Posts Tagged ‘Traditional’

Tim Krochuk: Hedge funds team up with traditional asset manager, how to boost performance 300bp (2)

Tim Krochuk is Managing Director and a Portfolio Manger with hedge fund GRT Capital Partners in Boston. GRT Capital and Denver Investments, an B asset manager based in Denver, Colorado, have entered a joint venture forming Denver Investments Alternatives. Krochuk also serves as Chief Operating Officer of the new unit. This alliance raised eyebrows in the industry, as it could be a model to follow for more hedge funds and traditional asset management firms. The JV makes sense for both as Denver Investments had no alternative products, but GRT can offer a nine-year alternatives track record, multiple audits, a proven back-office, and both long and short capabilities. The newly created firm can offer hedge fund investors the talent, track record, and infrastructure of GRT. GRT will be benefiting from the scope, scale and distribution through this association with a larger, well-established firm. Denver Investments was formed in 1958. “Unified Alpha Account”: Fee netting can instantly boost performance up to 300bp Denver Investments Alternatives is offering all ten of the independent managers at GRT through a new, unique vehicle called United Alpha Account. Clients can invest in any combination of those strategies through one separately managed account allowing for daily transparency, daily liquidity and netted fees. Netting of fees means that gains are offset against losses, if any, before the application of the performance fee. This means investors will never pay a …
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UTI Mastershare is positioned as a highly diversified equity fund aiming to provide a relatively stable and sustainable performance.

Russell to Plan Sponsors: Use a New Evaluation Framework to Differentiate Among Target Date Funds — Traditional Approaches Fall Significantly Short

Russell to Plan Sponsors: Use a New Evaluation Framework to Differentiate Among Target Date Funds — Traditional Approaches Fall Significantly Short

TACOMA, Wash. (PRWEB) July 1, 2008

The paper is authored by Josh Cohen, senior consultant, and integrates his more than 12 years experience selecting and implementing investment strategies for both large and small defined contribution plans, most recently on the target date front.

“Target date funds are increasingly becoming a critical part of most defined contribution plans, and a participant in a target date fund is entrusting the plan sponsor to determine the best investment solution on their behalf,” said Cohen. “This is a serious responsibility and, with so much choice available, plan sponsors need a thoughtful and thorough approach to comprehensively evaluate the significant differences between the choices available.”

A detailed version of Cohen’s 12 observations is available at http://www.russell.com/dcinsights In short, they are:

1. Target date funds should be designed with the objective of achieving greater certainty of retirement income replacement – asset accumulation is only one part of that

2. Glide paths generally slope down because of the pattern of contributions, not because of time horizon

3. Risk should be measured in terms of not meeting retirement objectives

4. You should have high equity allocations at the beginning of the glide path

5. You shouldn’t have high equity allocations at the retirement end of the glide path

6. There is no clear investment rationale for the glide path to continue to slope down after retirement

7. Target date solutions should provide diversified sources of return

8. Passive should not be considered the safe choice

9. Proprietary managers face headwinds

10. Building your own target date fund is harder than it sounds

11. Take care with performance comparisons

12. Target date funds can’t solve all your problems

For more information, please visit http://www.russell.com.

About Russell

Russell Investments provides strategic advice, world-class implementation, state-of-the-art performance benchmarks and a range of institutional-quality investment products. With nearly $ 213 billion in assets under management (as of 3/31/08), Russell serves individual, institutional and advisor clients in more than 40 countries. Russell provides access to some of the world’s best money managers. It helps investors put this access to work in corporate defined benefit and defined contribution plans, and in the life savings of individual investors.

Founded in 1936, Russell is a subsidiary of Northwestern Mutual Life Insurance Company and headquartered in Tacoma, Wash. Russell has principal offices in Amsterdam, Auckland, Johannesburg, London, Melbourne, New York, Paris, San Francisco, Singapore, Sydney, Tokyo and Toronto.

Copyright © Russell Investments 2001-2008. All rights reserved.

Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company.

RFD # 0486

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New Book Explains How Exchange-Traded Index Funds are Taking Center Stage in Many Investor’s Portfolios, Replacing Traditional Mutual Funds

New Book Explains How Exchange-Traded Index Funds are Taking Center Stage in Many Investor’s Portfolios, Replacing Traditional Mutual Funds

(PRWEB) February 25, 2005

Spiders, Diamonds, Vipers, iShares, and Cubes are more than unique names. They represent the fastest growing investment product in the history of Wall Street, with total assets under management exceeding $ 210 billion. Exchange-Traded Funds (ETFs), the name used to describe this new class of investment product, have been called “mutual funds for the 21st Century.”

In Strategic Index Investing, author Richard D. Romey explains how ETFs work, the advantages they offer compared to traditional mutual funds, and specific strategies investors can use to construct financially sound portfolios using ETFs. According to The Wall Street Journal, exchange-traded funds are taking center stage in many investor’s portfolios as a result of the advantages they offer.

