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“Investors have shoveled almost $14 trillion into U.S. mutual funds, but a good chunk of that money is riding on mistaken assumptions.” Says Andrea Coombs for the Journal.
Andrea says that 47% of individual investors buy funds based on past performance. Investors put undue weight on fund ratings, like those from Morningstar, which are based solely on past returns.
The other mistake investors make is not looking under the hood of the fund. Investors need to know what their fund is investing in. Too often, investors buy funds without understanding what those funds own and how those holdings may change over time.
Individual investors should also remember diversification, with mutual funds, more isn’t necessarily better, but some investors believe that the more funds they own, the more diversified their portfolio. If you don’t know what your fund is investing in, that isn’t necessarily the case.
And finally many investors let their investment decisions get swayed by news events. Often times investors react to these events too late. Russel Kinnel, director of mutual-fund research at Morningstar Inc, says “investors are reacting to past information rather than thinking about buying low and selling high.” Individual investors would do much better if they stuck to their investment plans.
You can read the full article here.
WSJ: – Losses related to Puerto Rico munis weigh on UBS Wealth Management Americas. – For the third quarter, UBS AG’s Wealth Management Americas arm posted a $20 million trading loss related to the shrinking value of Puerto Rico bonds. Also, the firm took a $21 million charge against future credit losses related to the commonwealth’s debt.
Forbes: – Who benefits from muni bonds? It’s more complicated than you think. – Who benefits the most from the tax subsidy for municipal bonds? The easy answer is: Rich people who buy most of the tax-free paper. That’s true, according to a new analysis by my colleagues at the Tax Policy Center, but the story isn’t quite that simple.
The New American: – Puerto Rico’s bond prices are falling sharply, foreshadowing U.S. problems. – Despite the fact that Puerto Rican (PR) municipal bonds are triple-tax-exempt (no federal, state, or local income taxes apply on their interest), their interest rates have skyrocketed since the Detroit bankruptcy first disrupted the complacency among municipal bond investors in July. High quality municipal bonds are paying little more than 1 percent annually, but PR bonds, even though they remain investment grade (barely), have spiked to paying between 8 and 10 percent, with some predicting that even higher rates will be necessary in order to attract new investors.
Barron’s: – Puerto Rico debt gaining popularity – As a hedge. – I’ve written recently about how Puerto Rico debt is finding favor among hedge funds rather than plain old buy-and-hold muni investors lately, as a way of cautioning retail investors tempted by Puerto Rico’s high yields about who else is roaming that marketplace. Today David Kotok, chairman and chief investment officer at Cumberland Advisors, offers an in-depth look at one way hedge funds might use Puerto Rico debt to their advantage.
Learn Bonds: – How do credit ratings influence your bond portfolio? – Investors researching individual bonds are likely to be confronted with a confusing “alphabet soup” of letters in individual bond listings, for example Baa1/BBB+. But what do all those letters mean and how can you use them to make better investment decisions.
Standard and Poor’s: – Third-quarter U.S. corporate bond returns rebound after a tough summer. – After getting hit hard over the summer, U.S. corporate bonds recovered in the third quarter and continue their move into positive territory. In this CreditMatters TV segment, Standard & Poor’s Director Nick Kraemer explains why the bond market looks poised to traverse a more stable path throughout the rest of 2013.
Trading Floor: – Vital inspiration for your corporate bond strategy. – With equities setting new records virtually on a daily basis, perhaps you should consider adding corporate bonds to your portfolio. Tradingfloor.com is demystifying this often complex world with a weekly “bond inspiration” list. Adding corporate bonds to your portfolio will increase your diversification. High yield bonds can give you a more specific cash flow. Investment grade corporate bonds offer excellent hedging opportunities.
Newsroom America: – Fed to continue bond buying at $85 billion per month. – The Federal Reserve says it will continue buying bonds at $85 billion a month. It says information received since the Federal Open Market Committee met in September generally suggests that economic activity has continued to expand at a moderate pace.
Christopher Mahoney: – The Treasury bond remains the queen of debt securities. – The financial media have been rife with commentary about America’s decline as an economic superpower as a result of the latest government shutdown and the latest debt ceiling kerfuffle. It is agreed by informed commentators that global investors have lost confidence in the US as a result of the recent dust-up.
LA Times: – As stimulus tab rises for Fed, worries grow it may require a bailout. – The Fed’s bond-buying binge could put the central bank’s finances at risk if interest rates were to rise sharply, critics warn.
MotherJones: – Our economy is suffering from an investment drought, not low Treasury rates. – Paul Krugman alerts me today to the latest argument against the Fed’s policy of keeping interest rates low. Unfortunately, I don’t get it. It comes from bond king Bill Gross, and his argument is that if the yield on other investments—corporate bonds, stocks, private equity, etc.—is as low as the yield on treasury notes, then no one will bother investing their money and the economy will stall.
