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2007 Updates Nov Oct Sept Aug July Jun May Aprl Mar Feb Jan 2006 Updates Dec Nov Oct Sept Aug July Jun May Aprl Mar Feb Jan 2005 Updates Dec Nov Oct Sept Aug July Jun May Aprl Mar Feb Jan Bank Updates Sept Aug July Jun May Aprl Mar Feb Jan Banks 2006 Dec Nov Oct Sept Aug July Jun May Aprl Mar Feb Jan Banks 2005 Dec Nov Oct Sept Aug July Jun May Aprl Mar Feb Jan BDC Updates Dec Nov Oct Sept Aug July Jun May Aprl Mar Feb Jan MLP Updates Dec Nov Oct Sept Aug July Jun May Aprl Mar Feb Jan MLPs 2006 Dec Nov Oct Sept Aug July Jun May Aprl Mar Feb Jan MLPs 2005 Dec Nov Oct Sept Aug July Jun May Aprl Mar Feb Jan |
Meanwhile, uncertainties about the economy have led to increased volatility in the stock market. But as it turns out, that might be good news for tax-minded investors. “Anytime there’s volatility in the market, it creates tax-loss harvesting opportunities,” explained Francis Kinniry, a principal in the investment counseling and research department at the Vanguard Group. This year through Thursday, some 26% of all domestic stock funds tracked by Morningstar — or 2,328 portfolios in all — were showing losses. While investors don’t like to see their stocks fall in value, these minus signs create opportunities to sell losers before year-end — and to have Uncle Sam share some of the pain. By selling stocks or stock funds and realizing capital losses, you can offset capital gains realized elsewhere in your portfolio, effectively lowering your 2007 tax bill. If you’re a buy-and-hold investor who hasn’t sold any winning stocks this year — and thus haven’t had capital gains — selling some losers now can still help. Harvested tax losses can be used to reduce up to $3,000 of ordinary income for 2007. And this isn’t a use-it-or-lose-it break. You can carry over unused harvested losses into future tax years. With a growing number of index funds and exchange-traded funds being created, you can sell losing stocks or funds, yet still remain fully invested in the market. Say you were a new investor this year in Legg Mason Value, a large-cap fund that was down more than 6% through Thursday. You might choose to sell it to secure the tax loss. But you can immediately turn around and invest in an index fund like the Vanguard 500 or an ETF like the iShares S&P500. Since both funds, like Legg Mason Value, invest in large, blue-chip stocks, using them to replace your stake in Legg Mason Value won’t change your overall asset allocation strategy. To be sure, the Internal Revenue Service won’t let you sell a loser and immediately step back into the same stock or fund, or a “substantially identical” investment, within 30 days of your original sale. If you do, you lose the tax benefit. It’s called the wash-sales rule. But when an index fund tracks similar — but not the exact same — portfolio that an actively managed fund invests in, you can stay fully invested and be tax-conscious at the same time. You can also use one type of index fund to replace another indexed investment. Say you invested in the Vanguard Financials ETF, which tracks the MSCI U.S. Investable Market Financials index. That fund was down around 18% through Thursday. If you sell it, you can immediately buy the iShares S&P Global Financials ETF, which tracks the same sector, but a different benchmark: the S&P Global Financial Sector index. Here are other moves tax-conscious investors should consider as 2007 winds down: Giving shares to charities: If you’re thinking of contributing to a charity this year, consider donating appreciated stock. It’s a win-win: The charity can sell the appreciated stock without triggering a tax bill. You won’t have to pay any capital gains on those shares - and you’ll get to deduct the full market value of the gift based on the day of transfer. But if you’re planning to make such a gift, act quickly. The paperwork involved could take a few days to process. A simple option may be to donate your securities now to a donor-advised fund. Fidelity, Vanguard, T. Rowe Price and Schwab are among large asset managers that run such programs. Donor-advised funds allow you to make your charitable contribution now, and reap the tax benefit immediately. But you won’t have to name the charity immediately, so you can be thoughtful about the gift itself. Rebalancing your portfolio: Every year about this time, investors are reminded to reset their mix of stocks, bonds and cash to an appropriate blend based on their age and goals. But unlike tax-loss harvesting, in which you are selling your losers, rebalancing often requires you to sell winners. This way, you can invest more in an underperforming asset — hence the phrase “sell high and buy low.” Of course, if you sell winners, you may incur a capital gains tax bill. Rande Spiegelman, vice president for financial planning at the Schwab Center for Financial Research, recommends that “to the extent you rebalance, start rebalancing in your tax-deferred accounts” such as your 401(k) and IRA’s. Adding retirement contributions: The end of a year is also a good time to decide if you can afford to increase contributions to tax-advantaged investment accounts. For instance, if you recently got a raise or a bonus, consider adding to your contributions to your 401(k) for 2008. Next year, the annual federal limit for 401(k)’s is $15,500. But workers 50 or older can put in an additional $5,000. (Those limits are the same as this year’s.) And as for your Roth and traditional IRA’s, you have until April 15 to make contributions for the 2007 tax year. But if you’re making other tax-related moves anyway, you might as well make your IRA contribution now, before the year ends. The sooner you can get the money into your plan and have it work for you, the better.
