management alternatives if you have the insights. Here is how the Dow Jones stocks have fared over the past five years, based on MM forecasts: Click to enlarge Clearly, over the last five years, there have been hundreds of instances in these 30 stocks where substantial lasting capital gain advantages could be had, and as many or more where major capital calamities could be avoided. And these are the most closely watched stocks. Bigger and more frequent increments are being offered regularly elsewhere. Conclusion For many retirees, (the 31% in Robyn Conti’s survey with over $1 million portfolios and some of the 24% slightly less well-heeled), where REIT investments are concerned, buy and hold is a well-earned and satisfying strategy. But both her report and Brad Thomas’ advice open the consideration of earning more comforting resource reserves by the investor taking an active part in building and maintaining a more rapidly growing portfolio. We are particularly sensitive to the problems of those within 15 years of retirement who, by buy and holding SPY or similar market-average investment, may have lost any opportunity for growth over the last 15 years. They probably can’t afford to repeat that experience without a love for a future greeter role at the local Wal-Mart.

The 60/40 Portfolio Is Dead; Here Is Its Replacement

The following is a proposal I put together for a new client: Click to enlarge As you can see, we do things a little differently around here. Traditional stocks make up less than 40% of the portfolio, with the rest sitting in non-correlated assets outside of the stock market. We invest in everything from options-writing funds to medical accounts receivables and everything in between. The result is that we get most of the safety you would expect from a 60/40 stock/bond portfolio but without the loss of expected return. Our goal is to give you stock-like returns with the risk profile of a blended portfolio. Why Invest in Alternatives? You probably have a good grasp of why diversification is important. Throwing out the financial jargon, it essentially boils down to not putting all of your eggs in one basket. But it also gets a lot more sophisticated than that. Many investors feel that they have adequate diversification because their assets are spread across several stocks or mutual funds. And to an extent, they are right. Owning multiple stocks reduces the risk of downside from any single position. But there is also a major problem with this: Correlation. If Apple (NASDAQ: AAPL ) and Microsoft (NASDAQ: MSFT ) stock prices move together in lockstep, you’re not really getting much in the way of diversification by owning both. And in a real bear market, virtually all stocks drop together. True diversification means owning assets that do not move together. Investment A can go up, down or sideways, and it should have little or no impact on Investment B. This is where the beauty of an alternative portfolio comes into play. We can achieve “stock like” returns in the range of 7%-10% per year without the volatility that comes with stocks. Why the 60/40 Portfolio is Dead Alternative assets weren’t particularly popular in 1980. There is a reason for that. Back then, traditional bonds offered a respectable return. A blended 60/40 portfolio of stocks and bonds offered a solid expected return. Flash forward to present day. At current bond yields, investors will be lucky to get a 2% return in bonds. And compounding the situation, stocks are also expensive by historical measures and priced to deliver sub-par returns. Click to enlarge Accepting a traditional asset allocation is accepting disappointing returns in the years ahead. If you want better performance, we need to look elsewhere. Introducing the New 60/40 Portfolio Sizemore Capital Management custom builds portfolios based on the client’s preferences and eligibility. The following is a sample allocation: Click to enlarge With the market looking overpriced and expected to deliver below-average returns, we need better alternatives. And thankfully, we have them. The following represent Sizemore Capital Management’s expected returns of the assorted asset classes in our model: Click to enlarge We should be clear that these are only estimates. Realized returns will vary and may be significantly higher or lower. But based on current valuations and historical performance, we consider these estimates reasonable. We’re Not Alone While ordinary investors have traditionally invested in stocks, bonds and CDs, wealthy investors and institutions have always had a broader allocation. Consider the case of the Harvard University endowment fund. As of 2015, the Harvard endowment fund had only 3% of its funds in stocks. It has another 18% in private equity and 12% in real estate. The rest is spread across everything from timberland to absolute returns hedge funds. Let’s stop and ask an obvious question: If it’s good for trustees of Harvard, would it not also be good for you? Source: Harvard Endowment Allocation Not all of the alternative investments discussed will be appropriate for all investors. But we believe strongly that every investor can benefit from a proper allocation to alternative investments. Disclaimer: This article is for informational purposes only and should not be considered specific investment advice or as a solicitation to buy or sell any securities. Sizemore Capital personnel and clients will often have an interest in the securities mentioned. There is risk in any investment in traded securities, and all Sizemore Capital investment strategies have the possibility of loss. Past performance is no guarantee of future results. Original Post

Castlemaine Debuts 5 New Alternative Mutual Funds

Castlemaine Funds is looking to make a big splash in the liquid alts world in 2016 and beyond. Just less than three months after filing paperwork for its first quintet of alternative mutual funds , and clearly undeterred by some high profile fund closures , the firm simultaneously launched all five funds in the final week of December, just in time to ring in the New Year: New Firm, One Portfolio Manager and Five Funds Castlemaine LLC, the investment advisor to each fund, is based in New York City and was formed in 2015. The firm’s Chief Investment Officer and Chief Compliance Officer, Alfredo Viegas, is going to be a busy man. He is the sole portfolio manager for all five funds, each of which employs a different alternative investment strategy. Four of the five funds appear to be making direct investments in securities and building alternative investment portfolios, while the fifth (the Multi-Strategy Fund) invests in a collection of other funds. The Emerging Markets Opportunity Fund seeks high total returns with a secondary goal of generating investment income. Its investments include both long and short positions in equity and debt securities from issuers based in emerging-market countries or countries (such as Hong Kong and Singapore) with economies tied to emerging markets. Castlemaine’s Event Driven Fund pursues an objectives of capital appreciation by taking both long and short positions in equity securities, such as shares of stock and ETFs. The fund focuses on corporate events, such as mergers and bankruptcies, and combines its long/short equity positions with an options-trading strategy and up to 130% leverage. The Long/Short Fund also pursues an objectives of capital appreciation by taking both long and short positions in equity securities and ETFs. The fund invests in both U.S. and non-U.S. equities, and may also use up to 130% leverage, although it will generally fluctuate between 50% and 80% net-long exposure. The Castlemaine Market Neutral Fund invests in stocks, bonds, and options, with the primary and secondary objectives of total return and income generation, respectively. Its long and short positions are designed to cancel one another out on a net basis, providing “market neutral” exposure. And finally, the Castlemaine Multi-Strategy Fund operates as a “fund of funds” across a variety of alternative strategies, including those employed by both affiliated and unaffiliated funds. The fund uses Castlemaine’s “dynamic asset allocation” process in pursuit of optimal diversification and portfolio weightings that reflect prevailing market conditions. The Multi-Strategy Fund will allocate its assets to the following investment strategies: Long/Short Equity Event Driven Market Neutral Emerging Markets Long/Short Macro-Risk Parity Global Macro Unconstrained Bonds Managed Futures Convertible Arbitrage Capital Structure Arbitrage All five funds carry an investment management fee of 1.24%, and each is currently offered in a single share class. For more information, read the shared prospectus of all five funds . Jason Seagraves contributed to this article.