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Problem children aren't derailing consumer staples ETFs
Asset Management
<p>Give the Consumer Staples Select Sect. SPDR (ETF) (NYSE: XLP) some credit. The largest consumer staples exchange-traded fund by assets is up 6.6 percent year-to-date despite strong dollar headwinds and the subsequent challenges created by speculation, though now dwindling, that the Federal Reserve will soon raise interest rates.</p> <p>Add to that, XLP has mustered its &gt;6.6 percent gain, one of the better year-to-date showings among the nine sector SPDR ETFs, with no help from Procter &amp; Gamble Co.(NYSE: PG) or Wal-Mart Stores, Inc. (NYSE: WMT).</p> <p>Procter &amp; Gamble, the world's largest maker of household products, and Wal-Mart, the world's largest retailer, are two of just seven members of the Dow Jones Industrial Average down at least 10 percent this year. Procter &amp; Gamble and Wal-Mart are XLP's largest and sixth-largest holdings, respectively, combining for 16.5 percent of the ETF's weight.</p> <p>Full story available on<br /> Photo: Mike Mozart</p>
The global race to win the crown of fintech capital continues apace
<p>The battle is on to create a global fintech center. Top contenders: The U.S. and U.K. Startups around the world (especially Israel) may be idea-machines but they need large markets to scale. In Asia, Hong Kong and Singapore are vying for the startup crown, lagging well behind mainland China.</p> <p>Enter Funding Circle, which Daily Fintech argues could be giving London an edge in the global competition:<br /> Funding Circle looks like it is joining the really big Lending Marketplaces such as Prosper and Lending Club. As this marketplace is in hyper growth phase with maybe 5-10% penetration of a massive market, this is a huge opportunity for Funding Circle. They have one big advantage – Funding Circle focus has always been on small business lending rather than consumer and as our research showed in November 2014, that is were the action is.</p> <p>So it looks like Funding Circle could be one of those big winners that London needs in order to earn its coveted Fintech Capital of the World status. Lots of exciting new ventures is not enough. London needs a couple that scale to be global winners (like Hanson Trust). To do that, they need to win big in America.<br /> The ultimate crown goes to the host of the largest and most numerous IPOs. Where will Funding Circle list when the time comes?<br /> Photo: Christian Bucad</p>
Money can't buy everything for Sanford Weill
Lifestyle, 4:01
<p>Former Citigroup CEO Sanford Weill and his wife Joan are withdrawing their $20 million donation to Paul Smith's College.</p> <p>The tiny school in the Adirondack mountains needs the money, but Weill only wants to hand it over if the school changes its name to Joan Weill-Paul Smith's College, reports BuzzFeed. Unfortunately for the billionairess, that isn't an option. A judge has ruled that the school's founding documents prohibit a name change.</p> <p>"It was a naming gift, so without the court allowing us to go forward there was no money," Bob Bennett, a school spokesman, told the New York Times last week.</p> <p>Joan Weill became interested in the Adirondack's only four-year school as a Weill family vacation home is nearby. Weill has already donated enough money for the school to build a student center and library, both named after Joan.<br /> Photo: David Shankbone</p>
Video: Point72 president discusses big data
Hedge Funds
<p>Big data is helpful, but also needs to be handled carefully, says Doug Haynes, Point72 Asset Management President, in this week's Wall Street Week. Granular data can provide more accurate pictures of what is happening in real time, before reports come out, but needs to be vetted intelligently and responsibly.</p>
Dan Loeb takes on Japan's convenience store giant
Hedge Funds
<p>Dan Loeb’s Third Point has just bought an activist stake in Seven &amp; I Holdings, the Japanese retail giant behind the 7-eleven convenience store franchise and other retail operations including Sogo and Seibu department stores.</p> <p>According  to Reuters, sources says Third Point wants Seven &amp; I to downsize its general merchandise business to improve profitability, and as taken a less than 5% stake to pressurize it into doing so.  </p> <p>The firm is actually not doing too shabby – Seven &amp; I’s  convenience store business in Japan and the U.S. yielded a record operating profit for the March-August half – but Ito-Yokado, its general merchandise chain, dragged it down by makring down a 9 billion yen ($73.6 million) loss for the same period. </p> <p>For now, Seven &amp; I has kept quiet on the deal but Loeb could have a fight on his hands, Japan does not react well to activist investors especially when they come from overseas. Many outside investors have struggled to crack open Japan notoriously conservative corporate giants.</p> <p>But Loeb's track record indicates that he is up to the job, with Third Point previously taking positions in Sony Corp, Suzuki Motors, and robot maker Fanuc Corp and has successfully pushed for reforms.</p> <p>Either way, investors have reacted well. Seven &amp; I saw its stock jump 3.7% when the news first broke yesterday.<br /> Photo: Mike Mozart </p> <p>&nbsp;</p>
It's tough being a bond fund manager
Asset Management
