A System for Accomplishing Your Long-Term Investment Goals

 A System for Accomplishing Your Long-Term Investment Goals

Many investors, especially those newly in charge of wealth or those who need to invest well for retirement, are feeling like one of Buffett’s bathers caught without a suit at low tide. The world has changed dramatically in recent decades, but the way most prepare for retirement, protect their personal wealth, and invest their retirement nest egg has not.

Redefining the G-3 Welcome to the Chinese Renminbi

Rebecca Patterson, Chief Markets Strategist for J.P. Morgan Asset Management, Institutional discusses her belief that structural changes in the global economy and markets are redefining the G-3 — and warrant replacing the yen with the Chinese renminbi. She explores key issues regarding the G-3 currencies and why China merits a place among them.

 Redefining-the G-3-Welcome-to-the-Chinese-renminbi

Alternative Approaches to Fixed Income Indexing

 Alternative Approaches to Fixed Income Indexing

With the 2008–2009 global financial crisis still a fresh memory and sovereign-debt woes playing out almost daily in Europe, fixed income investors are seeking alternatives to traditional market-cap-weighted indexing. The authors of a new Vanguard research paper examine several alternative index-weighting methodologies commonly proposed in the global sovereign and U.S. corporate marketplaces. They show that such methods are not a better way to measure market performance, but merely a reweighting of risk within that market.

PIMCO Cyclical Outlook

 PIMCO Cyclical Outlook

This paper by Saumil H. Parikh of PIMCO discusses the impact in 2012 of further Eurozone deleveraging.  It is his view that Eurozone deleveraging will slow the global economy over the next 6 to 12 months.  In turn this will cause U.S. growth to slow to between 0% and 1%.  This is an extremely pessimistic assessment and our view at BAM is these types of predictions should be viewed skeptically.  Analysts rarely seem to get it right which is why we stick to a buy-and-hold strategy that has worked well for us over time.

Emerging Markets

 Emerging Markets

Individual country or broad-market exposure?:  This paper by Vanguard explores the risks and rewards of focusing emerging market investments on a single country vs. diversifying among many.  They conclude that while the rewards of investing in a single country can be great, the risks can be disastrous.  For example investing in Egypt in 2010 would have yielded horrible results so far in 2011.  Picking the right country to invest in has proven to be a very difficult task so diversifying is a much safer approach.  At Berkson Asset Management we generally use diversified mutual funds to fill the emerging market allocation.

The Value Premium

 The Value Premium

This whitepaper by Columbia Management promotes a higher allocation to value stocks vs. growth stocks in an equity portfolio.  They recommend a higher allocation to value because since 1933 value stocks have outperformed growth stocks with less volatility and because we are entering an era of real income growth which historically coincides with value beating growth.  While we agree with Columbia Management, that value has outperformed over this 80 year period, there are decades where growth outperforms.  Since we never know which will outperform from one year, or decade, to the next we prefer an equal allocation between growth and value.  An equal allocation between growth and value can also be less volatile than value alone.

Muni Market Bargains? A Closer Look at Municipal Debt, Deficits and Pensions

 Muni Market Bargains

This paper by Christian Stracke and Joseph A. Narens at PIMCO discusses the municipal bond market and concludes that default panic has created a buying opportunity.  They provide data indicating municipalities are not as over burdened with debt as some media reports would have us believe.  They also provided data indicating public pensions are not as underfunded as recent reports.  The bottom line is muni bond values were hit hard between November 2010 and January 2011 and this report from the largest fixed income investment company in the world indicates they believe there is a buying opportunity.

2011 U.S. Economic Outlook: Cautious Optimism

 2011 U.S. Economic Outlook: Cautious Optimism

This white paper was written by a research team at Vanguard.   To summarize, the paper indicates that, for the first time in five years, Vanguard’s proprietary leading economic indicators suggests we may have better than expected jobs growth in 2011.  They conclude that, should their predictions be realized, we are likely to have positive but volatile stock market returns, along with upward pressure on inflation and interest rates.