-Yellen's FOMC forward looking rate guidance statement was not as hawkish as expected with keeping "Considerable Time."
-Central banks (e.g. Fed Reserve, European Central Bank, etc.) are less likely to effectively contain volatility and markets need to price-in these considerations. For example, according to one of the leading investment strategist in which we turn to, El-Erian: “The broker-dealers have gotten smaller and will continue to get smaller. The end users have gotten bigger. People actually believe that they can rationally bubble ride until the turn. When the turn comes, they actually believe they're going to reposition themselves. History tells us that there isn't as much liquidity as people think there is." In our view, this is one of the reasons why the Fed’s pathway for rate increases will ultimately be very deliberate, cautious and in the smallest increments.
-Online advisory firm Personal Capital examined anonymous data from 155,924 of its users to investigate the true client costs from both advisory and fund-related fees across 11 brokerage firms. The biggest offender was Merrill Lynch, which would cost the average $500,000 account $936,390 in fees over 30 years of investing, assuming annual returns of 7 percent and fees that remained consistent over that time frame.
-The China-related sell-off has likely been exacerbated by trading halts, liquidity pressures (ETFs) and systematic investing programs; China represents a mere of 0.7% of U.S. GDP. Markets recovered later in the week as investors viewed conditions as oversold. The energy, technology and consumer discretionary sectors led the way while utilities sold off sharply. Since 1950, the US has seen nine (9) bear markets and 10 recessions. And almost all of these bear markets have overlapped with the economic downturn. The U.S. economy is not headed for recession; instead, we are seeing a market reset that is not entirely unexpected. Markets are likely to be extremely choppy over these next months, and we may see additional corrections.
-We subscribe to more passive investment allocations (low cost, high volume ETFs) when the market is steadily rising with relatively low volatility. However, in high volatility and choppy markets, we believe active managers outperform. For example, in a recent study by Royce Funds it was determined that active management proves successful with superior risk management than passive management, particularly during periods of market volatility. When the standard deviation was the highest – averaging a scary 29.29 – active managers beat the index by an average of 2.22 percentage points. In quintile 4, where the standard deviation averaged 21.53, the active managers outperformed the index by an average of 1.98 percentage points. With regard to performance, in a in the July/August 2013 issue of the Financial Analysts Journal a study found that “high active share” funds, in aggregate, beat their benchmarks by 1.26% a year after fees and expenses (Authored by Antti Petajisto).
-William Dudley, president and chief executive of the New York Fed, remarked that “the decision to begin the normalization process at the September FOMC meeting seems less compelling”. However, recent data releases have shown pockets of strength in the domestic economy and this keeps the door open to a September rate hike - but December rate move is more likely.
-Central banks (e.g. Fed Reserve, European Central Bank, etc.) are less likely to effectively contain volatility and markets need to price-in these considerations. For example, according to one of the leading investment strategist in which we turn to, El-Erian: “The broker-dealers have gotten smaller and will continue to get smaller. The end users have gotten bigger. People actually believe that they can rationally bubble ride until the turn. When the turn comes, they actually believe they're going to reposition themselves. History tells us that there isn't as much liquidity as people think there is." In our view, this is one of the reasons why the Fed’s pathway for rate increases will ultimately be very deliberate, cautious and in the smallest increments.
-Online advisory firm Personal Capital examined anonymous data from 155,924 of its users to investigate the true client costs from both advisory and fund-related fees across 11 brokerage firms. The biggest offender was Merrill Lynch, which would cost the average $500,000 account $936,390 in fees over 30 years of investing, assuming annual returns of 7 percent and fees that remained consistent over that time frame.
-The China-related sell-off has likely been exacerbated by trading halts, liquidity pressures (ETFs) and systematic investing programs; China represents a mere of 0.7% of U.S. GDP. Markets recovered later in the week as investors viewed conditions as oversold. The energy, technology and consumer discretionary sectors led the way while utilities sold off sharply. Since 1950, the US has seen nine (9) bear markets and 10 recessions. And almost all of these bear markets have overlapped with the economic downturn. The U.S. economy is not headed for recession; instead, we are seeing a market reset that is not entirely unexpected. Markets are likely to be extremely choppy over these next months, and we may see additional corrections.
-We subscribe to more passive investment allocations (low cost, high volume ETFs) when the market is steadily rising with relatively low volatility. However, in high volatility and choppy markets, we believe active managers outperform. For example, in a recent study by Royce Funds it was determined that active management proves successful with superior risk management than passive management, particularly during periods of market volatility. When the standard deviation was the highest – averaging a scary 29.29 – active managers beat the index by an average of 2.22 percentage points. In quintile 4, where the standard deviation averaged 21.53, the active managers outperformed the index by an average of 1.98 percentage points. With regard to performance, in a in the July/August 2013 issue of the Financial Analysts Journal a study found that “high active share” funds, in aggregate, beat their benchmarks by 1.26% a year after fees and expenses (Authored by Antti Petajisto).
-William Dudley, president and chief executive of the New York Fed, remarked that “the decision to begin the normalization process at the September FOMC meeting seems less compelling”. However, recent data releases have shown pockets of strength in the domestic economy and this keeps the door open to a September rate hike - but December rate move is more likely.
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