By bunching, a taxpayer pulls some deductions into the current tax year or pushes them into the next. The goal is to consolidate them in the tax year where they will exceed the standard amounts. For 2007 taxes, that's $5,350 for single filers and married individuals filing separately; $7,850 for heads of household; and $10,700 for married couples filing jointly. In 2008, the standard deduction amounts are $5,450 for singles and married taxpayers filing separately; $8,000 for heads of household; and $10,900 for married couples filing a joint return. "In tallying up your deductible expenses, if you come in just under that standard amount, you have to decide if you can come up with enough additional allowable expenses to push the total over the top," says Weltman. Often, though, taxpayers don't run the numbers first; they simply take the deductions and then discover they don't have enough to itemize. Instead, says Weltman, in this last month of the year, think about whether you're going to itemize or claim the standard deduction on your 2007 return. "Then you can decide whether to push or pull deductions that are discretionary into the tax year that will do you the most good," she says. The so-called "kiddie tax" was created to ensure that parents don't shift investments to their children simply to avoid paying higher parental tax rates. Recently, the kiddie tax has been strengthened so that even more families will fall under its rules. It kicks in when a young investor earns more than $1,700 from his or her holdings. That money is then taxed at the parents' higher rate. In 2007, the kiddie tax applies to children applies to children younger than 18; in 2008, children under 19 and full-time students under 24 also will also be subject to the kiddie tax. That age increase means many young investors should sell their appreciated assets before the end of 2007 so that they won't be subject to the kiddie tax next year. But not all young investors should sell — if they own assets that are showing a loss and expect to face the kiddie tax next year, it might be wise to wait. In this situation, says Bob Scharin, RIA senior tax analyst from Thomson Tax & Accounting, waiting to sell those assets that have lost value can offset any gains in 2008. And that could reduce the amount of money that's subject to the higher kiddie tax rate. As with all investments, there is a risk. By waiting, the stock value could change before the asset is disposed of, so don't make investment decisions based solely on tax considerations. Investment strategies also need to be evaluated for all lower-income investors, regardless of age. In some cases, these individuals will want to wait until Jan. 1, 2008, to sell their appreciated assets. "Next year, the long-term capital gains for people in the 10% and 15% bracket will go to zero. So hold off selling until 2008 when you're not going to pay any tax. Taxpayers in the two lowest tax brackets currently pay 5% on long-term capital gains. To qualify for the zero rate in 2008, a married couple must make less than $65,100 in taxable income; single filers earning less than $32,550 will pay no tax on their sales of assets they've owned for more than a year. In past tax years, parents might have given assets to their children to sell at lower capital- gains rates. The kiddie-tax changes, however, have ended that stock strategy for many. But you might have other family members who could benefit: your parents. Many seniors, especially retirees who have little or no taxable income, could take advantage of the zero capital-gains rate. Scharin suggest investors with appreciated long-term assets consider giving them to mom and dad to sell. And don't worry about the holding period of the gift; it's the same as the original owner's. "If I held a stock for two years and gave it to my mother, she could turn around and sell it the next day and get the long-term capital-gains rate," says Scharin. And in 2008, that would be zero. However, even if you (or a family member) do fall within the income limits next year, not all of the gains might qualify for the zero rate. Capital gains from the sale of stocks and mutual funds are added to your income, and that additional income might lift you into a higher tax bracket. If that happens, a portion of your gains would be taxed at that higher rate, says Scharin. And Scharin and Weltman are each quick to note that tax considerations should never be an investor's primary motivation for making market moves. "You have to let the market dictate your selling plans," says Weltman.
As many as half of families lack savings necessary to invest, he says. A 2006 law may bring more low-income investors into mutual funds. It permits employers to automatically enroll employees in 401(k) plans and invest their contributions in mutual funds. Only a small percentage of employers have done so, but as they do, fund-ownership rates should rise, Reid says. Competition from exchange-traded funds, which can be bought and sold like stocks, isn't yet a factor. Despite their rapid growth, ETFs are owned by just 1% or 2% of households, Reid says.
Plenty of historical evidence supports the notion that buybacks are a bullish indicator. In the early 1990s, researchers noticed that the stocks of such companies significantly outperformed the market for up to four years after the announcement of their repurchase programs. There are several reasons for this correlation, but a crucial one is that buyback programs are typically started when managers believe that their shares are significantly undervalued. Researchers have confirmed the existence of this correlation when studying other periods in American stock market history, as well as the markets of several other countries. “The consistent results of these numerous academic studies enable researchers to have a high degree of confidence that the historical correlation between buybacks and beating the market is genuine,” said David L. Ikenberry, a finance professor at the University of Illinois at Urbana-Champaign, and one of the lead authors of the original academic study about share repurchase programs. But recent data compiled by Standard & Poor’s doesn’t seem to fit this pattern. S.& P. focused on those companies within the S.& P. 500 index that repurchased shares between the beginning of 2006 and June 30, 2007 — a total of 423 companies. It found that, as of Sept. 30 this year, 320 of them — or 76 percent — would have been better off had they not repurchased their shares and instead invested in an index fund benchmarked to the S&P500. What might account for this apparent reversal? Might it be that unscrupulous managers are inaugurating buyback programs without intending to repurchase any shares, in the hope of artificially bolstering their prices? Wouldn’t the presence of such companies reduce, or even eliminate, the correlation between buyback programs and long-term share performance? In fact, it would be quite easy for managers to mislead investors in this way. Even when there is no intent to hoodwink the market, companies that announce buyback programs often do not commit to the exact number of shares that will be repurchased or even to buying back any shares at all. Instead, companies simply say that their buyback programs will proceed as conditions warrant. Investors would have a hard time detecting companies whose managers are being disingenuous. After studying the question, Professor Ikenberry said, he believes that a large majority of companies that announce buyback programs do not have any intent to mislead. Along with three other researchers, he recently completed a paper, entitled “Share Repurchases as a Tool to Mislead Investors: Evidence From Earnings Quality and Stock Performance.” His co-authors in this study were three other finance professors: Konan Chan of the University of Hong Kong; Inmoo Lee of the National University of Singapore; and Yan-zhi Wang of Yuan Ze University in Taiwan. Managerial intent cannot be measured directly, of course. So the professors focused instead on aspects of a company’s financial statements that they say will be more prevalent among businesses whose managers have a predisposition to mislead. The researchers focused particularly on what accountants call discretionary accruals — revenue or expense items about which managers have a relatively large amount of discretion in deciding not only when they appear on their companies’ books, but also their magnitude. A current example would be a bank’s determination of how much it should reduce its earnings in anticipation of future losses from the subprime mortgage mess. Previous research has found that managers under extreme pressure to bolster their company’s stock price often make aggressive use of discretionary accruals. Their behavior isn’t necessarily illegal. But their accounting legerdemain typically has the desired effect for only brief periods. In the long term, such companies’ stocks tend to lag those of businesses that don’t make heavy use of discretionary accruals. The professors reasoned that managers under pressure to increase their company’s stock price are likely to use all the tools in their arsenal. So if they were willing to mislead investors by inaugurating a bogus buyback program, it is probable that they will have also used discretionary accruals aggressively. Professor Ikenberry said he and his fellow researchers had found that, at most, only a “small minority” of companies that announced buyback programs from 1980 to 2000 had also made heavy use of discretionary accruals. Though this doesn’t prove that the bulk of buyback programs were created without an intent to mislead, Professor Ikenberry said it is reasonable to make that inference. He cited another finding of the study to support this view: the stocks of buyback companies tend to perform much better over the long term when they don’t use discretionary accruals aggressively. The researchers divided into two groups the companies that announced buyback programs from 1980 to 2000. The first contained those that took advantage of this accounting loophole; the second contained those that did not. The professors found that the stock of the average company in the first group enjoyed a short-term bounce after the announcement of its buyback program, but then fell back. In contrast, the stock of the average company in the second group not only had a short-term bounce, but also continued to outperform the market for several years after the buyback announcement. Professor Ikenberry says it’s unlikely that this finding would have emerged if more than a small minority of companies had started buyback programs with the intent to mislead. Two investment implications emerge here. The first, according to Professor Ikenberry, is that the stock of the typical buyback company is likely to keep being a good bet to beat the market. The second is that investors who focus on the stocks of buyback companies would improve performance by paying attention to which ones make heavy use of discretionary accruals.
