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Where to look for outperforming active managers
Asset Management
<p>&nbsp;</p> <p>So far in my series on selecting superior active fund managers, I’ve broken the most promising research into two very different areas of focus: 1) identifying which segments of the market, or which types of funds, are most promising; and 2) what characteristics to look at in the funds themselves. The most interesting research in category 1 was the “active share” analyses by Antti Petajisto, which concluded that closet index funds (which happen to hold a near-majority of assets in the fund industry) tend to be consistent losers on an after-fee basis, while high-active-share funds with a stock-picking mentality tended to beat their benchmarks by 126 basis points a year.</p> <p>But of course not all the stock-pickers were winners, and the winning funds tended to be scattered all over the various sectors of the market. Is there a way to analyze the different segments of the global opportunity set, and determine the best places to look for those outperforming managers?</p> <p>As it happens, this is exactly the research that is being conducted by Dan Kern, president of Advisor Partners in Walnut Creek, CA. Kern has an unusual background; he spent eight years as a portfolio manager on the U.S. Growth Equity team at Montgomery Asset Management in San Francisco, and then moved over to researching funds as the managing director of Charles Schwab Investment Management.</p> <p>“Having worn both hats,” he says, “I’ve learned that investment success is frequently a temporary state of affairs. Today’s high flier is tomorrow’s loser.”</p> <p>Today, before he looks for potential outperforming funds, Kern subjects different sectors of the market to three basic tests, which tell him whether he’ll even bother to look at the funds that operate in that space.</p> <p>Payoff: the performance spread</p> <p>Test one is something he calls “payoff.” Is the potential excess return (payoff) worth the risk you would be taking if you decided to invest with an active manager in that sector? Another way to describe this factor is the “performance spread”: Where is it tightest, and least tight?</p> <p>To answer that question, Kern identified the percentage return that would qualify a fund for the upper quadrant (25th percentile) in different asset sectors, and compared it to the return that a fund would have to achieve to fall into the upper 75th percentile. He also looked at the index return. This allowed him to calculate three derivative figures: the 25th percentile return minus the 75th percentile return, the 25th percentile return minus the index return, and the percentage difference between the 25th quartile fund return and the index.</p> <p>Figure 1 shows the results for certain foreign stock and bond sectors, plus one U.S. bond sector, for the five years ending December 31, 2014. As you can see, the highest 25th-minus-75th spreads can be found in the emerging markets equity funds sector (3.02% a year), followed by foreign small/midcap equity funds (2.81%). The spread is tightest in the intermediate-term bond category. In reverse order, those two asset classes also have the highest spread between the 25th percentile returns minus the index, and the emerging-markets equity funds have by far the highest percentage difference between the highest 25% of the funds and the index.</p> <p>Figure 1 – Active-Passive Payoff Analysis</p> <p>At the other end of the spectrum, the average emerging-markets bond fund loses to the index. The other lowest payoff categories</p>
Classic books to get you in the spirit of Halloween
Lifestyle, 4:01
<p>Alfred Hitchcock once said, “There is no terror in the bang, only in the anticipation of it.” He used that theory effectively in his films, causing us to be more frightened by what we imagined than what we actually saw on the screen.</p> <p>A well-written novel can achieve the same effect. In the hands of a skilled writer, we can stay up all night with our minds running wild on what a character looks like, sounds like and acts like.</p> <p>Although there are many fine “scary” modern novels, some of the best are the classic old ones. If you have only seen film versions of these fine books, you owe it to yourself to read the real thing. And, since most of them are in the public domain and are therefore available to read free online, there is no better time to do so.</p> <p>However, if you delve into one of these classic horror stories tonight, be sure to leave a light on.</p> <p>Classic Books – Dracula by Bram Stoker</p> <p>Irish writer Bram Stoker did not invent the idea of the vampire, but he certainly is credited with popularizing the creature that transforms from human to bat form. First published in 1897, Dracula tells the story of a young British solicitor, Jonathan Harker, who becomes involved with a series of terrifying incidents after he visits a castle in Transylvania.