<p>You wouldn’t have thought so, but bond portfolio managers need to be more skillful than a decade ago. Central bank asset purchase programs have made core treasury markets a one-way bet and the mortgage-backed securities debacle still turns investors off complex structures. So, surely the job of bond manager should be easier, even plodding and dull.</p> <p>Not according to a survey conducted by Citigate for NN Investment Partners, a leading Europe-based fund manager.</p> <p>“The research reveals that 61% of institutional investors believe asset managers must address changing levels of liquidity better than they did 10 years ago while 42% said they have to be able understand and invest in wider geographies better than they did then. Other challenges cited that require greater attention included the ability to invest across wider credit ratings (39%) and managing overload (30%),” noted Citigate.</p> <p>Far from boring then. Indeed: </p> <p>“Respondents said the most attractive quality in the process of a fixed income strategy is risk control (57%), followed by a focus on controlling duration and matching liabilities (39%), the flexibility to invest in a wide range of investments (35%) and a focus on avoiding defaults (31%).”</p> <p>“Markets are in a very different place from where they were 10 years ago. Changes in global conditions, economic policies and financial markets have forced investors to adapt, and being able to adapt quickly will become an even more important skill,” said Sylvain de Ruijter, head of global fixed income at NN Investment Partners.<br /> Photo: marta ... maduixaaaa<br /> &nbsp;</p>
Reflation on its way; buy risk assets
Asset Management
<p>Uncertainty about Fed interest policy and reactive measures by other leading central banks confuse investors. Where should they allocate their cash if policy makers give unclear signals and the economic runes are so mixed?</p> <p>Step forward the strategists at Société Générale to part the mist. </p> <p>“Inflation risks are set to re-emerge on the back of reflationary policies in many areas. Even in the US, monetary policy normalization should be subdued and the Fed is expected to remain behind the curve, triggering inflation risk. Inflation should also be supported by a turning point in commodity prices,” write Alain Bokobza and Sophie Huynh in a report out today. </p> <p>Last month they told investors to “buy risk on dips”.</p> <p>Their view was predicated on the Fed acting softer than expected, the ECB would implement QE2, the Bank of Japan would signal further loosening and China’s policy makers would ease both monetary and fiscal policy.</p> <p>“We maintain our view that one should be invested in risk assets in order to continue to benefit from a synchronized global reflation process across the four biggest regions of the world,” they say.</p> <p>“2015 will be a great year for euro area assets and we maintain keep full weightings on both peripheral bonds and peripheral equities.”<br /> Photo:</p> <p>&nbsp;</p>
Q: Is the Chinese rate cut a silver bullet? A: No!
Capital Markets
<p>Today the Peoples Bank of China cut the benchmark interest rate by .25% and lowered banks’ reserve requirements by .5%. The measure is supposed to spur growth and make life a little easier on debt-ridden Chinese companies. In the immediate term it may give a slight boost to the economy, but there is no chance this measure, or others like it, will keep the Chinese economy from slowing much further in the years ahead. Let us explain.</p> <p>The continued and dramatic slowing of the Chinese economy in the years ahead is baked in the cake. For the last decade Chinese growth has been fueled by investment in infrastructure (AKA fixed capital formation). In an effort to sustain a high level of growth massive and unprecedented investment in fixed capital was carried out and fixed investment has now become close to 50% of the Chinese economy. On the flip side, consumption as a percent of GDP has shrunk from about 46% of GDP to only 38% of GDP. Most emerging market countries run with fixed investment of around 30-35% of GDP and with consumption accounting for about 40-50% of GDP – exactly the opposite dynamic of the Chinese economy. China has run into a ceiling in terms of the percent of the economy accounted for by fixed investment and now fixed investment must shrink to levels more appropriate for China’s stage of economic development. This necessarily implies a slowing of the Chinese economy from what the government says is near 7% to something closer to 2-4%, and that is in the optimistic scenario in which consumption growth picks up the pace to mitigate the slowdown in investment.</p> <p>This is why cuts in rates mean practically nothing for China’s long-term economic prospects. In the short-term rate cuts may postpone corporate bankruptcies by allowing companies to refinance debt at lower rates. Rate cuts may also make housing more affordable, on the margin. But these are cyclical boosts that act as tailwinds to China’s economic train. No amount of wind, save a hurricane, is going to keep the train from slowing.</p> <p>This article first appeared in Advisor Perspectives<br /> Photo: Ed Schlpul</p>
Buffett’s asset allocation advice: take it … with a twist
Asset Management