In the late 1990s, we had the explosive growth of the Internet combined with plentiful financing from venture capitalists and public stock offerings. Meanwhile, the current decade saw the proliferation of innovative new mortgages that allowed home buyers to put down little or no money and still enjoy low initial monthly payments. Throw in rock-bottom interest rates, and these loans were even more affordable. Ironically, the 2000-2002 bursting of the stock-market bubble helped fuel the housing bubble. As share prices tumbled and the economy slowed, the Federal Reserve cut short-term interest rates, providing the cheap financing that propelled the property boom. "I don't think that we're going to see another real estate or stock bubble for at least another few decades," Mr. Bernstein says. "But not to worry: I have faith that our genius for financial innovation will provide us with many new and exciting areas capable of vaporizing large amounts of wealth." Making Mistakes While innovation and easy money were key ingredients in both bubbles, investor psychology also played a crucial role. Want to make sure you don't lose your shirt in the next bubble? Watch out for these four mental mistakes: We assume rising investments will keep on rising. It isn't surprising we think this way. Following the crowd is often a smart strategy, notes Terry Burnham, co-author of "Mean Genes" and director of economics at Boston's Acadian Asset Management. For instance, if a new gadget or a new movie is wildly popular, it's probably pretty good. But if an investment is wildly popular, it has likely already posted big gains -- and we may be buying something that is overvalued. Problem is, not all overvalued investments immediately tumble in price. In fact, we may make money at first -- and end up learning the wrong lesson. Instead of swearing off hot investments, we might come away believing we're good at picking winners, but that we just didn't sell in time. "People make the same simple mistake -- buying an investment after it's already gone up a lot -- repeatedly," Mr. Burnham says. "They do it their whole life." As markets climb, investors grow increasingly self-confident. They attribute their gains to their own brilliance -- and start making even bigger bets. In the 1990s, this self-confidence drove technology-stock investors, who had enjoyed some initial success, to pour even more money into the sector. In the current decade, real-estate speculators, who fared well with their first property, were soon buying half a dozen buildings. This growing appetite for risk is also driven by the "house money" effect. Like casino gamblers who get lucky early in the evening, winning investors feel like they're ahead of the game and they can afford to take extra risk. Their thinking: Even if they lose a little, they will still have handsome gains. Unfortunately, when a bubble collapses, the losses are never small. The Nasdaq Composite Index tumbled 78% between March 2000 and October 2002. True, home prices have, so far, barely dipped. But because property speculators are typically betting with borrowed money, even modest price drops can mean big losses. When a bubble bursts, many folks freeze, unwilling to sell at a loss.But others may take on even more risk, in an effort to recoup their losses. Indeed, no doubt some tech investors, who had lost a heap of money in the stock-market decline, turned to real estate, hoping this second roll of the dice would get them back to even. Seeking Mediocrity What's the lesson here? That brings us to a fifth mental mistake. It is easy to decry the foolishness of those who chased the hot returns of Internet stocks and Florida condos. Yet, at the time, there was a heap of uncertainty about the direction of these markets. Some pundits declared that stocks and real estate were in a bubble years before these markets collapsed. Other experts remained full-throated bulls to the bitter end. "Yes, bubbles happen," says Meir Statman, a finance professor at Santa Clara University in California. "No, you can't tell when to get in and get out. You're better off just staying on the rollercoaster." If you stay on the rollercoaster, however, you want to stay on with a well-diversified portfolio that includes stocks, bonds and real estate. "If you concentrate all your investments in energy stocks, or technology, or initial public offerings, you will be a big winner -- or a big loser," Prof. Statman warns. "It's true that diversification ensures mediocrity. But mediocrity is better than being a big loser."
If profits fall far enough, it could discourage capital spending and make companies less willing to hire or retain workers. A hiring slowdown could magnify the downturn and hasten a recession. That's bad news for wage earners as well as those who own stocks. Weaker profits ultimately translate into lower stock prices, which could further erode the confidence of American consumers, who are already feeling less wealthy as fuel costs rise and their home values decline. "The recession in reported earnings has already begun," says David Rosenberg, chief U.S. economist at Merrill Lynch. "The underlying cause is a combination of painfully high energy prices and the general lack of pricing power in many businesses, which is starting to crimp margins." Mr. Rosenberg estimates profits, measured by the operating earnings per share of companies in the S&P500, fell 8.4% in Q3-07 from Q3-06. He expects those earnings to be flat or lower for the next five quarters. Companies with most of their business inside the U.S. are hurting most. Merrill estimates "domestic earnings," or profits derived from activities inside the U.S., have contracted in three of the past four quarters and have shrunk more than 4% for the year, the worst reading in that gauge since the fourth quarter of 2001. Most economists expect things to get worse before they get better. "We're facing a tsunami of earnings downgrades next year," says Mr. Rosenberg. The downturn in earnings started in sectors linked to housing but has spread far beyond. FedEx Corp. last month lowered its profit forecast for the current quarter and full year, marking the second time since September that the Memphis, Tenn., overnight shipper has cut its outlook. FedEx said the weakening economy and cutbacks in consumer spending were making for a weaker-than-expected holiday shipping season. Talbots, the women's clothing retailer, also blamed tighter-fisted consumers for a downward revision in its outlook for the fall. Until recently, strong foreign sales were a saving grace for many U.S. multinationals, offsetting softening markets at home and bolstering overall profits. The weaker dollar played a role by making American goods more attractive to foreign buyers and helping boost the bottom lines of U.S. companies when earnings in stronger foreign currencies were translated back into dollars at the end of each quarter. But the downdraft in the U.S. economy is now overwhelming those benefits, economists say. In 2007's first two quarters, S&P500 operating earnings rose at a high single-digit pace from a year earlier, before dropping into negative territory in Q3. That weakness followed a remarkable growth run: Through the 14 quarters ended with Q3-06, earnings grew at a double-digit pace. Richard Berner, chief U.S. economist at Morgan Stanley, expects a "significant and lengthy" contraction in earnings, even if the U.S. economy avoids a recession next year. That's because U.S. companies have far more operating leverage now than at any time in the past. Companies with high operating leverage have relatively high fixed costs, such as retail chains that must pay rent on dozens of stores regardless of how much is sold at each location or a manufacturer with factories full of expensive machines that must be maintained even if they aren't churning out products. "Because of operating leverage, when the economy really slows down you get a much more pronounced impact on profits and earnings," says Mr. Berner, because company results are hurt simultaneously by lower sales and thinner profit margins. He says if the U.S. economy grows only 1% or 2% next year, overall earnings might slip 2% to 5%. But if growth is lower, say flat to 1%, earnings could fall by 5% to 15%. Meanwhile, more companies are warning investors of dark clouds ahead. Zimmer Holdings, a maker of artificial joints, recently cut its projected range for Q4 earnings by nearly 10%, citing "lower anticipated sequential growth rates in the Americas." The U.S. accounts for about 95% of Zimmer's sales in this region. Volcom, a maker of surfing and skating clothes, warned Q4 profit would be lower because of the weakening U.S. retail environment. Overseas firms with U.S. operations also are being hurt. Neopost Group of France, the world's second-largest maker of mailroom equipment after Pitney Bowes, recently cut its profit target and cited problems in the U.S. Pitney Bowes also cut its outlook. "We do a lot of printing and copying for financial companies, so to the extent that they're being hit by subprime and other factors, we're seeing some echo of that in their work with us," says Matt Broder, a company spokesman.
