So You WflNNfl BE fl Gunslinger Too

The average investor has no interest in putting on large leveraged positions. For most this type of trading was too stressful and overwhelming. The only avenue for retail investors to raise the risk level of their investment activity was investing in futures and options trading directly or through an investment in a managed futures fund. But even these ventures were too risky for most. FIGURE 7.9 Monthly Chart MCSI Emerging Markets ETF Source Chart Courtesy of StockCharts.com. FIGURE 7.9...

Commodity And Currency Etfs

This is an area where the naysayers really get worked up in negativity. And yet this area has been one of the biggest areas of sector investment opportunity that I've seen in nearly 35 years. Commodity trading or speculating has a poor public image conjuring up negative images of wild pork belly trading. Currency trading has suffered by a similar image since heretofore investing in commodities or currencies was intimidating to the average investor and carried with it the stigma of a poor image....

What We Really Mean By Hedge Fund

The term hedge fund is a misnomer that has become to mean, dependent on structure and goal, what one could just call ''performance partnerships.'' That is, investors seek out managers whom they believe can achieve high risk-adjusted investment results utilizing specific styles and strategies. Hedge fund managers are mostly notorious for the high fees they charge typically, 2 percent of assets under management and 20 percent of new profits, although a handful charge much higher amounts and the...

Merrill And Goldman Try To Shake Things Up Can Passive Indexes Destroy Fees

To add to the convergence and passive investing stories recently both Merrill Lynch and Goldman Sachs have created indexes that attempt to copy typical hedge fund performance. According to a BusinessWeek article ''Hedge Funds Attack of the Clones,'' December 4, 2006 the intent is to fashion indexes that should match hedge fund returns at a fraction of the cost. Merrill Lynch launched its Merrill Lynch Factor Index while on the same day Goldman Sachs unveiled its Absolute Return Tracker Index...

Im Forever Blowing Bubbles

One consequence of the attitude and behavior of former Chairman Greenspan has been the creation of asset bubbles and an unwillingness to deal with them in a timely fashion. First, there was the stock market bubble. Greenspan tried to jawbone markets lower in 1996 with his famous ''irrational exuberance'' testimony. The bearish effect was temporary lasting just a day or two and thereafter Greenspan let markets rise in bubble-like fashion. The notion that the Fed could save markets from any...

Money Supply Shenanigans

One of Bernanke's first major moves was to eliminate from view popular M-3 statistics from public scrutiny. This was done in March 2006. First, what is M-3 The Federal Reserve had traditionally published prior to March 2006 three measures of money supply growth. M-1, which calculates currency and checking accounts M-2, which includes M-1 plus savings deposits, CDs, and money market funds and M-3, which is M-2 plus large-denomination time deposits, balances in institutional money funds,...

Hedge Fund Disasters

Many investors are aware of the collapse of Long-Term Capital LTC in 1998. Its demise rocked stock markets and caused billions in losses for investors. The LTC strategy was extremely aggressive and doesn't fit neatly with most of the strategies outlined. Possibly ''Fixed-Income Mortgage Backed'' would fit since they were trading heavily in those markets. However, their strategy involved using enormous leverage that served them well when they were on the right side of markets, but when wrong...

The Regulators Crackdown

The frenetic growth of both mutual funds and the brokers selling them could only mean there would probably be trouble ahead. Pushing more lucrative commission laden mutual funds at the expense of others and receiving commission kickbacks started to give the industry a black eye and hurt them in the wallet. In 2003 Morgan Stanley was fined 50 million for pushing their own and other more costly mutual funds at the expense of more cost-effective offerings. In late December 2004 Edward D. Jones was...

Hedge Fund Research

Chicago-based Hedge Fund Research HFRI offers a much more detailed description of strategies by breaking each area into various subsectors as outlined below Convertible Arbitrage. Convertible Arbitrage involves purchasing a portfolio of convertible securities, generally convertible bonds, and hedging a portion of the equity risk by selling short the underlying common stock. Certain managers may also seek to hedge interest rate exposure under some circumstances. Most managers employ some degree...

Conclusion

While most individuals are not able to invest in hedge funds due to high minimum account sizes, ETFs are soon going to make individually constructed hedge funds possible. There are new types of ETFs that have been issued over the past year and more entering the registration process. These new securities will allow retail investors with 50,000 to 100,000 portfolios to take market positions just as easily as hedge fund investors. With proper online brokerage accounts or teamed with knowledgeable...

Indexing Versus Active Management

The argument over index investing versus active management continues and with each passing study indexes continue to be the more effective strategy in cost and performance. According to a recent and very thoroughly researched study by Millicent Holmes published in the January 2007 edition of Journal of Financial Planning, passive index management beat most categories of active management. CASE STUDY Improved Study Finds Index Management Usually Outperforms Active Management This study seeks to...

Persistence Observed Notes

Yes, persistence in 5-year risk-adjusted performance. None in 10-year adjusted performance. Persistence for next 5 years, consistent with managers' ability to earn abnormal returns. Persistence for next 2 of 3-year periods. Persistence for next 2 to 8 quarters. Persistence for next 3-year periods. None for Equity. Yes for Fixed Income. 1-year persistence mainly due to behavior of worst performing funds. Also persistence strongly dependent on time period of study. Observed persistence for both 1...