</p> <p>This exciting tale of the supernatural has been recreated many times onstage and onscreen, and it continues to find new fans today. An interesting side note: Bram Stoker (whose working title for the book was The Dead Un-Dead) did not follow proper copyright procedures, and his novel has been in the public domain since its original publication.</p> <p>Classic Books – Frankenstein by Mary Shelley</p> <p>Mary Shelley was only 20 years old when she wrote her famous novel about a young college student who creates a monster. Although many people associate the name Frankenstein with the grotesque creature, it is actually the last name of the student who creates the monster.</p> <p>Shelley, who was the wife of Romantic poet Percy Shelley, revealed that the idea for her memorable novel came to her in a dream. She first published Frankenstein anonymously in 1818, and her name did not appear as its author until its second edition in 1823. Hollywood versions of this thought-provoking book do not capture its themes of life, morality and virtue.</p> <p>Classic Books – The Picture of Dorian </p>
People Moves: Barclays names CEO; Ex-Goldman exec becomes co-CEO of TPG
Capital Markets
<p>Barclays names JP Morgan banker as CEO. James Stately is the new CEO of Barclays, beginning Dec. 1. Stately will be responsible for overhauling the U.K. bank as it faces pressure from regulators to be "less capital intensive." Stately worked at JP Morgan for decades, leading the asset management unit until 2009. He then joined BlueMountain Capital Management hedge fund. Wall Street Journal</p> <p>Former Goldman exec joins TPG. Jon Winkelried is coming out of retirement to join TPG as co-CEO. Winkelried left Goldman Sachs in 2009. TPG has long had a co-leader structure. Founder David Bonderman left his co-CEO role last year to become chairman. Founder James Coulter continues to serve as the other co-CEO. New York Times</p> <p>Credit Suisse poaches Barclays bankers. Credit Suisse has hired five new bankers for its Americas Healthcare group. Punit Mehta and Jordan Bliss join as managing directors, and Thomas Burkly, Connie Chiang, and Naeem Merchant join as directors, all beginning in early 2016. This year Mehta and Bliss advised the Israeli Teva on its $40.5 billion acquisition of Allergan's generics unit. Business Insider</p> <p>Ex-Wells Fargo exec moves to Stearns Lending. Thomas Neary has joined Stearns Lending as CIO, responsible for capital markets, secondary marketing, portfolio investment and valuation, and product strategies. Neary comes to the firm from the Homeowners Mortgage Enterprises, where he was president and CEO. He has previously worked for Wells Fargo as executive v.p. for mortgage capital markets.</p> <p>&nbsp;<br /> Photo: ©iStock.com/ooyoo<br /> &nbsp;</p>
Daily Scan: Stocks fall Friday but post big monthly gains
Capital Markets
<p>Updated throughout the day</p> <p>October 30</p> <p>Global bourses turned in their best monthly performance in more than six years as dreams of stimulus propelled prices higher. The major U.S. indexes fell slightly Friday, but that didn't hurt the month's overall performance. The Dow had its biggest monthly gain in four years with a 8.5% jump. Friday, the Dow was down 0.5%, the Nasdaq dropped 0.4%, and the S&amp;P 500 lost 0.5% for the day. The Shanghai Composite rocketed nearly 11% while the Hang Seng gained 8.6%; the Nikkei jumped 9.75%. The STOXX Europe 600 is on track to tack on 7.7%. Note: daylight savings time ends Sunday morning in the wee hours -- set your clocks back one hour on Nov 1 at 2 a.m. That means more light in the morning for all those runners joining the New York City marathon. The World Series continues this weekend, with the Mets taking on the Royals Friday evening for Game 3. The Royals have won the past two games, so the Mets better win Friday if they want to keep playing into November. Game 4 is scheduled for Saturday evening. Happy Halloween everyone!</p> <p>Here's what else you need to know:</p> <p>GOP lashes out at CNBC, cuts cords. The Republican National Committee has suspended its partnership with NBC News before their scheduled February debate. RNC Chairman Reince Priebus wrote a letter to NBC News Chairman Andrew Lack saying that their relationship was on hold "pending further discussion." The GOP isn't happy with CNBC with the news network's handling of Wednesday's debate. The candidates accused CNBC of bating them with questions that encouraged infighting. Washington Post</p> <p>U.S. retailers want chip and PIN cards. Some big retailers, including Wal-Mart and Target, are increasing efforts to have customers use PINs with new chip-embedded credit cards, but credit card partners aren't thrilled. U.S. banks aren't prepared for the change and say they can't handle the PINs for credit cards. Banks prefer the old