But if you’re a buy-and-hold investor with a balanced portfolio consisting of stocks for growth and fixed-income securities for ballast, “you don’t need a place to hide,” said Mike Scarborough, president of the Scarborough Group, an investment advisory firm, that works with 401(k) plan participants. Investors are encouraged to establish a long-term mix of stocks and bonds and cash in the first place — and to maintain it over time — largely to keep their portfolios on an even keel no matter which way the market winds are blowing. And history shows that a balanced asset-allocation strategy can provide that stability. Consider the last recession, which lasted from March to November of 2001, according to the National Bureau of Economic Research. During that period, a portfolio mirroring the S&P500 would have lost 7.2% of its value. But had you invested in a balanced way, with 60% of your money in S&P500 stocks, 30% in domestic bonds and 10% in cash, you would have lost 2 percentage points less. That’s according to an analysis run by the investment management firm T. Rowe Price. This balanced portfolio would have benefited from its stable fixed-income investments, which rose in value as interest rates fell during that time. Bonds won’t always bolster your portfolio. During the 16-month-long recession from November 1973 to March 1975, it was cash that really shone. During that recession, which coincided with the 1973-74 bear market, equities lost nearly 18% of their value. But as 30-day Treasury bills, a proxy for cash, generated double-digit gains, a 60-30-10 portfolio would have fallen only 8.4% during this stretch. Of course, this raises a question: If you really fear recession, why not go entirely to bonds and cash? The simple answer is that there are major risks associated with trying to time the market. Mr. Scarborough says it’s impossible to know whether a recession is on the way. But, he added: “Let’s say a recession is coming and you go to cash. Great. Even assuming you got that call right, now tell me when you think is the right time to get back in?” Even if a recession is imminent, there’s no guarantee how any asset class will perform during the downturn. For instance, during the recession from July 1990 to March 1991, the S&P500 actually gained 7.6%. But because of the stellar performance of bonds, a balanced 60-30-10 portfolio actually gained slightly more, 7.7%. The reason to maintain a diversified portfolio is not to outperform the market, but to prevent you from panicking during a short-term crisis in equities, said James Shambo, a financial planner. And that’s what recessions have been in recent decades: extremely brief episodes. Since 1945, the average recession has lasted only 10 months, according to the National Bureau of Economic Research. You have to go back to the Great Depression to find an economic downturn that lasted longer than 16 months. So if a recession is at hand, “there’s a good chance that this is really only a temporary concern,” Mr. Shambo said. Unfortunately, many investors are likely to panic in the event of a recession because they haven’t taken the time to establish an asset allocation plan, financial planners say. Even worse, those who have settled on an appropriate mix of stocks, bonds and cash aren’t safeguarding their strategy by periodically rebalancing their assets. How do we know this? Every year, Hewitt Associates, the employee benefit research firm, studies the behavior of the nation’s 401(k) participants. In 2006, only 17% of 401(k) investors made even a single trade. Yet to rebalance your portfolio, you have to sell some winning assets or buy some losing ones (or at least some that have been relatively unsuccessful). If you don’t rebalance every year, assets that have been outperforming will become a bigger and bigger part of your portfolio, said Pamela Hess, Hewitt’s director of retirement research. And that means you may be overexposed to equities — in particular, specific types of shares like emerging-market stocks — just as the economy is slowing. Ms. Hess says the simplest way to establish and maintain an asset allocation strategy is to invest in a so-called target date retirement fund. These all-in-one portfolios invest in a mix of stocks, bonds and cash that are considered appropriate for someone your age or with your time horizon. Better still, these professionally managed mutual funds also reset your mix periodically, which means you don’t have to worry about rebalancing. If you don’t want to cede control of your portfolio to a single manager, there may be another choice. Today, 42% of 401(k) plans offer an automatic rebalancing, resetting your mix of stocks, bonds and cash once a year. Relatively few investors are using this tool, and last year, about 15% of those who were using it dropped it. “The truth is, the bulk of people aren’t really doing anything when it comes to asset allocation and rebalancing,” Ms. Hess said. That’s unfortunate, she said, because at the end of the day, a diversified asset allocation strategy will ensure that your portfolio isn’t entirely exposed to stocks just when they’re most vulnerable.
