Tag Archives: alt-investing

Problems With ‘The Short-Term’

Earlier this year I spoke about the problem of “the long-term” . This is the tendency for modern finance to emphasize a long-term view due to the fact that assets tend to perform well over the long term. This is empirically true. If we look at the performance of stocks, bonds and the broader economy the performance tends to skew to the upside the longer your perspective is. Unfortunately, as I’ve noted, everyone doesn’t have a “long-term”. In fact, even most young people live a life of short-terms inside of a long-term. Our financial lives aren’t this start-and-stop ride where we get on when we’re young and get off when we retire. At times the ride stops along the way and we have to get off for marriages, new homes, college expenses, emergencies, etc. That said, we also shouldn’t be in the financial markets if we have a short-term perspective. That is, given that you have to expose yourself to principal risk with any financial instrument with more than a few months of duration, you can’t be remotely long-term if you have no stomach for principal loss. This is particularly pertinent at times like these when we’re going through a substantial commodity unwind and foreign market turmoil. It’s a near certainty that any well-diversified portfolio has at least some exposure to these events. The reality is that most of us have a multi-temporal or a cyclical time frame of the financial world. It’s neither a long-term nor a short-term. It’s usually something in the middle. And when we veer too far in one direction or the other we tend to get in trouble. The problem with the short-term is multifaceted: A short-term view tends to result in account churning, higher fees, higher taxes and lower real, real returns. A short-term view often results in reacting to events AFTER the fact rather than knowing that a well-diversified portfolio is always going to experience some positions that perform poorly in the short term. Short-term views are generally consistent with attempts to “beat the market” which is a goal that most people have no business trying to achieve when they allocate their savings. If you have an excessively short time horizon you probably aren’t going to respond well to market turmoil. I’ve found that there is nothing more difficult in the investment world than understanding how the concept of time applies to someone’s portfolio. As with so many things in life the truth often resides somewhere in the middle. And if you can maintain that cyclical view without being irrationally long-term or short-term you’re very likely to achieve performance that is in line with your broader financial goals. Share this article with a colleague

