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How To Tell If Your Manager Is A Pretender Or An Outperformer

the talented mr ripley
the talented mr ripley

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FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors. For more visit Business Insider's new Wealth Advisor vertical.

How To Tell If A Manager Is A Pretender Or An Outperformer (The Aleph Blog)

"Now, for managers, I would recommend keeping a trading journal, where you record why you think your investment hypothesis will succeed. If your investments succeed for reasons that you specified in advance, that is an indication of skill. There is a lot of what is called “luck” in investing. If you are beating the market, and it is not for reasons that you specified in advance, you do not have skill, you have luck, and luck strongly tends to mean revert.

"My view comes down to this: I like to see a long track record of outperformance, an unusual portfolio, and a strategy that convinces me that you have discipline, and a constructive way of finding undervalued assets. Absent that, I will probably think that you are a pretender than an outperformer. There are always some that outperform for a short time, and then underperform as the underlying economics shift. Markets are volatile enough that there are always some with three-year track records that are stunning, and very lucky.

"Separating luck from skill — that is the toughest aspect of investing. But it is needed because there are so many investment managers touting skill, and what do they really offer?"

Differences Among Fee-Based Advisors (The Wall Street Journal)

Clients need to be aware of differences among fee-based managers, according to Rob Siegmann of Cincinnati based Financial Management Group.

"Most consumers don't understand that there are different levels of financial-planning services offered. Most fee-only advisers charge a 1% fee but what clients get for that fee can vary depending on the firm.

"On one end of the spectrum are firms that are strictly money managers. If a client were to ask them about taxes, insurance, or estate planning, those firms may refer clients to a certified public accountant, an insurance agent, or an estate-planning attorney. On the opposite end of the spectrum are advisers who charge 1% but also offer a suite of financial-planning services in addition to money management."

Raymond James Is Making A Big Push To Ramp Up Its RIA Custody Unit (Investment News)

Raymond James is making a big push to expand its registered investment advisor (RIA) custody business. The firm just hired four new regional directors for its custody division called the Investment Advisors Division (IAD). Raymond James has also got an advertising campaign in the works to create awareness about IAD.

The new regional directors are Sean Marrin who comes from LPL Financial for the West, Chuck Curtis a Morgan Stanley veteran for the center. Glenn Flego for the Northeast who was with Fidelity Institutional Wealth Services and Christian Williams who has been with Raymond James will head the Southeast. "What this represents is a serious re-launch of this [RIA custody] business, with the full resources of the firm behind it," Van Law, president of IAD told Investment News.

Investors Should Stop Their Devotion To 'Well Known Facts' (Advisor Perspectives)

In a new Advisor Perspectives column, Bill Smead of Smead Capital Management writes that there are "well known facts" and things that investors are "devoted to" in their portfolios. The "well known fact" is the thing that everyone in the marketplace knows and has acted on, and today a "well known fact" is the growing middle class in emerging economies and their want of things that U.S. consumers have wanted. China's boom has kept investors devoted to this fact according to Smead.

"The problem with all of this is there is “nowhere to hide” if you don’t “push your love aside”. We believe you are “out of your head” if you stay in love with the well known fact and stay invested in emerging markets, gold/oil /commodities, multi-national consumer staple companies, energy, basic materials, international heavy industrial companies, and the sovereign debt and stock markets of commodity export nations like Australia, Canada, Brazil and Russia."

Global Bonds Can Meet An Investor's Core Objective (AllianceBernstein Blog)

Investors loading up on global bonds have more opportunity to add value and they can also reduce risk according to AllianceBernstein's Alison Martier.

"Adding global is not just a tactical strategy for periods of market drama. Global bonds can serve as a low-volatility anchor to windward—that is, they can meet an investor’s core objective. While an unhedged global bond approach fails to fulfill this objective, the overall risk of the global bond portfolio declines sharply once the currency risk is hedged out.

"When looking at the historical returns (1993 - 2012) of U.S. bonds, global unhedged bonds, and global hedged bonds, "hedged global bonds, in risk-adjusted-return terms, come out the clear winner in the historical data."

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