Many closed-end funds trade at a discount in December only to immediately bounce back to fair market value or higher in January. That's because investors looking to claim investment losses to ease their tax burden prompt a slew of selling. But in the new year, investors quickly pick up the funds they ditched -- and the discount disappears. The deals are especially attractive this year. Since about 75% of closed-end funds use leverage to boost returns -- where they borrow short-term debt and invest it in stocks they think will generate higher returns than the debt's interest rates -- the funds were easy targets for panicked investors bailing out of anything related to credit. And with the Federal Reserve cutting rates, that leverage also may help performance as borrowing costs fall. The average discount hit 9% on the stock market's worst day in August -- wider than after 9/11 or the implosion of the Long-Term Capital Management hedge fund back in 1998, says Jeff Margolin, closed-end-fund analyst at investment firm First Trust Portfolios. The discounts are now back to those summer levels as investors are still panicky in the wake of the credit crunch and recent stock market volatility. "Closed-end funds are a steal. They were thrown out with the bathwater," says Dawn Bennett, an investment management analyst and chief executive of wealth-management firm Bennett Group Financial Services. Sangeeta Marfatia, director of closed-end fund research for UBS Wealth Management, says the market has seen significant volatility, with 5% price swings becoming the norm. Not all bargains are worth scooping up, however. Ms. Marfatia recommends that investors pass on funds that are cutting dividends or not earning enough to maintain their payout. One fund that has raised its dividend is Calamos Strategic Total Return fund (CSQ), which invests in stocks, bonds and convertibles, giving investors broad diversification. Some other closed-end funds to consider: The Van Kampen Municipal Opportunity Trust fund (VMO) invests in municipal bonds and trades at a 6% discount to the value of its underlying portfolio. The Nuveen Equity Premium Opportunity Fund, (JSN) -- which invests in covered calls, meaning it uses options-trading strategies to improve returns -- is trading at more than a 12% discount and is generating an almost 11% yield, says Alex Reiss, a Stifel Nicolaus vice president covering closed-end funds. For those looking for healthy stock appreciation and a portfolio that can benefit from strong global growth and a weakening dollar, the Lazard Global Total Return and Income Fund (LGI) is still on sale at a 13% discount.
Why is this so important? If you've ever used a retirement calculator or gone to a financial planner to figure out how much you can safely withdraw from your nest egg, you know that 4% is a kind of magic number. To avoid the risk of outliving your money, academic research says, you should tap only 4% of your portfolio in the first year of retirement, and then increase that amount to keep pace with inflation in subsequent years. But is it really so difficult to hit that target? Don't blue-chip stocks return around 7% a year even after inflation? Yes, they do. But that's just an average - sometimes the results are worse. So creating a portfolio that relies solely on capital appreciation comes with a built-in risk - the danger that if you suffer big stock losses early in your golden years, you'll have to worry about running out of money. If potential stock market losses are the problem, why not stick with bonds? After all, many investment-grade corporate bonds are paying out more than 5%. And some government bond funds are yielding almost that much. You could spend 4%, reinvest the remainder and keep your money growing, right? It's not that simple. Over time, the income a bond portfolio generates won't rise much, which means you won't keep up with inflation. A better strategy is to rely on income stocks. With a prudent, high-yielding equity portfolio, you won't have to worry about falling behind inflation. Nor will you have to care how the market performs, since you won't have to sell stock each year to pay the bills. You can simply live on the income your portfolio throws off. There are other reasons to include high-yield stocks in your mix. Some may be getting hammered now - which is why their yields are so high - but in general, stocks that pay ample dividends hold up better than those that don't. "When it looks like there's a bear market ahead, investors stop thinking about growth and start caring about preserving capital, so they pile into dividend-paying stocks where part of the return comes from income you can count on," says analyst Will Geisdorf at Ned Davis Research. Because they resist major setbacks, high-yielding retirement portfolios tend to last longer. Ned Davis Research recently crunched the numbers for Money and found that a high-yielding portfolio launched at the worst time in the past 40 years - before the 1973-74 bear market - not only would have kept your income growing at the pace of inflation but would have increased in value eightfold (assuming an initial withdrawal rate of 4.5%). An S&P 500 portfolio, on the other hand, would have been used up by now. Over time, high-paying stocks also generate more income than government bonds. That's because while bond income is fixed, dividends aren't. Companies typically increase dividends over time so your retirement income can stay ahead of inflation. But until recently, this strategy was a nonstarter because the S&P's yield has been less than 4% for more than 20 years. But the market sell-off is driving up yields in certain sectors that have traditionally paid big dividends to begin with. For example, after plunging 20% this year through Nov. 19, large financial stocks have seen their average yields climb to 3.2%. With a few of the higher-yielding bank stocks, mixed with some utilities and a couple of long-troubled drug stocks that are still paying out handsomely, a 4% dividend-paying portfolio is now within sight. Constructing your portfolio If you want to put together a portfolio of high yielders, you may be smart to build slowly. It's also important to make sure your portfolio is well diversified. The simplest step to take now is to buy the S&P Dividend SPDR [SDY], an ETF that spreads its bets among 52 stocks. This fund tracks the S&P High Yield Dividend Aristocrats index, an elite group of stocks that have steadily increased their payouts over the past quarter-century. These include blue chips like Consolidated Edison and Coca-Cola. If a company can boost dividends every year for a generation, it should certainly be strong enough to survive the current market storm. Moreover, only a third of the portfolio is invested in financial stocks, so you can benefit from the sector's high payouts without exposing all your money to its current troubles. Safety has a price, though. The fund yields 3.7% [on 12-07], which is below the key 4% target. Still, you can use it as your core holding and then pump up your portfolio with higher-yielding securities. To do that, you might consider investing in one of the more conservative high-yield bond funds like Vanguard High-Yield Corporate, which offers an attractive 8% yield. Also look at classic utility stocks, which have some of the same characteristics as bonds. Utilities overall are yielding less than 3%, but some high-quality names pay a lot more. Integrys Energy Group, which runs electric utilities and distributes natural gas in the Midwest, is yielding 5.2%. And Vectren, an electric and gas utility in Indiana and Ohio, is offering 4.5%. David Katz, president of Matrix Asset Advisors, says, "There are two types of high-yield stocks - those like utilities that historically pay large dividends and those that have sold off so much that they happen to have high yields at the moment." Financial stocks fall into the latter category and could report more bad news. Plus, their historical pattern during credit crunches suggests prices could be choppy until February or March. But keep in mind that battered stocks also offer the greatest opportunity for gains. As long-term values, Katz favors Pfizer among the depressed drug giants and Bank of America among the financials weighed down with shaky loans. There's one last group to watch. Real estate investment trusts not only offer growth and fairly high yields, their property holdings also offer long-term protection against inflation. Only trouble is, property prices could be weak for another year. A diversified fund such as Vanguard REIT Index fund is the safest way to invest in the group, but given current uncertainties, it's smarter to wait and watch. You're going to be depending on your retirement portfolio for decades. You should be willing to spend a little time fine-tuning your holdings.
