Investments

Exchange-traded-fund assets are on the rise, and price appreciation has little to do with it, according to an analysis by Standard & Poor’s.

International Funds Set to Outpace Domestic Counterparts: S&PBy Dave LindorffAugust 4, 20112011 has not been a great year for international equity mutual funds, especially compared to domestic U.S. fund counterparts. But this situation could very well change and investors in the near future, according to analysts at Standard & Poor's Equity Research.Like what you see? Click here to sign up for Financial Planning's daily newsletter to get the latest on advisor market trends, investment management, retirement planning, practice management, technology, compliance and new product development.First the numbers.After having two great years, in the first half of 2011 through the end of June, the average gain for international equity funds was a paltry 1.7%. This compared to an average gain of 3.4% for funds invested exclusively in U.S. domestic stocks.But Alec Young, an S&P international equity strategist, and colleague Todd Rosenbluth, an S&P mutual fund analyst, said that a slowing U.S. economy going forward could make it hard for domestic-invested funds to continue outperforming international funds -- especially if the dollar continues its slide against the Euro and other currencies (it’s down 7% so far this year).As Young explains, international funds that invest in companies that denominate their overseas returns in local currencies see their returns rise when those overseas earnings in foreign currencies get converted to dollars.Even so, he said that for international stocks and international mutual funds to really take off in the second half would require a convergence of a number of factors, not all of which are looking particularly likely.These factors, he said, would include an easing of sovereign debt “stress,” greater momentum in international manufacturing, commodity price stabilization, and a more robust U.S. recovery. With both the U.S. and global economies looking weaker, Young told On Wall Street that there were “still two things that could happen that would help international equities funds: a QE3 program by the Federal Reserve, or an expansion of the European Economic Stability Fund.” The Fed at the end of June ended its latest quantitative easing program, called QE2, of buying Treasuries and, at that time, Fed Chairman Ben Bernanke said he did not anticipate having the Fed engage in a third such program.But some economists and Fed watchers think that the dramatic change in the outlook of the U.S. economy evident in recent days may make him rethink that view. Also, there are many experts in Europe who think that the economic stability fund established to prop up the economies of Greece, Portugal and other weaker Euro Zone states is too small and may need to augmented. Looking at the universe of international funds available to investors, S&P’s analysts are recommending three which they say are both top performers and which are invested in companies with strong credit profiles and/or a history of earnings and dividend stability. They include:-- Lazard International Equity Portfolio fund (LZIOX), a relatively small fund with only $38 million in assets that has returned 5.8% so far in 2011 with below average volatility.-- Templeton Foreign Fund (TEMFX), up 5.3% this year, and a fund with relatively low turnover.-- MFS Research International Fund (MRSAX), up 5.1% this year, and a fund that has outperformed its peers for the past five calendar years.

2011 has not been a great year for international equity mutual funds, especially compared to domestic U.S. fund counterparts. But this situation could very well change and investors in the near future, according to analysts at Standard & Poor's Equity Research.

Keating Capital, a pre-IPO fund, concluded its public offering, raising $86.8 million. Next, the fund plans to list its stock on Nasdaq by the end of the year.

