As we celebrate Independence Day, it is also fitting within this context to recognize the power of independent investors. These investors embrace the power of knowledge through independent research.
Typically, the summertime slowdown is in full effect on Wall Street as trading volume drops to lower levels with all of the summer travel plans, family vacations etc. This is not to imply that there should be any negative connotations attached to light trading volume. However, what does have some pondering is the ability for these markets to sustain the incredible run up in value, especially during the summer slowdown and perhaps with many investors leaving their guard down.
As important as it can be for investors, especially retired investors, to do their homework and take control of their finances, it can also be said that there is inherent value in commentary from the professionals with the resumes and track records to give their comments credibility. As important as having an opinion can be, it is also critical for those opinions to have a solid fact based foundation.
Recently one of the Wall Street “heavy hitters” came out with some poignant commentary on the state of the financial markets. Bill Gross, considered the preeminent bond guru on Wall Street, who also managed one of the largest institutional bond portfolios in the world, offers some very clear insights as to where we are and where we may be headed.
According to CNBC.com, Mr. Gross stated that “The equity markets are priced for too much hope… asset prices are elevated to artificial levels … ” He states further “ … High rates of growth and the productivity that drives it are likely distant memories from a bye gone era … ” Strong words from one of the most respected money managers on Wall Street.
Now this commentary does not imply that today or tomorrow is the day of reckoning. Rather, these words offer a warning to investors that perhaps now would be good time to reallocate the portfolio to potentially allow for opportunities for grow from assets other than the stock market. In the wake of the unprecedented 8 year run up in values after the last crash, certainly retired investors should embrace the powerful risk reducing effect that alternative asset classes can have on the overall long-term health of a portfolio. In this case, when we think alternative assets, simply think anything other than stocks of any kind.
One of the proven alternatives is the also equally successful asset class of managed futures. Now before investors roll their collective eyes as to the foreign nature of this proven asset class, it is important here to remind readers that most investors have no idea what actually goes on inside of their mutual funds an at any given time. Of course, unfamiliarity with the inner workings does not negate their ability to achieve success. The same can be said or managed futures.
Other than the Nobel Prize winning research proving the ability for managed futures to increase returns while at the same time reducing risk, let’s read what the pros think. According to former Rockefeller Foundation and Harvard University Foundation CEO, Jack Meyer; “Holding commodities (managed futures) offers protection against the ups and downs of stock and bonds.” Referring to their manage futures holdings; “They are the most diversifying asset in our portfolio…it’s powerful and our portfolio is a good deal less risky than the S&P 500.” Strong words from yet another respected source with absolutely zero bias in the discussion.
Another professional had similar thoughts. According to Sol Waksman, founder and president of Barclay Hedge; “The current growth in managed futures assets has been closely aligned with the changing sentiment of sophisticated investors who are now seeking transparency, liquidity and lower downside risk.” Again, it is critical here for investors to utilize this type of due diligence. The importance of accessing this type of information cannot be overstated when positioning assets for long term success. Heeding the fact based insights of veterans of the industry can certainly lead to the life of a SWAN, Sleep Well At Night.
William F. Hague is a managing partner of Hague Wealth Management; 239-389-1999 or WFHague@earthlink.net. The opinions and observations stated above are those of the columnist.