“Exchange-Traded Funds are the most important advance in portfolio management since the creation of mutual funds,” according to Romey. In Strategic Index Investing, he presents accessible and cutting-edge portfolio management solutions that will enable the reader to understand:

Why exchange-traded index funds are the most powerful investment tool available

How exchange-traded index funds work

Why exchange-traded index funds are superior to traditional mutual

funds and common stocks

Why buy-and-hold investing is risky

How to develop and effectively manage a diversified portfolio that

will weather the market’s short-term variations

The powerful benefits of strategic index investing

Richard D. Romey has over twenty years of experience helping investors achieve their financial goals. As an early advocate of exchange-traded index funds and president of Romey Capital Management in Leawood, Kansas, Rich is at the forefront of a portfolio management revolution destined to change the way individuals invest. If you would like further information, Rich can be reached at (913) 647-5220 or 888-692-5220.

Available on romeycapital.com, amazon.com, barnes&noble.com, leatherspublishing.com, and at selected bookstores.

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Invest in a Traditional or Roth IRA?

A mutual fund, simply defined, is an investment vehicle which allows a group of many different investors to pool their money together with a clear financial objective – to make money. It consists of an extensive collection of stocks and/or bonds, which is managed by a professional or group of professionals called an investment adviser. The mutual fund was created for those investors who feel investing their money by themselves to be too risky or just not savvy enough, but who still want to take benefit of the shared market. And benefit they do.

Mutual Fund Shares

Shares in the plan are purchased for you according to the rules of the plan and many restrictions on investment and redemptions apply. The shares are issued or redeemed by the investment advisor(s) typically in large blocks. These professionals issue and redeem shares throughout the day to keep the mutual fund making money. Mutual fund share prices are determined at the end of each business day by adding up the current value of the securities in the portfolio (after any expenses) and then by dividing the sum by the total number of shares outstanding.

Mutual Fund Diversification

Diversification simply means that the fund in which you put your money is buying stock or bonds in many different companies across an industry, index, domestic / international / foreign locale, or some other classification. The beauty of the mutual fund is that it allows the personal investor to buy into a single fund without having to buy shares of each individual company included in the fund. There is one share price for the mutual fund, which is diversified over many companies. Most mutual funds even allow the personal investor to buy fractions of a share of the mutual fund, allowing you to buy in for just a few dollars.

For example, I have set my fund allocation with Vanguard to include a international mutual fund called International Growth Inv, with a 5% allocation limit. And with the small contributions I was making into the fund, I was buying less than 8% of 1 share each time I made a contribution. This is very good news to the small time investor, who wants diversification without giving up thousands of dollars. So, coupling the power and savings of pre-tax dollars in a Traditional IRA with a strong diversification model, we can all afford to participate in a wide range of companies, and their profits.

Why Traditional Diversification is not Diversified

Diversification has taken on many meanings within the past few decades depending on who you talk to, and in my opinion, I think on the way we lost its true meaning. I believe the reason for losing the real meaning of the word is due to the financial services industry bending and flexing it to their benefit. Putting the question of diversification to someone within the traditional financial services sector, is like asking someone in the oil business what is the best source of energy? It would be a safe bet that both answers would be skewed in favor of what they could sell you. So, what really is diversification? The definition, according to Webster’s dictionary is, “To make diverse: give variety to.”

So, to translate Webster’s definition to real world purposes, let’s explore some opinions on what supposedly qualifies as diversification? The large brokerage houses like Fidelity, Schwab, J.P. Morgan, and most others all pretty much say the same thing, “A basket of stocks that cover many sectors in a weighted fashion.” Well, I think we have all heard that before and it sounds like good advice if stocks were the only thing we were able to invest in. Fidelity outlines this approach on their website by stating one of the simplest, most common philosophies used in the traditional investment world when speaking about diversification, “By spreading your money out over different kinds of investments – stocks, bonds, mutual funds, and cash – you generally reduce risk without sacrificing potential returns.” Though I think we can all agree that the aforementioned is true, I think we can also agree that the stock market and bond market tend to counter move each other thus affecting each other. Also, consider that Fidelity only talks about what they can sell you, i.e. stocks, bonds, mutual funds, and money market cash accounts(what I like to call “The Traditional Four”). Merrill Lynch’s website states a similar philosophy and their version of diversification is either small cap or large cap, value or growth, and domestic or international. That still refers to publically traded financial markets, and again only offers products that they can sell you.