iShares MSCI South Korea Capped ETF: 12-Month Strategy

Summary With the exception of exports, South Korea is on track for recovery from slowed economic growth. This is reflected in the growth projection for annual GDP, retail sales, consumer spending, consumer confidence, and consumer credit. Samsung Electronics’ financial performance has been an area of concern, although valuation and conservative growth ahead slightly offset this risk; 21.52% of the fund’s assets invests into Samsung Electronics. Investing in the MSCI South Korea Capped ETF and holding for 12 months is an excellent strategy for investors to take advantage of the fund’s low valuation. Based on my investigation of South Korea’s economy, I have determined that investing in South Korea and holding for 12 months presents a strategic opportunity for investors. The iShares MSCI South Korea Capped ETF (NYSEARCA: EWY ) has had a sharp decline in price since August 2014. With the projected holistic growth ahead for South Korea, with the exception of a slight decline in exports, a rebound in the fund’s price is certainly ahead. The fund is currently trading at 51.18, a far cry from its 52-week high of 66.99 . The current valuation of the fund provides further benefits for investors, as the drop in fund price due to slowed economic growth has been sensationalized. Investors should turn their attention to the iShares MSCI South Korea Capped ETF, as its valuation is among the lowest for ETFs investing in Asia: P/E: 10 P/B: 0.97 P/S: 0.74 Further benefits of this fund include the fact the fund invests into a diverse portfolio of companies, with the top 10 holdings only accounting for 44.6% of the fund. The fund’s industry approach is also very diverse, as it invests into the following industries: Technology: 37.82% Financial Services: 14.5% Consumer Cyclical 13.54% Industrials: 11.46% Basic Materials: 8.89% Consumer Defensive 7.73% The remainder of the fund’s assets invest into the following industries: healthcare, communication services, energy, and utilities. South Korea Economic Outlook The overall outlook for Korea’s economy is very positive, and presents clear potential for investors to profit by investing now and holding until the 2nd quarter of 2016. Annual GDP growth will continue to be conservative and increase to 2.93% by the 2nd quarter of 2016. Exports will fall slightly during the next 12 months, although South Korea has the relative strength of having diverse exports and being a strong oil import country; 31% of its imports are petroleum. Consumer Spending is projected to increase by 1.5%, while growth in retail sales is projected to increase from its current level of 0.8% to 4.51%. Consumer confidence and consumer credit will also both increase by 1% and 7.4% respectively. Overall, considerable growth and recovery is ahead for South Korea, with the only concern being slowed growth in exports due to the appreciation of its currency. Investors can benefit from the drop in fund price, which has resulted from temporary slowed economic growth in South Korea. GDP growth is expected to recover, and it is clear to see that the increase in retail sales, consumer spending, consumer confidence, and consumer credit will all attribute to a recovery in the performance of the fund. Over 20% Samsung: An Ambivalent Outlook One weakness of the fund has been Samsung Electronics ( OTC:SSNLF ), which has recently had slowed growth due to its loss of its market share for smart phones in China and India . Although the outlook for South Korea is overall favorable, the fact that this company represents over 20% of the fund’s portfolio presents a threat to the fund’s performance. Past and recent performance, valuation, and future outlook for the company provide a mixed outlook. The company recently posted 2nd-quarter results for 2015 , which produced somewhat disappointing results: The company’s revenue fell by 2% quarter on quarter. The company’s operating profit fell by 15% from its level one quarter ago. The appreciation of the South Korea Won, and slowed sales of global smart phones and tablets attributed to this loss. The company’s future outlook and relative advantage in its industry make things look more favorable for the company: The company has extremely attractive valuation : its P/E is 8.75, P/S is 0.77, and P/B is 0.95. While concerns due to past performance are befitting, it is clear that the company is still undervalued, and could be a wise endeavor if coupled with recovery and growth. The following mean projections provide further insight for the future growth outlook for Samsung Electronics: Between December 2015 and 2016, sales are projected to increase by 3.3% Between December 2015 and 2016, EPS are projected to increase by 6.5% While this growth is not very substantial, and not enough to represent full recovery from past financial performance, it is clear to see that the combination of attractive valuation and moderate growth ahead will not make Samsung Electronics a threat to the portfolio’s performance. Moreover, the remaining portion of the fund’s portfolio is extremely diverse, providing diverse exposure to South Korea’s projected growth and recovery for the next 12 months. Conclusion Slowed growth and projected recovery in South Korea have both created an excellent buy opportunity. This fund has better valuation than the majority of ETFs that invest into high growth countries in Asia, such as Indonesia , the Philippines , Vietnam , and Thailand . A 12-month investment strategy is a clear ideal starting point, while a long-term hold would be more suitable for a country in Asia with higher growth; the catch is that funds with exceptionally low valuation are hard to find, unless investors are willing to consider closed-end funds . The economic stability of South Korea, growth ahead, and attractive valuation of the fund, all attribute to this being a conservative endeavor for investors. This ETF may be the best means to access South Korea’s economic growth and recovery. Investors who feel extremely confident about South Korea’s potential for recovery, may find it ideal to invest with triple the leverage, via the Direxion Daily South Korea Bull 3X ETF (NYSEARCA: KORU ). Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

