European economies get a lot of undeserved bad press. Take the European Union for instance. A few of its economies are indeed lagging like Portugal and Greece, but at the same time several are excelling like the United Kingdom and Germany. The same may be said for the core Eurozone economy. Then there are the Central and Eastern European (CEE) states, several of whom have made remarkable strides within the EU. With a moment’s reflection, an economic comparison can be made with the United States. Some states, like New York, California and Maryland are economic powerhouses, whereas Mississippi, Louisiana and Illinois are still struggling with tough economic times. The same is true of the wider region of North American economies like Canada and Mexico. Some states or provinces do well with natural resources or foreign investment while other must rely on seasonal tourism or agriculture. It takes governments with foresight and courage to forge ahead to establish economic zones while being as inclusive as possible. It is, in fact, the basic purpose of an economic zone: to eliminate economic border constraints and provider opportunity for the weaker entities through unencumbered economic interaction with the stronger entities.
Scandinavia probably isn’t the first place that springs to mind for most people looking for investment opportunities in Europe. But some analysts say exchange-traded funds that invest in the region are worth considering now as a way to bet on a recovery in European economic growth.
One argument in favor of including Nordic funds in a portfolio: The region’s biggest economies—Sweden, Denmark and Norway—all have their own currencies, even though Sweden and Denmark are members of the European Union. That sets them apart from countries in the eurozone because the Nordic economies don’t depend on the European Central Bank to help stimulate their economies, says Todd Rosenbluth, a senior director at S&P Capital IQ.
An interesting piece from marketwatch.com on why asset diversification is not currently working. Correlations (the degree to which two assets move in tandem with each other) change over time. And the following two tables show by how much asset correlations can converge. The low interest rates are mainly responsible = they have encouraged investors to invest in pretty much everything to get a decent yield. It would be a brave investor that bought 20 year US Treasurys for their diversification ‘benefits’. For the original article click here
From Vanguard Insights Blog:-
Vanguard analyzed all actively managed U.S. stock mutual funds that existed at the start of 1998 and found that very few beat their benchmarks over the following 15 years.
As shown in the illustration below, our research found that even among successful actively managed funds, the “road to outperformance” was beset by numerous and often long stretches of market-lagging returns.
The bottom line: Identifying winners in advance is a challenge, even for skilled investment managers. Even if you do manage to beat the market, you need patience to collect on that success.
1. The 10 funds had annualized excess returns closely matching the median for all 275 successful funds: 1.1 percentage points above the relevant benchmark.
About the indexes used in our calculations:
To measure the funds’ performances against market benchmarks, we chose indexes appropriate to their Morningstar, Inc., style boxes. When determining which index to use, we selected ones we deemed to fairly represent the characteristics of the relevant market, given the available choices during the period from January 1998 through December 2012. The indexes used for each style box are:
Large blend: Standard & Poor’s 500 Index through November 2002, MSCI US Prime Market 750 Index thereafter. Large value: S&P 500 Value Index through November 2002, MSCI US Prime Market Value Index thereafter. Large growth: S&P 500 Growth Index through November 2002, MSCI US Prime Market Growth Index thereafter.
Medium blend: S&P MidCap 400 Index through November 2002, MSCI Mid Cap 450 Index thereafter. Medium value: S&P MidCap 400 Value Index through November 2002, MSCI Mid Cap Value Index thereafter. Medium growth: S&P MidCap 400 Growth Index through November 2002, MSCI US Mid Cap Growth Index thereafter.
Small blend: S&P SmallCap 600 Index through November 2002, MSCI US Small Cap 1750 Index thereafter. Small value: S&P SmallCap 600 Value Index through November 2002, MSCI US Small Cap Value Index thereafter. Small growth: S&P SmallCap 600 Growth Index through November 2002, MSCI US Small Cap Growth Index thereafter.
All investing is subject to risk, including possible loss of the money you invest.
Past performance is no guarantee of future returns.
Source: Vanguard calculations using data from Morningstar.
Original article click here
Long time readers know that I am a big fan of simple rules based portfolios, heck that’s behind most of everything I do, from the buy and hold and 13F portfolios of The Ivy Portfolio to the trend portfolios of a QTAA, to shareholder yield approaches to income. Frankly most all of the 2&20 world can be deconstructed More…
Foreign Stocks for the Long Run
Nearly every financial adviser will tell you that foreign stocks should be part of a well-diversified portfolio. Yet, an analysis of the data shows that non-US (foreign) stocks as an asset class have underperformed the US market by a meaningful amount for more than 40 years, in addition to having higher risk. So, why do it?
It is the professed belief of almost every economist, business person and politician that Australians require governments to achieve maximum improvement in their material standard of living. I’m not sure that’s true – but we’re about to find out.
Of late the econocrats have been warning that, unless we undertake major reform, national income will grow a lot more slowly in the coming decade than it did in the past one. According to Dr David Gruen, of Treasury, gross national income per person grew at an annual rate of 2.3 per cent over the past 13 years, but may grow by only about 0.9 per cent over the coming 10 years.
This projected slowdown is explained mainly by the switch from rising to falling prices for our mineral exports – that is, it focuses on income rather than production. It implies only a small slowdown in the underlying rate of growth in gross domestic product (GDP) per person, being based on the assumption that we maintain our long-run rate of improvement in the productivity of labour – an assumption some may question.
Reserve Bank deputy governor Philip Lowe says that, if we don’t achieve a substantial improvement in productivity, “we will need to adjust to some combination of slower growth in real wages, slower growth in profits, smaller gains in asset prices and slower growth in government revenues and services”.