PIMCO's Gates: Even After Debt Deal, Bigger Issues Still Haunt U.S. EconomyBy Dave LindorffAugust 3, 2011Don’t count Bill Gross, managing director of the giant investment management firm PIMCO, among those expressing relief at the government’s recent debt ceiling compromise or any subsequent package of budget cuts that may materialize over the next 10 years.Like what you see? Click here to sign up for Financial Planning's daily newsletter to get the latest on advisor market trends, investment management, retirement planning, practice management, technology, compliance and new product development.Gross, whose company manages more than $1 trillion in assets, said the deal -- which he characterized as a display of “dysfunctional government -- scarcely touches the current year’s $1.5 trillion deficit.Worse yet, he said that even if the scheme to have 12 members of a “super committee” of six House and Senate Republicans and six House and Senate Democrats does manage to come up by with another $1.5 trillion worth of budget cuts over the next decade, it would only reduce future deficits “at most by 0.5%”The cuts made in the debt deal are predicted by the Congressional Office of Management and Budget to bring down the country’s “official” total debt/GDP ratio from a current level of 100% to around 90%, with the deficits in 2012 and 2013 averaging 7% to 8% of GDP each year.But that drop in the debt/GDP ratio, Gross warns, is premised on an assumption that the U.S. economy will grow in 2012 and 2013 at a rate in excess of 3% per year.But as Gross said, “Recent trends give pause to these estimates, as does PIMCO’s New Normal, which believes 2%, not 3%, is closer to reality.”The bad news: If growth is closer to 2% per year instead of 3%, “deficits move right back up to near double-digit percentages of GDP.”And there’s another catch.The rosier scenario for the debt/GDP ratio assumes interest rates hold at current 2% levels. If rates were to rise, either because of inflation or to defend a falling dollar, for example, Gross said every 100 basis point increase “raises the deficit by 1% and erases any hoped for gains.”The government’s action on the deficit this week pales almost to insignificance, Gross warns, when one looks at the net present cost of future liabilities in the Medicare, Social Security and Medicaid programs, which he puts at a staggering $66 trillion.These enormous future debts can be addressed, he said, but not without taking steps to improve the efficiency of our healthcare system, reduce benefits, raise retirement ages, and, yes, increase tax rates, “or a combination of all of the above.” Gross said the government also has the option of depreciating the currency and/or maintaining artificially low or even negative real interest rates.Not a pretty picture to be sure.Gross’s advice to investors: favor countries with higher real interest rates like Canada, Mexico, Brazil and Germany. Diversify equity and fixed income investments out of the dollar and into developing nations “with stronger growth prospects. He also advocates investors buy commodity-based real assets “before reserve surplus nations do,” and “above all, don’t be lulled to sleep by congressional law makers that promise a change in Washington.” Don’t count Bill Gross, managing director of the giant investment management firm PIMCO, among those expressing relief at the government’s recent debt ceiling compromise or any subsequent package of budget cuts that may materialize over the next 10 years.

Long-term mutual funds were hit with -$10.381 billion in redemptions the week ended July 27, the Investment Company Institute said. This came on the heels of -$4.58 billion in redemptions the previous week.

Companies that pay dividends, and in many cases are raising them, are attracting strong attention amid an otherwise unappetizing market. But a healthy dividend doesn’t necessarily mean the company issuing it is in the best shape, says Standard & Poor’s equity analyst Todd Rosenbluth.

American Century has launched the American Century Global Real Estate Fund, managed by Steven Brown. He will be supported by analysts Steven Rodriguez and Vishal Govil.

Approximately $13.2 billion flowed into exchange-traded products in July, according to statistics compiled electronically by National Stock Exchange.

With markets reacting negatively to concerns about a weakening U.S. economy, investors might do well to look at the consumer staples sector, according to Standard & Poor's equity analyst Thomas Graves in a new report released Tuesday.

It’s a good time to be an emerging markets bond ETF. Powered by investor demand for exposure to debt from places like Brazil and China, funds from Van Eck Global, Wisdom Tree and elsewhere have gathered assets at a crisp pace.

According to Strategic Insight’s latest report, “Emerging Market Bridges: All Eyes on Asia and Latin America for Fund Managers and Private Banks,” local developed markets will continue to struggle for the foreseeable future, and investment professionals should look to the growth centers of Asia and Latin America to drive performance.

American Century has launched the American Century Global Real Estate Fund, managed by Steven Brown. He will be supported by analysts Steven Rodriguez and Vishal Govil.

Private equity firm Warburg Pincus has acquired a majority stake in The Mutual Fund Store as well as a minority stake in Summit Partners, which invested in The Mutual Fund Store in 2006.

Huntington Funds this week announced the debut of its Huntington Disciplined Equity Fund which purports to offer investors a fund that delivers solid, stable annual returns with lower volatility than mutual funds.