My correspondents, unfortunately, were overlooking one of the basic tenets of portfolio building. Yes, holding a few bonds might hurt returns -- but the financial loss is small and the benefits impressive, especially at times like this. Since year-end 1925, the Standard & Poor's 500-stock index has clocked 10.4% a year, easily outpacing the 5.3% annual return for intermediate-term government bonds. Yet, if you had kept a sliver of your money in bonds, you would have sharply reduced your portfolio's price gyrations, without paying a big price in returns. For proof, consider some numbers from Ibbotson Associates, a unit of Chicago's Morningstar. Since 1925, a mix of 90% S&P 500 and 10% intermediate government bonds would have had annual volatility that was 10% lower than that of an all-stock portfolio. Meanwhile, you would still have notched 10.1% a year, which means you captured 97% of the S&P 500's 10.4% annual return. This 10.1% assumes you rebalanced back to your 90%-10% mix at the end of each year. Even at 75% S&P 500 and 25% bonds, you would have earned 9.5% a year, or 91% of the S&P 500's annual performance, while suffering 25% less annual volatility. That sure seems like an attractive tradeoff: You're losing a quarter of the annual volatility, but getting just 9% less annual return. Better Protection from Inflation-Protected Bonds & International Bonds If you are creative with your bond holdings, you could probably reduce risk even more. For instance, accelerating inflation is a big threat for stock investors. To offset that risk, you might keep part of your bond money in an inflation-indexed bond fund, such as Fidelity Inflation-Protected Bond or Vanguard Inflation-Protected Securities (though, to be honest, I'm not enthused about inflation bonds at today's modest yields). Similarly, a shaky U.S. economy could cause U.S. stocks to plunge. In that scenario, the dollar might weaken, which would bolster foreign-bond funds such as T. Rowe Price International Bond and the exchange-traded SPDR Lehman International Treasury Bond ETF. But there is one bond-market sector that probably won't be a good diversifier. Like stocks, high-yield junk bonds tend to reflect the strength of the U.S. economy. That means junk bonds don't provide much portfolio protection for stock investors. While keeping a small sum in bonds won't greatly crimp your annual returns, that slight disadvantage will compound over time. Indeed, after 30 or 40 years, you will likely end up with far more wealth if you opt for an all-stock portfolio. But this, of course, assumes you can grit your teeth and live with 100% stocks. Can you? Remember, risk tolerance isn't stable. In early 2007, after more than four years of rising share prices, it was easy to be big and brave. But in October 2002, when stocks hit bottom after the S&P 500's 49% plunge, nobody was writing to me touting the virtues of a 100% stock portfolio. Most folks, I believe, just don't have the emotional fortitude to keep everything in stocks. Allocating some money to bonds doesn't just provide psychological comfort and a financial cushion during stock-market declines. It also gives you buying power. When stocks plunge, that creates a sense of crisis, triggering an overwhelming urge to act among many investors. But what will you do? Now that share prices are lower, the rational strategy is to purchase more stocks. If you have some bonds, you will have the money to do just that. All that said, I believe stocks will win in the end. If you are 100% invested in a diversified stock portfolio and you can live with the volatility, you will likely earn dazzling long-run returns. Still, these dazzling returns aren't guaranteed. Over the past century, many foreign stock markets have been shuttered because of war or internal political turmoil. Today, it seems unimaginable that that could happen in the U.S. -- and, if it did, bond investors would likely also get crushed. There is, however, also the risk that U.S. stocks could suffer horrendous returns because of economic dislocation or because valuations contract from today's heady levels. For instance, if you bought stocks at the 1929 market peak and held on through the Great Depression, it would have taken more than 15 years to get back to even, as measured by the S&P 500's total return. Meanwhile, if stocks reverted to the modest price-earnings multiples and rich dividend yields we saw in the early 1980s, the S&P 500 would tumble 60% or 70% from current levels. Could it happen? The chances are slim. But a slim chance isn't the same as no chance, which means keeping 25% or 30% of your money in bonds is probably a prudent move.
Pfizer is cutting 20% of its sales force, AstraZeneca is cutting 10% of its employees and Johnson & Johnson is shrinking its staff by 4%, according to Bernstein Research. As many as 50,000 industry positions will be displaced over the next 10 years, according to wealth-management company RegentAtlantic Capital. Bristol-Myers Squibb has announced plans to cut 10% of its work force, or about 4,300 jobs, and close or sell about half of its 27 manufacturing plants by 2010. Biotech drugs are especially appealing because they face no competition from generics: No regulatory pathway yet exists in the U.S. for bringing to market generic biotech drugs. And biotechnology products tend to target specialized areas of medicine that don't require mass advertising or armies of salespeople. So big pharmaceutical companies have spent nearly $76 billion since 2005 to buy biotech companies.
In the second quarter, borrowers were at least 30 days behind on 2.77% of all auto loans made by nonbank lenders, the main players in the market, according to the American Bankers Association. That was the highest delinquency rate since 1991. There are reasons to believe the problems in auto loans won't reach crisis levels. Auto lenders and credit counselors say many consumers see their cars as a necessity and would sooner hand back the keys to a home and look for a rental than default on a car loan. The monthly payment on a car is smaller than a mortgage payment. Most auto loans carry fixed interest rates, unlike subprime mortgages, which often reset to a higher rate after an introductory "teaser" period of two or three years.