TIAA-CREF Lifestyle Conservative Fund, August 2015

Objective and strategy The TIAA-CREF Lifestyle Conservative Fund (MUTF: TSCLX ) seeks long-term total return, consisting of both current income and capital appreciation. It is a “fund of funds” that invests in the low-cost Institutional Class shares of other TIAA-CREF funds. It is designed for investors targeting a conservative risk-return profile. In general, 40% of the fund’s assets are invested in stocks and 60% in bonds. The managers can change those allocations by as much as 10% up or down depending upon current market conditions and outlook. Adviser TIAA-CREF. It stands for “Teachers Insurance and Annuity Association – College Retirement Equities Fund,” which tells you a lot about them. They were founded in 1918 to help secure the retirements of college teachers; their original backers were Andrew Carnegie and his Carnegie Foundation. Their mission eventually broadened to serving people who work in the academic, research, medical and cultural fields. More recently, their funds became available to the general public. TIAA-CREF manages almost $900 billion dollars for its five million investors. Because so much of their business is with highly-educated professionals concerned about their retirement, TIAA-CREF focuses on fundamentally sound strategies with little trendiness or flash and on keeping expenses as lower as possible. 70% of their investment products have earned four- or five-star ratings from Morningstar and the company is consistently rated as one of America’s best employers. Manager John Cunniff and Hans Erickson, who have managed the fund since its inception. Management’s stake in the fund We generally look for funds where the managers have placed a lot of their own money to work beside yours. Mssrs. Cunniff and Erickson each have $500,001 – $1,000,000 invested in the fund, which qualifies as “a lot.” Opening date December 9, 2011. Many of the funds in which the managers invest are much older than that. Minimum investment $2,500. That is reduced to $100 if you sign up for an automatic investing plan. Expense ratio 0.87% on $115 million in assets, as of July 2015. That’s about average for funds of this type. Comments Lifestyle Conservative offers many of the same attractions as the Vanguard Star Fund (MUTF: VGSTX ) but does so with a more conservative asset allocation. Here are three arguments on its behalf. First, the fund invests in a way that is broadly diversified and pretty conservative . 40% of its money is invested in stocks, 40% in high-quality bonds and the last 20% in short-term bonds. That’s admirably cautious. They then take measured risks within their various investments (for example, their stock portfolio is more tilted toward international stocks and emerging markets stocks than are their peers) to help boost returns. Second, TIAA-CREF is very good. There are two sorts of funds, those which simply buy all of the stocks or bonds in a particular index without trying to judge whether they’re good or bad (these are called “passive” funds) and those whose managers try to invest in only the best stocks or bonds (called “active” funds). TSCLX invests in a mix of the two with active funds receiving about 90% of the cash. CREF’s management teams tend to be pretty stable (the average tenure is close to nine years); most managers handle just one or two funds and most invest heavily (north of $100,000 per manager per fund) in their funds. CREF and its funds operate with far lower expenses than its peers, on average, 0.43% per year for funds investing primarily in U.S. stocks. Even their most expensive fund charges 40% less than their industry peers. Every dollar not spent on running the fund is a dollar that remains in your account. Third, Lifestyle Conservative is a very easy way to build a very well-diversified portfolio. Lifestyle Conservative builds its portfolio around 15 actively-managed and three passively-managed TIAA-CREF funds. They are: Which invests in Large-Cap Growth Large companies in new and emerging areas of the economy that appear poised for growth. Large-Cap Value Large companies, mostly in the U.S., whose stock is undervalued based on an evaluation of their potential worth. Enhanced Large-Cap Growth Index Quantitative models try to help it put extra money into the most attractive stocks in the U.S. Large Cap Growth index; it tries to sort of “tilt” a traditional index. Enhanced Large-Cap Value Index Quantitative models try to help it put extra money into the most attractive stocks in the U.S. Large Cap Value index. Mid-Cap Growth Medium-sized U.S. companies with strong earnings growth. Mid-Cap Value Temporarily undervalued mid-sized companies. Growth & Income Large U.S. companies which are paying healthy dividends or buying back their stock. Small-Cap Equity smaller domestic companies across a wide range of sectors, growth rates and valuations. International Equity Stocks of stable and growing non-U.S. companies. International Opportunities Stocks of foreign firms that might have great potential but a limited track record. Emerging Markets Equity Stocks of firms located in emerging markets such as India and China. Enhanced International Equity Index Quantitative models try to help it put extra money into the most attractive stocks in the International Equity index. Global Natural Resources Firms around the world involved in energy, metals, agriculture and other commodities. Bond High quality U.S. bonds. Bond Plus 70% investment grade bonds and 30% spicier fare, such as emerging markets bonds or high-yield debt. High-Yield Mostly somewhat riskier, higher-yielding bonds for U.S. and foreign corporations. Short-Term Bond Short-term, investment grade U.S. government and corporate bonds. Money Market Ultra-safe, lower-returning CDs and such. Bottom Line Lifestyle Conservative has been a fine performer since launch. It has returned 7.5% annually over the past three years. That’s about 2% per year better than average, which places it in the top 20% of all conservative hybrid funds. While it trails more venturesome funds such as Vanguard STAR in good markets, it holds up substantially better than they do in falling markets. That combination led Morningstar to award it four stars, their second-highest rating.