Most of the people reading this know that the stock market or the financial markets as a whole are basically a place where companies in the world can present and solicit themselves publicly. But one must consider that, due to globalization and advanced communication, all the exchanges in the world seem to operate as a single market place that have access to the same media and have the ability to influence each other. If you had a basket of stocks that you thought was diversified because it was covering many industries, and because it traded on one or more of these global stock markets operating as part of the larger single market, isn’t there a fundamental diversification problem with this? What I see is only one marketplace; hence, it is not diversified and a glaring example of this is the current credit and subprime crisis. Ask yourself if you would invest all of your money in say, only the NASDAQ? If you answered no, then your common sense is telling you that a single market is not diversified enough, and not safe enough. Through reaction and counter reaction, all of these global markets are moving and functioning like a single global market and your own common sense will tell you whether or not it is safe enough for all your investment dollars.
 
At this point I have every broker, advisor, and trader up in arms and ready to call in the firing squad, but before we do that, let’s dig a little deeper. Ask yourself how many times the “basket of stocks” made it through a correction untouched? Ask yourself how your portfolio fared during the dot.com bust in the early part of this century? Ask yourself how it performed during the little correction back in July of 2007 or the first few months of 2008?
 
Now that I have used up all my shock value, let’s get practical. Stocks, bonds, and mutual funds are all very important investment vehicles, but they are only three that are represented by the “single market.” Now here is something that most financial advisors probably won’t ever talk to you about. THERE ARE OTHER WAYS TO INVEST YOUR MONEY. There are people out there that are making great returns in ways that are not directly related to the single “financial” market. So let’s take a look at a few alternative investments that are not represented by the “single market” by using some examples below:

Raw Land – Medium Return-High Risk-Not Passive

Income Property -Medium Return-Medium Risk-Not Passive

Lending-Medium Return-Medium Risk-Not Passive

Rare Coins-Low Return-Low Risk-Not Passive

Antiques-Low Return-Low Risk-Somewhat Passive

Car Washes-Medium Return-Medium Risk-Not Passive

Coin Laundry-Medium Return-Medium Risk-Not Passive

Art – High Risk-High Return-Somewhat Passive

 
As we can see, there are definitely some alternative investments available that are not offered by your typical financial advisor, but there is a reason most people would not invest in these alternative investments; they are not for the inexperienced nor are they passive investments like stocks, bonds, or mutual funds. I am not using the IRS definition of passive, because in their eyes passive means you buy a rental property and you get to go to the bank and cash checks every month without any work, though this is rarely the reality. I am however using passive in the sense that after an individual purchases the investment, there isn’t additional work or time that goes into it except for collecting a return. This is sometimes called an “armchair investment.” With this in mind, all of the above investments really don’t qualify. Let’s face facts, it would be great to diversify into these alternative investments, but who has time to do the years of research it takes to be a numismatics expert and successfully trade rare coins at a profit, or manage and staff a car wash every day. One could argue that if you hired a property manger for your rental property, it would make it passive; however I can tell you from my own experience that you still have to manage your manager.

So, what if the aforementioned alternative investments were offered as a private fund with the expertise needed to return double digit returns while the investor did nothing but collect a check every quarter? Would that be a diversification from stocks, bonds and mutual funds? My unsolicited answer to that is yes, and in the effort to offer up an alternative, it is what helped give birth to hedge funds and private equity funds with the former’s strategy mostly using the financial markets and the latter offering more private alternative investments.

Most of us know about REIT’s that allow us to have the benefit of property ownership without being involved in the management aspect. However, I can almost guarantee that 95% of the investors out there didn’t know that there are managed funds for alternatives like rare coins, art, lending, medical technology, etc that was packaged into an armchair investment. The best part is that these private funds can often be a true diversification for an investor’s portfolio and also be an armchair investment. Remember, investing in a private alternative investment not only gives diversification from traditional investment vehicles but it also gives another important diversification factor; many of these funds are not traded on a public exchange.

This is crucial as it helps shelter the investment from the day to day fluctuations of the financial markets. Another important characteristic found in many of these investments is that they are backed by real tangible assets. This goes back to an age old argument of what the real value of paper is in comparison to something tangible like real property. There may also be internal diversification within many of these alternative investment funds, which adds another possible layer of security (As a managing partner of Regent Global Funds, we have always believed that diversification within the fund itself to be paramount to our strategy). All together, this gives the investor diversification from traditional investments, traditional markets, and from the investments themselves in the portfolio. They are basically structured as a private mutual fund based on an alternative investment strategy.

The next time you hear someone advising or talking about diversification, ask them, ” What is your definition of diversification?” If they hit you with the “Traditional Four”, make sure you tell them about the single market. You may find yourself on a soap box lecturing to traditional people about alternative ideas.

Should You Switch to an ETF From a Traditional Index Fund?

Should You Switch to an ETF From a Traditional Index Fund?
Costs and tax considerations are key factors when pondering such a decision.

Read more on Morningstar.com via Yahoo! Finance