When stocks are really about to decline, for example, and the profitable course of action would be to sell some of the stock in a portfolio and hold cash, the typical investor tends to remain stubbornly optimistic, treating the decline as a buying opportunity. On the other hand, when the stock market is experiencing a mere correction, and the optimal response would be to load up on stocks, investors generally believe that the decline is just the beginning of something far worse. It is difficult to measure the sentiment of all investors accurately, so practitioners of contrarian analysis often focus on the opinions of a group of people whose views are broadly representative of investors as a whole, and whose moods are easily quantified. Investment newsletter editors meet these conditions nicely. Research conducted by the Hulbert Financial Digest over the last two decades shows that the stock market generally has fallen when newsletter editors have jumped on the bullish bandwagon, and the market has risen when the newsletters have been most bleak. Investment newsletters have been quite gloomy lately, reacting to stock market weakness by hastily moving to cash. From a contrarian point of view, this is a strong bullish indicator. It certainly does not fit the model of what typically happens before the onset of a bear market, when newsletters tend to be bullish. Consider the average recommended exposure to the stock market among the short-term market timing newsletters tracked by the Hulbert Financial Digest. By Monday, that average had fallen by 63 percentage points since the Standard & Poor’s 500-stock index hit its high in early October, from 50 percent then to minus 13 percent early this week. This meant that the editor of the average short-term market timing newsletter was recommending that his clients allocate 13 percent of their equity portfolios to actually shorting the stock market — an aggressive bet that the market will go down. By Thursday’s close, that average had climbed back into slightly positive territory at 8 percent. Even with that bounce, however, the average newsletter was extremely pessimistic. To put the newsletters’ retreat into an historical perspective, consider how they reacted in the weeks after the S.& P. 500 hit its top in March 2000. At the time, of course, no one could have known for sure that the Internet bubble was bursting and that the decline beginning that month would last for more than two and a half years and lead to a halving in the average share price. What is clear is that the short-term market-timing newsletters, on average, were not particularly concerned about the prospects for the market. They did not use that decline to reduce the recommended equity exposure of their portfolios. On the contrary, they considered it a buying opportunity. During the first three months after that market top, the newsletters actually increased their average recommended exposure to stocks. In contrast to the happy-go-lucky attitude that prevailed then, the majority of newsletter editors this time around have fallen over themselves to jump off the bullish bandwagon. Their behavior bodes well for the stock market’s near-term direction, since in the past they have regularly gotten it wrong. To bet that stocks are about to enter a bear market, you would need to bet that these Wrong-Way Corrigans will get it right this time. Based on past performance, that’s not very likely. It is worth noting that contrarian analysis is helpful only for timing the markets’ shorter term gyrations. Over periods of one year or longer, for example, it sheds little light. In suggesting that the final top of the recent bull market has not yet been reached, therefore, contrarian analysis does not hazard a guess as to when that top will arrive or how much higher the stock market will be then compared with today. But it does suggest that stocks’ path of least resistance over the next few months will be up. Contrarians are fond of saying that bull markets like to climb a wall of worry. It would appear that for now, that wall is very much intact. With only five weeks left in 2007, and the Standard & Poor’s 500-stock index down 5.6% in what is supposed to be its best quarter of the year, Wall Street is becoming understandably anxious. While some investors are counting on another December rally, like the one of 2004, others wonder if the stock market’s two-month slide could be the beginning of the end for this five-year-old bull. “Investors are acting like hyperactive first graders playing musical chairs,” said Sam Stovall, chief investment strategist at S&P. “Now that the music is slowing down, they’re scrambling to figure out if the music is about to stop or speed back up.” Yet the possibilities aren’t limited to just those two choices. Monthly Employment Stats
Employment in professional and technical services grew by 24,000 in November and has risen by 312,000 over the year. In November, job gains continued in computer systems design and related services (12,000) and in management and technical consulting services (6,000). Health care employment continued to grow, but the gain of 15,000 in November was less than half the average increase (34,000) for the prior 12 months. In November, hospitals and offices of physicians added 8,000 and 7,000 jobs, respectively. Employment in social assistance increased by 10,000 in November and by 94,000 over the year. Within leisure and hospitality, employment in food services and drinking places continued to trend up in November (17,000). Food services has added 306,000 jobs over the year. Employment in accommodations edged up in November (11,000). Employment in retail trade edged up in November (24,000). Job gains occurred in clothing stores, health and personal care stores, electronics and appliance stores, and furniture and home furnishings stores. Employment in general merchandise stores, which include department stores, fell by 11,000 over the month. In November, employment declined in several industries related to home building and financing. Construction employment declined by 24,000 with job losses occurring in residential building (-7,000) and in residential specialty trade contractors (-13,000). Within financial activities, employment in credit intermediation (which includes mortgage lending and related activities) continued to contract (-13,000). Credit intermediation has lost 75,000 jobs since its peak in February. Real estate employment declined by 8,000 in November. Manufacturing employment continued to trend down in November. Job losses persisted in two industries that provide construction materials—wood products and nonmetallic mineral products (such as concrete and glass). Machinery manufacturing added 4,000 jobs over the month. The average workweek for production and nonsupervisory workers on private nonfarm payrolls was unchanged at 33.8 hours, seasonally adjusted. The manufacturing workweek increased by 0.1 hour to 41.3 hours, and factory overtime was unchanged at 4.1 hours. Average hourly earnings of production and nonsupervisory workers on private nonfarm payrolls rose by 8 cents, or 0.5%, in November to $17.63, seasonally adjusted. This followed a 1-cent gain in October. Average weekly earnings also grew by 0.5% over the month, to $595.89. Over the year, both average hourly and weekly earnings rose by 3.8%. Quick Facts, Stats & Opinions The IPO Class of 2007 AP 12-23 The U.S. market for initial public offerings of stock had a strong year in 2007, even as the subprime-mortgage and credit-market crises unfolded, according to an annual review by the IPO research firm Renaissance Capital. The 2007 IPO market has had the highest volume and largest proceeds since 2000, with 231 offerings raising $53 billion as of Dec. 17. The four largest issuers in 2007 were financial companies, but financial offerings were among the biggest disappointments of the year. Shares of Blackstone Group, whose $4.1 billion IPO was the largest, are trading more than 20 percent below the offering price of $31. Instead, the IPO market's performance was driven by Chinese companies and some blockbuster U.S. technology deals. There were more than 50 technology IPOs in 2007, including VMware, a spinoff from EMC. It was the largest tech IPO since Google, raising more than $1 billion and gaining 76 percent in its first day of trading. VMware is now the fourth-most-valuable software company in the world, behind Microsoft, Oracle and SAP. Companies based in China accounted for half of the 25 best-performing IPOs this year, including solar-cell maker JA Solar Holdings, the top-performing company so far in 2007. JA Solar shares have more than quadrupled since its IPO, priced at $15, in February. In total, there were 34 Chinese IPOs on U.S. exchanges in 2007, nearly four times as many as in 2006. Average total return on