Tag Archives: income

Best And Worst Of January: Nontraditional Bond Funds

Nontraditional bond mutual funds and ETFs had a tough month in January, losing 1.13% on average. This extended the category’s one-year losses through January 31 to -2.57%, consisting of -2.76% alpha and a -0.47 beta, relative to the Barclays US Aggregate Bond Total Return USD Index. Mutual funds and ETFs in the category averaged a -0.66 Sharpe ratio for the year ending January 31, with volatility of 3.53%. The nontraditional bond fund category is a mixed bag of long/short credit funds, non-traditional income funds and unconstrained bond funds. In total, there are 150 funds (only 63 have a track record of 3 years or more) in the category and $129.3 billion of assets. Below is a look at the top and bottom performers for January. Top Performers in January The three best-performing nontraditional bond funds in January were: Navigator Tactical Fixed Income Fund A (MUTF: NTBAX ) BTS Tactical Fixed Income Fund A (MUTF: BTFAX ) Counterpoint Tactical Income Fund A (MUTF: CPATX ) NTBAX was the top-performing nontraditional bond fund in January, posting gains of 2.38%. This was enough to push the fund’s one-year returns through January 31 into the black, at +0.34%. These returns consisted of 0.49% alpha and a 0.76 beta, yielding a Sharpe ratio of 0.09 with standard deviation (volatility) of 3.90%. BTFAX ranked second for the month, with gains of 2.00%. Its one-year returns, however, remained in the red at -0.16%, with -0.02% alpha and a 0.65 beta. BFTAX’s one-year Sharpe ratio stood at -0.04 through January 31, with annualized volatility of 4.15%. Finally, CPATX was the month’s third-best performing nontraditional bond fund in January, with gains of 1.31%. Its 12-month returns through January 31 stood at +2.10%, with 2.09% of alpha and a low 0.15 beta. CPTAX’s Sharpe ratio of 0.60 was by far the best of any fund reviewed this month, and its 3.41% volatility was the lowest. Bottom Performers in January The three worst-performing nontraditional bond funds in January were: Driehaus Select Credit Fund (MUTF: DRSLX ) Putnam Diversified Income Trust A (MUTF: PDINX ) Altegris Fixed Income Long Short Fund A (MUTF: FXDAX ) FXDAX was January’s worst-performing nontraditional bond fund, with its shares falling 5.17% for the month. Through January 31, FXDAX’s one-year returns stood at -9.82%, consisting of -10.50% alpha and a -1.59 beta. This gave the fund a one-year Sharpe ratio of -1.60, with annualized volatility of 6.33%. PDINX, the month’s second-worst performer at -4.83%, also had bad-looking one-year numbers. Its losses of 5.47% were made up of -5.86% alpha and a -2.05 beta, yielding a -0.76 Sharpe ratio and 7.15% volatility. Although it outperformed FXDAX and PDINX in January, DRSLX looked worst of all over the year ending January 31. In those 12 months, the fund lost 11.18%, with -11.97% alpha and a -1.55 beta. Its one-year Sharpe ratio stood at -1.70, and its annual volatility was 6.85%. Even over three- and five-year terms, DRSLX was down an annualized 4.58% and 1.66%, respectively. Past performance does not necessarily predict future results. Jason Seagraves contributed to this article. Note: The MPT benchmark used for the above calculations was the Barclays US Aggregate Bond Total Return USD Index.