Columbia Management has launched the Columbia Flexible Capital Income Fund, which seeks to provide income generation and capital appreciation.

Janus has launched the Janus Asia Equity Fund, which aims to deliver long-term growth by investing in both developed and emerging markets in Asia, ex-Japan.

No one wants the kind of panic that nearly ensued when the Reserve Primary Fund broke the buck on Sept. 15, 2008. In the three days following, there was a near-run on money market funds, with $169 billion in redemptions.

For the past 18 years, it's been almost an article of faith that an exchange-traded fund would be the epitome of a passive investment.

Is the U.S. Already in a Double-Dip Recession?By Dave LindorffJuly 29, 2011Hold on to your hat. We may be headed for a double-dip recession. In fact, when more current economic data arrives a few months from now, it may turn out that we’re already in one, according to a pair of economists at Moody's Capital Markets Research Group. Like what you see? Click here to sign up for Financial Planning's daily newsletter to get the latest on advisor market trends, investment management, retirement planning, practice management, technology, compliance and new product development.“We are in a very perilous situation,” Moody’s Chief Economist John Lonski told On Wall Street in an interview Friday. "What scares me is that, because of the weakened condition of the federal government, there is less confidence in the philosophy of 'too big to fail'-- the idea that the government will come in and back up any financial company that runs into trouble -- so in case of a renewed recession, you could see a contraction of financial liquidity that could be even more serious than what caused the collapse of Lehman Brothers," he said.Lonski and his colleague at Moody’s Capital Markets Research Group, economist Ben Garber, just released a new report titled “Double Dip Risk Rises as DC Standoff Continues,” in which they warn, “The U.S. may be closer to a double-dip recession than commonly thought.”They note that the U.S. economy “continues to soften,” and said that evidence of a recovery in the second half of this year is “proving elusive.” And that’s “assuming a reasonable resolution of the debt standoff” between Republicans and Democrats in Washington and, increasingly, even among Republicans themselves."Even with a market-friendly resolution of the debt standoff, a double-dip recession is far from unlikely," they wrote in the report.As the Moody’s report was released, so too was new and pretty gloomy data from the U.S. Commerce Department. The new government data show that growth in the last quarter of 2010 was actually running at an anemic 2.3% annual rate, not the more robust 3.1% rate initially reported.Annualized growth rates for the first and second quarters of this year were also revised downward to 0.4% and 1.3% respectively. As Ryan Sweet, a senior economist at Moody’s Analytics put it, “The economy essentially came to a grinding halt in the first half of the year.”Lonski and Garber said that at present it is hard to find any good news, with regional manufacturing statistics “hinting of stagnation” and the housing market still unable to “find a bottom.”They also note that the Chicago Federal Reserve’s National Activity Index (CFNAI), in its latest three month moving average for the last quarter, registered -0.60. They warn that in five of the last nine times the CFNAI fell to this low level “recession was often impending, or was already present."Furthermore, they said that the U.S. cannot expect much help this time from the rest of the world, which is also experiencing a slowdown in growth -- though not as severe as the U.S.A big concern among many economists is that politicians in Washington, focused as they are now in both parties on cutting the budget deficit, could make things worse. Noting that Britain’s new Conservative Party-led government responded to a debt downgrade warning by slashing domestic spending and bringing on a double-dip recession, Lonski says, “Even [Fed Chairman] Ben Bernanke has said it’s very important not to bring on budget cuts until we can be reasonably certain that the U.S. economy is self-sustaining.”Many politicians these days, in what Lonski said is “political theater,” are calling for immediate cuts in social spending programs like Social Security, Medicaid, welfare and education -- among others -- but he said, “the problem with the U.S. budget is not what is being spent now, but what will be required when the Baby Boom population is all in retirement.”The irony, he noted, is that if government inaction on raising the debt ceiling, or on overly-aggressive near-term budget cutting, helped usher in a double-dip recession, it would have the perverse effect of worsening the debt as tax receipts would plunge.