Mid Morning

Seeking Alpha re-ran this morning’s post and a reader left a good question on the SA version. He asked whether international utilities, specifically captured via WisdomTree International Utilities (DBU), are better for reducing correlation than a broader foreign product. Well the numbers are in and the reader is correct. According to PortfolioScience.com iShares EAFE (EFA) has a 0.84 correlation to the S&P 500 while DBU has 0.56 correlation. I would note that DBU, although dividend weighted hasn’t actually paid much of a dividend which is frustrating. Regardless of the dividend DBU (which I own for a few clients) has done well, has outperformed both EFA and SPY and does have a low correlation. The biggest risk, IMO anyway, would be if interest rates which are generally low start to go up. A rule of thumb is that rates moving up are bad for utilities as fixed income (talking further out on the curve) competes for some of the money that goes into utilities. I think higher rates further out on the curve would be a positive for equities as that might signal a return to normal but it sets up utilities to, at a minimum, lag a...

Mid Morning

Seeking Alpha re-ran this morning’s post and a reader left a good question on the SA version. He asked whether international utilities, specifically captured via WisdomTree International Utilities (DBU), are better for reducing correlation than a broader foreign product. Well the numbers are in and the reader is correct. According to PortfolioScience.com iShares EAFE (EFA) has a 0.84 correlation to the S&P 500 while DBU has 0.56 correlation. I would note that DBU, although dividend weighted hasn’t actually paid much of a dividend which is frustrating. Regardless of the dividend DBU (which I own for a few clients) has done well, has outperformed both EFA and SPY and does have a low correlation. The biggest risk, IMO anyway, would be if interest rates which are generally low start to go up. A rule of thumb is that rates moving up are bad for utilities as fixed income (talking further out on the curve) competes for some of the money that goes into utilities. I think higher rates further out on the curve would be a positive for equities as that might signal a return to normal but it sets up utilities to, at a minimum, lag a...

Alternative Asset Classes Defined?

Yesterday I asked what would you include in alternative assets? What would you like to see that does not already exist in the way of accessible alternative assets? A few people offered some thoughts and there was some half-kidding about baseball cards including a great one-liner about mothers throwing the cards away which sort of happened to me. You’ll notice this card is an error but the corrected card with him on the Rangers was the rarer card, go figure. I think getting too hung up on definitions is the wrong approach. I would say to focus more on the result a particular thing delivers and how it gets the result. It is this line of thinking that may have prompted a couple of folks to say I may be too vague about this. First I would say things like wine and art and even my 1971 Roberto Clemente card (I have a collection of like 20 baseball cards) are not really investments easily accessed by a lot of people. I am not saying you can’t make money in these things, and I think there is an Art Fund of some sort that exists in Europe but to the extent these are investments is beyond the scope of this site. A couple of weeks ago I wrote about Dexion Absolute for TSCM which is a publicly traded fund of hedge funds that is listed in the UK under ticker DAB.L but is available in the US with ticker DAXLF. If you look at a two year chart (hopefully that link works properly) compared to the S&P 500 there is...

Alternative Asset Classes Defined?

Yesterday I asked what would you include in alternative assets? What would you like to see that does not already exist in the way of accessible alternative assets? A few people offered some thoughts and there was some half-kidding about baseball cards including a great one-liner about mothers throwing the cards away which sort of happened to me. You’ll notice this card is an error but the corrected card with him on the Rangers was the rarer card, go figure. I think getting too hung up on definitions is the wrong approach. I would say to focus more on the result a particular thing delivers and how it gets the result. It is this line of thinking that may have prompted a couple of folks to say I may be too vague about this. First I would say things like wine and art and even my 1971 Roberto Clemente card (I have a collection of like 20 baseball cards) are not really investments easily accessed by a lot of people. I am not saying you can’t make money in these things, and I think there is an Art Fund of some sort that exists in Europe but to the extent these are investments is beyond the scope of this site. A couple of weeks ago I wrote about Dexion Absolute for TSCM which is a publicly traded fund of hedge funds that is listed in the UK under ticker DAB.L but is available in the US with ticker DAXLF. If you look at a two year chart (hopefully that link works properly) compared to the S&P 500 there is...

Mid Morning

Earlier CNBC had John Duffy from JP Morgan on who among other things made the point that if you missed the best five days of this year you missed out on 12% of upside. This bit of logic comes up every so often and I think it is wildly flawed. Forgetting about predicting anything for the moment if the market peaks on a certain day then drops 28% (normal bear market decline) over the following 12 months (within the range of normal bear market duration) then the most important thing would be being completely out even if along the way in that 12 month 28% decline there were four different days where the market was up more than 5%. These sorts of best days worst days commentaries come along every so often but they make too many assumption and leave out too many details. If you are one to try to make defensive allocations when you think the market will struggle you should remember that there will be feel good rallies along the way. Duffy did have one interesting thing to say about a general target allocation they use for clients which is 40% equities, 35% cash and fixed income and 25% alternative assets. This fits in line with some of the posts here of late. What do you think of the 25% into alternative assets? What would you include in alternative assets? What would you like to see that does not already exist in the way of accessible alternative...