FTSE Global Markets: – High yield stays on track. – After surviving a mid-year fixed-income thrashing, high-yield corporate bonds, though well off their highs of last year, have nonetheless fared significantly better than their investment-grade peers. Yet questions remain: what impact might the Fed’s eventual tapering have on the segment? Will credit fundamentals remain stable enough to keep high yield products on the plus side over the near term? Dave Simons reports from Boston.
Portfolio Adviser: – High yield headwinds support case for convertibles. – In the past, high yield bonds outperformed traditional fixed income securities during periods of high interest rates because of strong economic growth and rising cash flows. Today, however, the high yield market faces two major headwinds.
FT Adviser: – Natural shift to a more balanced market. – Sub-investment grade credit is traditionally known as junk to its detractors and as high yield to its buyers. The growing cohort of income-seeking investors can be forgiven for being attracted to the attributes of this asset class while being reticent when faced with its risks.
Artemis: – Cat bonds not immune from U.S. debt ceiling issues. – Anyone who thought that catastrophe bonds were immune from the financial market uncertainty surrounding the U.S. debt ceiling has been proven wrong as Munich Re’s Queen Street III Capital Ltd. cat bond is placed on a negative credit watch due to collateral issues triggered by the debt ceiling issue.
Fundaction: – Managers push broad EM debt acceptance. – Managers of emerging market bond funds at told an audience at FundForm USA not to look for opportunities in any one area of the market. Splitting up the emerging market debt universe via currencies or region may cause investors to miss out, the managers said.
MarketWatch: – BofA Merrill Lynch global research launches emerging markets local Currency non-sovereign bond indices. – BofA Merrill Lynch Global Research today announced the launch of four emerging markets local currency bond indices, the first of their kind, designed to track the performance of local currency non-sovereign emerging markets fixed rate debt. Development of these new indices has been driven by the growth of interest in this market segment following the rapid increase in local currency sovereign and external corporate debt markets.
Bloomberg: – The battle to be bond king. – For the first time in the history of exchange-traded funds, the largest bond ETF doesn’t belong to iShares. The $16.9 billion Vanguard Total Bond Market ETF has surpassed the iShares iBoxx $ Investment Grade Corporate Bond ETF, which has $16.5 billion in assets. BND didn’t snatch the crown as much as it was lost by LQD, which saw $10 billion flow out this year as investors fearful of rising rates fled funds holding longer-dated bonds. BND itself has lost $1 billion in assets this year — but that’s $9 billion less than LQD.
U.S. News Money: – 14 Investing ideas for 2014. – The next year is loaded with uncertainty, but planning ahead can help reduce it. So how can you invest in such uncertain times? Here 14 ideas from investment firms and advisors on what do in 2014.
Market Realist: – 2 things you must know before investing in bond ETFs. – When researching high-yield bond ETFs such as the iShares High Yield ETF, it’s easy to be seduced by the large payouts and invest without understanding the risks. There are two important considerations you need to understand before buying any bond fund. First, bond prices are inversely associated with interest rates. Second, corporate bonds pay a “spread” to treasury yields to compensate for their credit risk.
Fox Business: – 4 Keys to retiring without worry in a low yield & high risk era. – For the majority of Boomers and existing retirees, protecting all that’s been accumulated is a priority, along with earning a reasonable rate of return and having enough income to plan for retirement’s uncertainties and needs. With interest rates near historic lows and stocks and bonds near historic highs, how do risk-averse Boomers accomplish their income needs for not only today, but 20 years from now?
ETF Trends: – Rebounding european junk bonds spell opportunity with this ETF. – With U.S. high-yield debt receiving ample attention from the mainstream media and within the financial blogosphere, it is not surprising that some investors may be overlooking international junk bonds as possible portfolio additions.
Forbes: – 5 Rules of the road: How to invest a conservative portfolio in the current environment. – How do you generate a reasonable return these days without exposing yourself to the whims of the equity markets? The short answer is you probably need to adjust your expectations and accept that you need to make some changes.
Gross: Yellen Fed in 2014 will attempt to substitute private for Fed balance sheet via firm forward guidance. @federalreserve
— PIMCO (@PIMCO) October 30, 2013
the bond market is fixated on the surge in healthcare costs and what it will do to consumer spending – begin marking down GDP estimates now
— Michael Pietronico (@MillerTabak) October 30, 2013
UST 5 yr auction Tuesday was 46% indirect buyers, 12% direct and 42% primary dealers. 2.65x bid-to-cover. Close to recent averages.
— Fixedology (@Fixedology) October 30, 2013