school signature approach for identity confirmation. Reuters</p> <p>Four U.N. staff fired for child porn. The staff shared child pornography on work email accounts. Another staff member was fired for transporting 173 kg of marijuana in an official U.N. vehicle. Legal punishment for the cases are left up to authorities in the staff member's home country. BBC</p> <p>Exxon beats earnings expectations. Exxon Mobil posted a profit of $4.24 billion, or $1.01 per share, compared to expectations of 89 cents a share. Profit did fall a whole 47% as the price of oil continues to stay below $50/barrel. CNBC</p> <p>U.S. to send special forces to Syria. The troops will support the anti-government rebels in fighting ISIS. Less than 50 forces will be deployed, but it will be the first time U.S. troops are openly working on the ground in Syria. BBC</p> <p>Valeant severs ties with Philidor; two board members resign. In a stunning turnaround, Valeant distanced itself from the mail-order pharmacy, which wil</p>
People Moves: BlackRock hedge fund manager steps down; Highland Capital hires new director
Hedge Funds
<p>BlackRock hedge fund lead steps down. Tim Webb has resigned from his posts as managing director and CIO of the BlackRock model-based fixed income group, as well as the management of the Fixed Income GlobalAlpha Fund, BlackRock's biggest hedge fund. Webb will now focus on the international fixed income business with Rick Rieder and Kevin Holt. Tom Parker will act as CIO for GlobalAlpha and the model-based unit. Opalesque </p> <p>Highland Capital Management hires new managing director. Jeff Seaver has joined the firm from Loomis Sayles where he worked as co-head of the London office. At the Dallas-based Highland, Seaver will focus on institutional investor relationships, specifically with U.S. pensions and insurance companies.<br /> Photo: ©iStock.com/ooyoo<br /> &nbsp;</p>
People Moves: Ex-Pimco equities head launches new firm; NYLife hires retail distribution lead
Asset Management
<p>Ex-Pimco equities head launches business. Virginie Maisonnueve has launched Maisonnueve Global Advisors in London to advise investment teams about global trends, business leadership, and digital innovation. Maisonneuve had a brief stint as head of Pimco's equities before leaving in June when Pimco closed its active equities funds. Maisonneuve previously worked at Schroders as head of global equities. Financial News</p> <p>New York Life hires retail distribution lead. Brian Jacobs has joined New York Life's MainStay Investments as head of U.S. retail distribution. Jacobs comes to the firm from Direxion Investments, a private ETF sponsor.</p> <p>Northern Trust names EMEA director. Northern Trust Asset Management has promoted Hazel McNeilage to managing director for Europe, Middle East, and Africa. Previous EMEA lead John Krieg returned to the U.S. in 2014 to become global head of institutional distribution. Pensions &amp; Investments </p> <p>Commonfund names ex-CalPERS exec CIO. Mark Anson has been hired as CIO for Commonfund, effective in January. Anson currently works for the Robert Bass family office. He worked at CalPERS until 2005 when he left to become CIO of Hermes Pension Management. Anson became President of Nuveen Investments in 2007, and moved to the Bass family office in 2013. FinAlternatives<br /> Photo: ©iStock.com/ooyoo<br /> &nbsp;</p>
Sting's art collection is on the block
Lifestyle, 4:01
<p>More than 200 items from Sting's art collection will be up for auction.</p> <p>The British rock star's collection, compiled over 20 years, will be auctioned by Christie's in London February 24, 2016, Artnet News reports. The pieces range from famous paintings and prints to photography and design furniture from the 20th century.</p> <p>Headlining is Ben Nicholson's "March 55," a 1955 piece estimated to go for $459,891-$763,185. "Jazz" by Henri Matisse will also be sold, with an estimated worth between $381,592 and $534,229. No contemporary art sale would be complete without a Picasso. "Le Corsage a Carreaux," a 1949 lithograph, is estimated to go for between $45,791 and $76,318. Other artists in the collection include Georges Braque, Rene Magritte, Gustav Klimt, and Keith Haring.</p> <p>Sting's sale comes after he and his wife sold their Queen Anne's Gate home in Central London for $28 million to downsize to a smaller apartment.<br /> Photo: Alberto Cabello</p>
Icahn lobbies for new law to stop Pfizer corporate inversion
Capital Markets