So far, these supposedly dire warnings have met with a giant yawn from the public. And, assuming the slowdown comes to pass, I’m not convinced the public will notice it, let alone care. I doubt that we will retain the national resolve to implement the reforms economists say we need to keep incomes growing strongly, nor am I sure the economists’ favourite prescription would work. As for myself, I think slower growth could be a good thing.
Would the punters notice? Maybe not. Despite a decade of above-average growth in real income per person, most people would swear that, whoever had been benefiting from the resources boom, not a cent of it had come their way.
For at least seven years, the popular perception has been that people are struggling to keep up with the cost of living – that is, living standards are slipping. And get this: politicians on both sides, who profess to believe that rising living standards are governments’ raison d’etre, have fallen over themselves to agree – contrary to all the objective evidence – that times are tough.
Clearly, they believe failing to agree that times are tough is more likely to get them tossed out than falsely confessing to have failed in their supposedly sacred duty to keep living standards rising.
You may object that the punters’ failure to perceive that their living standards have been rising may not stop them correctly perceiving that living standards are now rising only slowly. But consider the United States, where real median household income has been flat to down for the past 30 years because almost all the real income growth has been appropriated by the top few per cent.
Have decades of failure to enjoy rising material comfort caused the American electorate to rise up in revolt? Not a bit of it.
It’s significant that the advocates of eternal growth never promote it in terms of rising affluence, but always in terms of the need to create jobs. Barring recession, there’s no suggestion production won’t be growing fast enough to hold unemployment at about 5 per cent over the decade.
Of course, a recession that led to rapidly rising joblessness would undoubtedly cause great voter disaffection, but that’s not what we’re talking about.
While it may be possible for the economic, business and political elite to agree their precious materialism has sprung a leak and that something must be done, that doesn’t mean they could agree on major reform; it’s more likely to lead to continued rent-seeking at the expense of other interest groups. If my share of the pie is bigger, what’s the problem?
Economists have no evidence to support their fond belief that the burst of productivity improvement in the second half of the 1990s was caused by micro-economic reform. But even if you share their faith, it’s a dismal record: if you undertake sweeping reform of almost every facet of the economy then, 10 to 15 years later, you get no more than five years of above-average improvement. What’s more, all the big reform has already been done.
With the global ecosystem already malfunctioning under the weight of so much economic activity, it’s time the age of hyper-materialism came to an end and we switched attention from quantity to quality.
Treasurer Joe Hockey is playing a silly game with the debt ceiling. If his refusal to agree to a lift in the ceiling to $400 billion causes market instability, a credit rating downgrade (or negative outlook) or damages confidence in the economy, he will only have himself to blame.
Gross government debt issued under the Commonwealth Inscribed Stock Act 1911 and therefore subject to the so-called debt ceiling, will increase to $298.4 billion on Friday, 6 December.
The government borrowing program indicates that it will break above $300 billion during next week. There is an obvious problem, or potential problem, given that the debt ceiling, under the Act, is currently set at $300.0 billion.
Something has to be done very soon to ensure there is no US style debt problem here in Australia which not only causes market ructions, but risks damaging consumer and business confidence.
The Opposition has given Treasurer Joe Hockey the solution to the issue, offering to increase the debt ceiling to a record high $400 billion. The Greens, who hold the balance of power in the Senate, agree with the approach. This $400 billion should be enough to cover the government’s financial commitments for at least 18 months, possibly longer. Mr Hockey will have two budgets to frame within that time.
Mr Hockey has indicated that the ratings agencies are already ringing him about the debt ceiling issue. If this does not engender some concern or outright fear about Australia’s AAA rating being put on negative watch, I am not sure what will.
International investors have already been reducing their holdings of Australian dollars and bonds in the prospect of political games getting int he way of sensible economic management. At the moment, it is more a trickle but one wrong step by Mr Hockey could see this turn into a flood.
Mr Hockey can head off any problems by agreeing to increase the limit to $400 billion and move on to other important issues such as framing the Coalition’s fiscal strategy for the next few years.
If the stand off continues and there are market and economic problems that result, Mr Hockey will only have himself to blame for putting petty politics over pudent, sensible economic management.
One of the least reported bits of news in today’s economic data and policy flurry will be the lift in net foreign debt to $829.1 billion in the September quarter. This is approximately 54.5% of GDP (the September quarter GDP data are not released until tomorrow).
Net foreign debt rose about $37 billion in the quarter to be $83 billion higher than the level a year ago. It is certainly a record in dollar terms and as a share of GDP, it is close to a record high.
I generally don’t get too fussed about net foreign debt when the overwhelming majority of it is driven by the private sector, as Australia’s foreign debt currently is. But it can be a different story for the credit ratings agencies and some global investors.
In the olden days, a lift in net foreign debt of the scale seen in the September quarter would have sparked concern in markets – the Australian dollar would have been sold and there would be all sorts of pontificating about Australia living beyond its means and being in hock to the rest of the world.
Thankfully that lame debate does not happen now. At least I don’t think it does.
Maybe the ratings agencies, already antsy about the government’s debt ceiling issue, may look to foreign debt as a further factor to give is concern about the outlook for Australia. Maybe foreign investors, already lightening their holdings of Australia will continue to do so and the Aussie dollar will fall sharply.
Foreign debt could well come back onto the radar as an important issue if it keeps rising at the pace seen over the past year or so.
Firm Headed by Drexel University Professor Seeks Permission to Issue Active ETFs http://news.morningstar.com/articlenet/article.aspx?id=621082 On Nov. 26, a new firm based in Broomall, Pa., and headed by a Drexel University professor submitted paperwork with the SEC seeking permission to begin issuing actively managed ETFs. Founded by Prof. Wesley R. Gray, the new company, dubbed Empowered Funds, would first launch an ETF devoted to domestic stocks. The …