Are Stocks Cheap Now? Get GAAP If You Want To Get Real

The times they are a changin’. In the ’80s as well as the ’90s, corporations reported quarterly results that corresponded to generally accepted accounting principles (GAAP). These days, the vast majority of companies report “pro-forma” earnings that adjust for unusual, special or one-time circumstances. Take a look at the dramatic rise in the percentage of companies serving up adjusted profits per share rather than GAAP-based results. In June of 2010, 70% provided adjusted earnings. However, as the pressure to engineer gains in bottom-line profitability has mounted, more and more corporations have resorted to non-GAAP reporting. Roughly 90% of companies felt the need to manipulate their presentations to the public by June of 2015. Not a big deal, you say? The S&P 500 SPDR Trust ETF (NYSEARCA: SPY ) trading at 193.75 represents a price-to-earnings (P/E) ratio of roughly 16.5 only if you incorporate pro-forma earnings. If you are inclined to employ GAAP earnings – the less manipulated version of reported earnings – the P/E moves up to approximately 21.5. In other words, even with the S&P 500 close to 200 points below its high-water mark, stocks are not exactly the cellar-dwelling bargain that a value investor craves. In truth, S&P 500 earnings peaked in 2014. You wouldn’t know it from a year-by-year presentation of pro forma/adjusted results alone. You might have believed that S&P 500 earnings rose form $60 per share in 2009 to $120 per share in 2014, and that they merely took a breather in 2015 by holding steady near $120 per share. Unfortunately, you’d have been misinformed. A side-by-side visual comparison with GAAP S&P 500 earnings demonstrates how earnings hit their pinnacle near $100 per share in 2014; meanwhile, there has been a 12.7% erosion to nearly $90 per share in 2015. Earnings per share haven’t fallen that hard since the systemic financial collapse year of 2008. And that’s not all. There is always a discrepancy between GAAP and adjusted pro forma where adjusted results are going to look better than GAAP. And if the discrepancy is not so egregious, maybe one might be willing to overlook it. In fact, studies conducted with chief financial officers will tell you that the magnitude of chicanery is in the realm of 10% of earnings per share. That is about the average spread across the five year period between 2009 and 2013. In 2014, it’s closer to 20%. In 2015? GAAP is now about 25% lower than adjusted pro forma results. That 25% differential is the widest discrepancy since… well, you guessed it… 2008 . The earnings contraction that began in the 3rd quarter of 2014 is unlikely to turn around quickly. One question that an investor who is allocating his assets in the current environment – economic, fundamental, technical, interest rate policy – is whether or not lower interest rates alone justify paying exorbitant stock premiums. Since earnings peaked on 9/30/2014, the low yielding iShares 7-10 Year Treasury Bond ETF (NYSEARCA: IEF ) has outperformed SPY. The deterioration in earnings has coincided with the relative strength of IEF over SPY. And at present, IEF is in a technical uptrend whereas SPY is in a technical downtrend. Earnings contraction, then, is dovetailing with technical price movement – price movement that has not supported the notion of acquiring expensive stocks on the basis of low rates alone. Perhaps an extremely bullish stock advocate should look for a tailwind from economic data. Sadly, he/she is unlikely to find it. Wednesday’s reading for February’s U.S. service sector came it at its lowest level in two-and-a-half years. In fact, the flash PMI services index came it at 49.8; a reading below 50 represents is indicative of contraction, not expansion. What we may be seeing, then, is the high probability that U.S. consumption is not immune to the domestic manufacturing recession or economic woes the world over. In spite of gasoline and energy price savings, Americans have been bolstering their rainy day funds with higher U.S. savings rates. And that rarely fits the narrative for hearty personal consumption expenditures. In fact, the simplistic notion that cheap energy is a net positive for the consumer-driven U.S. economy has been turned upside down. The primary tailwind for stocks at the present moment are higher oil prices, not lower ones, where the correlation between oil and stocks hovers near 90%. Oil up, stocks up. Oil down, stocks down… and sometimes violently. In sum, the fundamental picture may not matter much in the near-term when risk taking is indiscriminate. It matters more, however, when there is less demand for a wide range of individual securities, industries, yield-producers and debt instruments of varying credit quality. The latter is what has been transpiring since the spring of 2015. Not so ironically, the bear market rally that began February 11 has not been accompanied by a diminished demand for “risk-off” assets like the SPDR Gold Trust ETF (NYSEARCA: GLD ), the iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) and the CurrencyShares Japanese Yen Trust ETF (NYSEARCA: FXY ). These risk-off asset types have essentially held up, even with 5.5% upturn for SPY since 2/11. The fact that shelter-seekers still like precious metals, long-term treasuries and carry trade reversal currencies implies that the worst is not in the rear-view mirror. (Note: Many of these asset types are present in the FTSE Multi-Asset Stock Hedge Index .) Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.