<p>A lot of eyebrows were raised when the news came out Wednesday that Pfizer had approached Allergan regarding the possibility of a merger. Allergan is based in Ireland, so there can be no doubt what Pfizer’s real intentions are in showing up on the scene as an uninvited suitor.</p> <p>Pfizer execs have long seen the handwriting on the wall for regarding the “patent cliff” they face and the closing window for corporate inversions and all the attendant tax benefits, so they apparently decided to try and solve all their problems in one fell swoop. Snapping up rapidly growing Allergan can fix all their problems, and save them a bundle in taxes, so they decided to strike while the iron was hot.</p> <p>Unfortunately for Pfizer, American patriot and hedge fund billionaire Carl Icahn heard about this nefarious scheme, and has written a letter to the U.S. Congress telling legislators  to pass a new law to stop this corporate inversion nonsense pronto.<br /> Excerpt from Carl Icahn’s letter to Congress<br /> In his letter, Icahn explains his problem with a Pfizer – Allergan merger: “Allergan is domiciled in Ireland, and if consummated, this will be the largest corporate inversion to date, and as a result our country will lose Pfizer, its tenth largest company. The imminent planned exodus of many of our best companies is extremely dangerous, especially in our fragile economy, as it will cause the loss of thousands of jobs, as well as hundreds of billions of dollars of future tax revenue and investment in the United States.”<br /> Icahn goes on to suggest that Congress should add an amendment to the currently-under-consideration Highway Bill to ban these kind of purely profit-motivated and unAmerican corporate inversion deals.<br /> He writes: “The Highway Bill presents an immediately available opportunity to pass international tax reform that will stop inversions. In the conversations I had with many of you, there was universal agreement on this fact as well. But our window of opportunity is shrinking. The most recent short-term extension to the Highway Bill gives us only until November 20th to pass a long-term Highway Bill that includes the international tax reform necessary to stop further inversions. If a version of the Highway Bill passes without including this necessary tax reform, I fear we will lose many more iconic companies, such as Pfizer, in the months to come.”</p> <p>Allergan has a market cap of around $115 billion. That means that a merger with Pfizer would be valued at well over $300 billion, the biggest takeover so far in a year that is on pace to set records for mergers and acquisitions activity.</p> <p>This article was originally published by ValueWalk. <br /> Photo: Rich Mitchell </p>
Credit downgrade would follow Brexit
Capital Markets
<p>Britain’s credit rating could be slashed by two notches if it leaves the European Union (EU), Standard &amp; Poor’s told Reuters on Thursday. </p> <p>Moritz Kraemer, the agency’s chief sovereign rating officer, said Britain would lose AAA rating with a one-notch downgrade if it voted to leave the bloc, and maybe double that if relations between Britain and Brussels soured or Scotland seceded. </p> <p>“Should we conclude that departure from the EU is likely over the medium term, we could lower the rating by potentially more than one notch, depending on the circumstances, such as the expected future relations with the EU,” he said. </p> <p>His comments come as the UK heads towards a referendum on its membership of the union, due to take place no later than 2017. </p> <p>The pressure is certainly mounting against the Brexit campaigners. </p> <p>A week ago, America’s top trade official pointed out that his country doesn’t have a free trade agreement with the UK so it would be subject to the same tariffs as China, or Brazil or India if it quit the EU. Splendid isolation, sure -- but also poor and friendless.<br /> Photo: Andrew Stawarz<br /> &nbsp;</p>
Biosensors receives takeover proposal from CITIC PE
Asset Management
<p>After jilting Biosensors at the takeover altar, CITIC Private Equity is back to make amends, and then some.</p> <p>In a recent filing with the Singapore Exchange, Biosensors’ board of directors said they have received a takeover offer from CITIC Private Equity for an undisclosed amount, adding that “discussions are on-going,” and that “there is no certainty or assurance that these discussions will result in any transaction.”</p> <p>You can understand why they’re a little skeptical about it. Biosensors, a Singapore-listed, China-based medical device manufacturer, was originally propositioned by CITIC PE back in 2014, but according to another filing on the SGX, the private equity firm called off its plans and just wanted to be friends instead:<br /> “[T]he Board wishes to announce that CITIC Private Equity Funds Management Co., Ltd. (“CITIC PE”) has informed the Company that it has decided not to proceed with any take-over transactions involving the shares in the Company at this point of time. CITIC PE remains committed to cooperating with the Company and its management with a view to ensuring the Company’s continued success and to enhancing the value of CITIC PE’s investment.”<br /> Biosensors has called for a trading halt on its shares. We wish them all the best.<br /> Photo: Christina Alexanderson</p>