Tag Archives: investing ideas

SEC Proposes New Liquidity Rules For Mutual Funds And ETFs

By DailyAlts Staff The Securities and Exchange Commission (“SEC”) has proposed new rules designed to cut risks in the multi-trillion-dollar asset-management industry. The rules, which were proposed on September 22, would require mutual funds and ETFs to take more precautions to protect against periods of large investor withdrawals. “Changes in the modern asset-management industry call on us to now look anew at liquidity management in funds and propose reforms that will better protect investors and maintain market integrity,” said SEC Chair Mary Jo White. Liquidity Risk The 2008/09 financial crisis identified weaknesses within open-end fund structures and their ability to manage large redemptions during crisis periods. In response to this, the SEC has proposed Rule 22e-4 that would require funds to have liquidity risk-management programs, that would include each of the following elements: Classification of the liquidity of portfolio assets; Assessment and management of a fund’s liquidity risk; Establishment of a three-day liquid asset minimum; and Board approval and review. Perhaps most notable of these elements is #3, which would require funds to carry enough cash and “assets that are convertible into cash” within three business days at a price that doesn’t “materially affect the value of the assets immediately prior to sale.” Other Proposals Liquidity risk isn’t the only bogeyman the SEC is out to slay. Regulators also proposed amendments to Investment Company Act rule 22c-1 that would permit mutual funds (but not ETFs) to use so-called swing pricing. This concept is designed to protect existing shareholders from dilution by passing on trading costs to purchasing and redeeming shareholders. Moreover, the SEC also outlined new disclosure and reporting requirements for N-1A Forms, and the recently proposed N-PORT and N-CEN Forms. What’s Next? The SEC published a white paper titled Liquidity and Flows of U.S. Mutual Funds explaining how portfolio liquidity varies depending on a fund’s redemption history and how portfolio liquidity is affected by large redemptions. The paper is available for download from SEC.gov. The SEC’s proposals were approved in a 5-0 vote . Its proposal will be published in the Federal Register, followed by a 90-day comment period, before taking effect. For more information, visit SEC.gov . Share this article with a colleague

Getting Out In Front Of The Next Bear Market

Summary Anyone that has been investing for any reasonable length of time knows that bear markets are inevitable. Most of the financial media and experts agree that the definition of a bear market is a drop of 20% or more from the high water mark. Keep an open mind to multiple scenarios and avoid becoming overly confident in a specific outcome. Anyone that has been investing for any reasonable length of time knows that bear markets are inevitable. It’s just part of the normal cycle of capital flows that swing from risk to safety with little dependable timing or logic. Most of the financial media and experts agree that the definition of a bear market is a drop of 20% or more from the high water mark. Of course, there is no way to accurately forecast when or where the next bear market will appear. They simply come and go with only hindsight as our guide as to what perceived causes led to the pernicious drop in your portfolio. Right now the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) is approximately 11% off its all-time high. I think that most people would probably put that number next to “correction” in the dictionary rather than bear market. Nevertheless, many experts are already saying this is the big one. The first bear market since the 2008-2009 financial crisis. It’s already here and you better prepare yourself for Armageddon. If you bear with me for a moment (no pun intended), I want to lay down some thoughts as to the motivations for this sentiment. This may very well be the start of the next bear market, but no one knows with absolute certainty where the bottom might be or how the pattern will play out. My advice is to keep an open mind to multiple scenarios and avoid becoming overly confident in a specific outcome . Everyone wants to be the guy or gal who “called it”. They knew from the beginning that this time was different, and after a half-decade run, that the probabilities are favoring a down cycle. This is probably more driven by ego and self-satisfaction than trying to guide your hard earned nest egg or protect capital. Be wary of those who scream the loudest on the way down, for they are likely the ones who will be left on the sidelines as the market heads higher. Changes to your portfolio during a correction or bear market should be made with calculated steps. This may include selling into rallies or making subtle changes to your asset allocation in order to reduce your overall risk profile. That also means fighting the urge to capitulate on big down days or making drastic changes at inopportune times. Nothing goes straight up or straight down in a perfect sequence. The market does move fast, but you have to pick your spots in order to avoid making a big mistake born out of short-term panic rather than sound logic. The Bottom Line I find myself fighting the same cycles of fear and greed that everyone else does. It’s simply a natural psychological reaction to get more pessimistic on the way down and more optimistic on the way up. Yet, letting those impulses translate to big shifts in your portfolio may result in taking too much risk near a top and being too conservative near a bottom. In addition, I always find it helpful to tune out the noise of the financial pundits who thrive on this emotional roller coaster. They don’t know anything more than you do with respect to where the market is headed and they certainly don’t know anything about your personal needs. You should be working with an advisor or managing your own portfolio with well-defined parameters that relate to your specific situation. Share this article with a colleague

The Cash Is King Playbook

We’re seeing something really unusual in the financial markets this year. As I’ve noted recently , there’s almost nothing that’s working this year. No matter where you’ve diversified your savings you’ve likely lost money with the exception of cash. If we look at the two primary asset classes, stocks and bonds, cash has only outperformed both in the same year 10 times in the last 90 years. So this is a pretty unusual event. But there’s some potential good news on the horizon. When this occurs both stocks and bonds tend to bounce back very strong. In the 10 times this has occurred in the last 90 years stocks have followed up with average 1, 2, and 3 year returns of 14.34%, 18.76% and 16.72%. Bonds have done a bit worse with a 1, 2 and 3 year average return of 10.24%, 7.7% and 6.17%. A balanced portfolio has also generated abnormally high returns with a 1, 2 and 3 year average return of 12.29%, 13.23% and 11.44%. As is often the case with diversification, it’s not timing the market that counts. It’s time in the market. So, while cash looks particularly smart today the historical figures say that cash won’t be king for long. Share this article with a colleague