IPOs, however, did not match the average returns for 2003 to 2006. Analysts attributed the disruption to the dip in Asian stocks in the spring and then the fallout from the mortgage crisis. Renaissance Capital noted that its Renaissance IPO Index, which was launched in September, is up more than 15 percent for the year and outperforming all the major indexes. For 2008, Renaissance Capital analysts predict that technology and energy companies will show strength. The analysts also forecast continued IPOs from China in advance of the Olympics. Price Averages of HDTVs Christopher Lawton, WSJ 12-06 This year, the best bargains in LCD sets -- which use liquid crystals that pass or block light -- are in model sizes of 40, 46 and 52 inches, according to DisplaySearch. Shoppers can still expect prices for a 32-inch LCD set at around $697. A 46-inch LCD set will average $1,894 while the 47-incher is expected to drop to $1,648. A sufficient supply of plasma panels are now coming in 1080p. That makes plasma sets more competitive against LCD models, which have had full-high-def technology for the past couple of years. A 50-inch full-high-def plasma sets are expected to plunge 65% from last year to an average $2,377. Fifty-inch 720p plasma sets made by manufacturers including Samsung and Pioneer are selling for roughly $1,421 on average, compared with $2,295 this time last year. The average 46-inch 720p LCD set costs $1,513, down from $2,207. Plasma bargain hunters won't find deals in sets north of 50 inches. Because LCD isn't a strong presence in sets larger than 52 inches. The 60-inch plasma prices are expected to fall at roughly $3,400. Tobias Levkovich, chief strategist at Citigroup, says the media and market view of the consumer shutting down because of the housing crisis is overblown. “The most recent Federal Reserve Board’s Flow of Funds report reinforces our view that the American population’s wealth is not factually driven by real estate issues, with household net worth up nearly $21 trillion in the past five years and only 19% tied to housing equity appreciation,” he writes. “Thus, the often scary headlines of falling home prices are not likely to end U.S. consumption growth.” (David Gaffen, WSJ 12-12) The market was uncharacteristically blasé in 2005 and 2006, with the Dow clocking just 27 and 25 days, respectively, of daily moves of 1% or more up or down. That trend changed abruptly this summer: From June through August, the Dow had 24 days of 1% or greater moves. The figure for 2007 to date: 50. (Jaclyne Badal, WSJ 12-02) The earnings recession is here, says Morgan Stanley chief economist Richard Berner. In commentary today, Mr. Berner says operating leverage, pricing power and costs have contributed to the decline in earnings strength, and a squeeze in margins will undermine earnings growth even more in coming years. And operational leverage is about to come back and bite American companies in the rear, as many S&P 500 names took on extra debt to finance activities like share repurchases, which caused a reduction in earnings by as much as three percentage points. “If the economy skirts recession and growth recovers, the downturn could be short-lived, and the middle of 2008 may mark the deepest decline in profits when compared with a year ago,” he writes. “But even the mildest of recessions would probably defer positive comparisons until 2009.” (David Gaffen, WSJ 12-04) Abby Cohen of Goldman Sachs is looking for the S&P 500 to end at 1675 at the end of 2008. “This year, we’re not talking about calm before the storm but the calm after the storm,” she said in a conference call. “We don’t think the storm is fully over, and we’re very cognizant of that.” However, she believes the market will see more normal levels of volatility, and that at a price-to-earnings ratio of 15.6, stocks are undervalued by about 13% to 14%. (David Gaffen, WSJ 12-04) The 2008 forecasts from JP Morgan and Wachovia currently have the lowest S&P 500 projections at 1,590 [up 4.98% from here]. Lehman and Banc of America are looking for roughly 7% gains, while Goldman and Citi have price targets of 1,675 [up 10.59%]. Bear Stearns and HSBC have the highest estimates at 1,700 [up 12%]. (Bespoke Investment Group, December) Over the very long haul, stocks have tended to outperform bonds, and the stocks of both small-cap companies and companies with high book-to-market ratios have yielded higher returns than other companies’ stocks. These are the facts. The question is how to account for them. [Consultant to and board member of D.F.A.] Eugene Fama's explanation is simple: Higher returns are always and everywhere compensation for risk. The stock market offers higher returns than the bond market over the long haul only because it is more volatile and thus more risky. The added risk in small-cap stocks and stocks of companies with high book-to-market ratios must manifest itself in some other way, as they are no more volatile than other stocks. Yet in both cases, Fama insists, the investor is being rewarded for taking a slightly greater risk. Hence, the market is not inefficient. Everything else in the stock market he dismisses with a single word: noise. (portfolio.com 11-19) Weston Wellington, vice president at DFA, punctuates the [presentation] with some general lessons. One is that the financial press isn’t in the business of supplying useful information; it’s in the business of feeding people’s lust for predictions. “You keep buying the magazine regardless of how the forecasts turn out,” Wellington says, “and they’ll keep supplying the forecasts.” Another is that if the best mutual fund managers can’t pick stocks well, how can you? A third is that even putatively great money managers exhibit no ability to identify other great money managers. When Peter Lynch retired from his sensational career running Fidelity's Magellan Fund in 1990, his successors proceeded to underperform the market. “If you wake up in the morning and see Warren Buffett's face in the bathroom mirror,” Wellington says, “go ahead and buy some stocks. If you see anyone else’s face, diversify.” ( http://www.portfolio.com/executives/features/2007/11/19/Blaine-Lourd-Profile/#page8 ) A new Charles Schwab examination of the 401(k) plans it oversees found that investors who rely on some professional advice for investment decisions enjoy greater returns than those who go it alone. The investors who used an independent investment adviser that Schwab makes available to its 401(k) participants saw an average 14.1% return last year. Those who didn't solicit advice, at least from the adviser Schwab provides, saw only an 11.1% return. A similar gap in returns occurred in 2005. (Tim Paradis, AP 12-2) Hedge Fund / Private Equity News Briefs :According to the Institute for Private Investors, in a survey of its members, roughly one-third of those with a minimum of $50 million to invest are allocating some of it to hedge funds. The percentage is significantly higher than 24% allocated last year, and indicates a growing respect for the asset class. “That’s quite stunning,” IPI Director Kristi Keuchler said. The survey of membership – more than one-third of which has more than $200 million to invest – also saw a major turnaround in how they view hedge funds, with 75% indicating they felt HFs serve a risk-reducing function. That is a far different conclusion from survey years ago, Keuchler said, in which the ultrawealthy view the funds as alpha and now view them as “bond proxies.” (Hedge Fund Daily 12-11) :In a month that produced the highest returns in seven years, inflows into hedge fund industry in October were an estimated $16 billion, the lowest since January, according to TrimTabs Investment Research and BarclayHedge. That brings the year-to-date inflow industry figure to $279 billion – more than three times equity mutual fund flows. The study found that multi-strategy and equity market neutral were the most popular HF categories, reaping $3.8 billion and $3.7 billion, respectively. (Hedge Fund Daily 12-07) :Small hedge funds have outperformed their bigger brothers by 29% since January 2000, according to TrimTabs Investment Research. In its latest report on the hedge fund industry, it found that HFs with less than $100 million in assets under management returned an average 8.61% annually, compared with 6.29% for HFs with more than $2 billion AUM, concluding, the smaller they are the better they do. The study notes that the best performers –the small HFs -- also had the highest correlation to the S&P500 (67.3%), but that those with the least correlation – 29.9% for HFs determined to be large (between $1 billion and $2 billion AUM) – still produced happier returns – 7.69%-- than the mega funds did. (Hedge Fund Daily 11-07) Home Page Previous Factoid Top Sites
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