<p>Abstract: </p> <p>One of the most important decisions retirees need to make is the asset allocation of their portfolios. They can have a static or a dynamic allocation, and simplicity usually favors the former. Warren Buffett recently added another vote for static allocations by revealing that he had advised a trustee to split the bequest his wife will receive 90% in stocks and 10% in short-term bonds. The evidence discussed here shows that, relative to other static allocations, a 90/10 split has a very low failure rate and provides investors with very good upside potential and downside protection. The evidence also shows that two minor twists to the 90/10 split result in two very simple dynamic strategies with even better upside potential and downside protection.<br /> Buffett's Asset Allocation Advice: Take It ... With A Twist - Introduction<br /> Retirees need to carefully balance the risk of spending too much and outliving their savings with the risk of spending too little and lowering their lifestyle unnecessarily. The two main tools they can use to avoid falling on either side of the cliff are the portfolio’s withdrawal rate and asset allocation. Regarding the latter, in his 2013 letter to Berkshire Hathaway shareholders, Warren Buffett discussed the simple advice he gave to the trustee that will manage the bequest his wife will receive:<br /> “What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit … My advice to the trustee could not be more simple: Put 10% of the cash in short?term government bonds and 90% in a very low?cost S&amp;P 500 index fund. (I  suggest Vanguard’s.) I believe the trust’s long?term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high?fee managers.”<br /> Buffett does suggest in his letter that investors should follow a simple approach, passively investing in a broadly?diversified, low?cost portfolio; he does not suggest or imply, however, that investors should have a 90/10 stock/bond allocation. And yet his comment begs the question: Is the asset allocation Buffett advised for his wife appropriate for other investors? If yes, why? If not, why not?</p> <p>An obvious distinction between Buffett’s wife and the average investor quickly comes to mind. The average investor needs to implement an asset allocation that carefully balances the two risks already mentioned, overspending and underspending. Buffett’s wife, however, is likely to receive a nest egg large enough so that she will not have to worry about either risk. Put differently, just about any asset allocation will enable Buffett’s wife to live comfortably and still outlive her portfolio, which is not the case for most investors.</p> <p>That said, this article evaluates the merits of the 90/10 allocation that Buffett advised for his wife, relative to other static allocations with different stock/bond proportions, for investors at large. Furthermore, it explores two minor twists to the 90/10 allocation, one that accounts for the behavior of the stock market, and the other that accounts for the relative behavior of the stock and bond markets.</p> <p>In a nutshell, the evidence discussed here suggests that, besides having a very low failure rate, the 90/10 allocation results in an interesting middle ground between the upside potential of more aggressive static allocations and the downside protection of more </p>
Daily Scan: Asia sinks; China sees defense sector surge
Capital Markets
<p>Updated throughout the day</p> <p>October 27</p> <p>As investors fret over the outcome of China's five-year economic planning meeting, China markets wavered today, with the Shanghai and Hong Kong indices eking out modest gains of 0.14% and 0.11%, respectively, before the final bell. The rest of Asia meanwhile sunk, ending a four-week rally. Japan was hardest hit, seeing 0.91% drop on the Nikkei 225. </p> <p>China nerves were offset by big gains in the country's defense sector , which ended up 7.2%, according to Citic Securities. The jump coincides with the news that a US Navy destroyer sailed within 12 nautical miles of the artificial islands built by China in the South China seas. A move that ups the stakes in an increasingly fragile multinational territorial dispute. </p> <p>Here’s what else you need to know:</p> <p>China, Japan, South Korea to hold first summit in three years. The three countries will hold the summit in South Korea when Chinese Premier Li Keqiang visits. It’s the  first such meeting since they were discontinued in 2012 amid tension dating back to World War Two. Reuters </p> <p>Earthquake devastates southern Asia. At least 180 people have died in Afghanistan and Pakistan after a 7.5 magnitude quake struck the region. The epicenter was in Jarm, Afghanistan, near the Pakistan border. Tremors were felt as far as Tajikistan. CNN</p> <p>U.K. House of Lords block family tax credits. The U.K. parliament’s upper chamber has issued a rare rebuke to the conservative government over plans to cut tax rebates for working families, a widely unpopular part of a budget-cutting strategy that would affect thousands of British households. Wall Street Journal </p> <p>Five Britons dead after Canadian whale-watching boat sinks. Five Britons were killed when a whale-watching boat sank off the coast of western Canada. The boat carrying 27 people sank near Tofino, a popular tourist area on Vancouver Island, on Sunday afternoon, killing a woman and four men. BBC </p> <p>US to defy Beijing over South China Sea. The US navy is poised to start freedom of navigation operations in the South China Sea in a high-stakes effort to push back against Chinese territorial claims over artificial islands in the disputed resource-rich waters. Financial Times (paywall)</p> <p>Don't run, don't walk, fly for asylum. The E.U. wants refugees to take paid flights from Greece to other asylum offering countries, rather than face dangerous winter walks. There have already been cases of hypothermia as people wait in the cold, and the E.U. fears the problem will only worsen as winter sets in. Reuters</p> <p>IMF to include China's yuan in benchmark currency basket. International Monetary Fund staff are set to give the all-clear for China’s yuan to be included in the lende</p>