Investors’ Biggest Mistake: Home Bias

By Tim Maverick Everybody loves to cheer for their home team when it comes to sports. But, it turns out that investors around the world do the same with their money. Let me give you an example. Brazil is suffering through its worst economic downturn since the Great Depression. Its currency, the real, is near record lows. And its stock market is down by 40% over the past five years. Add in other factors such as the Zika virus – and it’s bad times, to say the least. But what are Brazilian investors doing? They’re liquidating their overseas holdings and buying Brazilian stocks. Are they nuts? Nope, it’s just human nature. In investing, it’s called “home bias.” And U.S. investors are among the most guilty. It’s Not 1950 In my years giving advice to clients, I found a very strong aversion among investors to investing overseas. People confuse familiarity with safety. I once had a client who stormed out of the office saying he would never invest a penny of his money outside the United States. Now, that was an extreme circumstance. But people do invest as if it’s still 1950, and the U.S. is the dominant economic power. Back then, the U.S. made up a huge part of the world’s market capitalization. Today, that’s down to about 50%. Yet, people invest as if nothing’s changed. A study by the mutual fund company Henderson Global Investors found that Americans were the second-most guilty of home bias globally, trailing only Canadians. This is backed up by an analysis done last summer by robo-advisor SigFig. It found that the median individual investor had a mere 6.6% of their portfolio in international equities. The study also found that bigger, and presumably more sophisticated, portfolios had less home bias. This makes sense. I can guarantee people like George Soros don’t have most of their portfolios in the U.S. The World Is Waiting The U.S. economy produced only 22.5% of the world’s GDP in 2014. That’s quite a change from just after World War II when the U.S. accounted for half of global GDP. Overall, developed economies now make up less than half of global GDP. Developing economies now account for just over half. Let’s just think about Asia for a moment – specifically China, India, and Indonesia. In terms of population, they rank first, second, and fourth respectively. The U.S. is third. There are over 2.8 billion people in these three countries. Are you, as an investor, going to ignore them as if they don’t exist? Wall Street wants you to. They want you to buy U.S. stocks. That’s why most Wall Street firms badmouth China every chance they get. Use Your Common Sense Investing overseas is really just common sense. Most people wouldn’t put 100% of their money into one stock. Nor would they limit themselves to stocks from Pennsylvania just because they live in that state. Why then would you limit yourself to just one country? My favorite analogy is that it would be like grocery shopping in only one aisle of the store. But investors continue shopping in one aisle. Home bias remains a big problem for even financial professionals. The toughest sell remains getting clients to diversify. Many stubbornly cling to putting all or most of their eggs into one basket. At a conference for registered investment advisors in November, Charles Schwab’s Jeff Kleintop said, “That’s exactly the opposite of what they should be doing now.” Now Is the Time to Diversify I would put the emphasis on the word now. The U.S. market has outperformed international markets since 2009. I can assure you it won’t continue. Markets will revert to the mean. In simple terms, underperforming markets will begin outperforming – and vice versa. As someone who has been in the investment business since the 1980s, I can tell you it’s a basic fact of financial markets. It’s like the sun rising and setting every day. Many markets – particularly the emerging ones – are at valuations not seen in decades. That’s thanks largely to U.S. fund managers selling. In other words, home bias. I think it’ll be a lot easier and more profitable to find companies that are serving those 2.8 billion-plus consumers in Asia, than finding an undiscovered gem in the U.S. The mass of Wall Street research makes that near possible, except for an occasional penny stock. I’d like to end with a piece of advice from famed investor, Jim Rogers. He said you should wait until you see money lying in the corner and all you have to do is go over and pick it up. That describes overseas markets right now more than the U.S. Link to the original article on Wall Street Daily .