The equity markets typically dominate the headlines but recently there has been more and more talk about the Fed and where interest rates are going. Stocks are definitely a more intriguing topic as they can move very quickly in either direction and make a dramatic impact on investor’s portfolios. Future Fed activity will have an impact on what is often the most neglected portion of a portfolio – Fixed Income or Bonds.

Most investors spend a minimal amount of time with this portion of their asset allocation. It is often the textbook definition of a ‘buy and hold’ approach and why shouldn’t it be? For the last several years investors have accepted the fact that interest rates are essentially zero and this portion of their portfolio warrants little to no attention. While this approach has been adequate investors that subscribe to this approach could find themselves with losses in what they consider their ‘sleep at night’ portion of the portfolio. When and if the Fed makes any changes to their policy investors need to be prepared to make changes to this portion of their investment portfolio.

When rates do change the behavior of bonds can be explained using something that everyone has seen on a children’s playground…a seesaw or teeter-totter. It is based on a very basic concept – when one side goes up the other will go down. When using this analogy with Fixed Income, one side would have interest rates and the other would have the principal value of the bond or fund. As rates go down the principal would go up and if rates go up the principal would decline. Fairly straightforward…isn’t it? Additionally, the further away you are from the middle of the seesaw (fulcrum point) the harder your landing will be. This playground explanation paints a simplistic explanation of how the price of bonds is affected by interest rate changes but what should you focus on when it comes to your fixed income positions?

Duration – An indicator that illustrates how the price of a bond will be impacted with a change in interest rates. The calculation itself is semi-complicated but this indicator is considered standard data when looking at bond bond funds and ETFs. It is expressed in years; the higher the number, the greater the interest-rate risk or reward associated with bond prices.

 

How much might you lose when interest rates increase? It’s not hard to see once you lay out the rate increase compared to the duration of your bond investment. For example: If rates increase 2% and the duration of your bond investment is 3% you will see -6% in value. If the same rate increase of 2% occurs but you have a duration of 9% you could see a decline in value of -18%.

 

Bond-Value-with-Chg-in-Int-Rates

Expenses – Any additional charges/fees make an impact on a portfolio but they are particularly important when looking at fixed income, especially in this low interest rate environment. Remember that higher expenses do not correlate to higher returns. Investing is the one area where the old adage of “you get what you pay for” is sometimes the absolute opposite.

Don’t chase yields – Generally a higher yield indicates a higher risk. Look at the credit quality to fully understand the risk associated with an investment.

Don’t duplicate funds – Two funds might have different names or parent companies associated with them but when you look at the holdings they basically duplicate each other. A diversified fund can offer exposure to numerous sectors within the fixed income universe.

Credit Risk – Remember a bond is a loan. Credit risk is the chance that you will not be paid back as the lender. Anything below a BBB rating is considered below “investment grade”.

If you haven’t reviewed your bond positions now could be the ideal time. There are a multitude of options to consider and you now have more cost effective options than there were available just five years ago. There are many factors that investors need to consider on both the domestic and international stage when it comes to fixed income. The most important thing for investors to remember is why they have a portion of their portfolio allocated to fixed income – to help manage overall portfolio risk.   Investors typically look at their equity positions frequently and pass over the fixed income portion of their portfolio. When was the last time you gave your fixed income an in-depth review?

 

Welcome to the fifth year of our March Madness Investing Bracket! This series of articles is always one of the most popular investing articles on the internet! We’re proud to admit that we were one of the first investing nerds to combine our love for the markets with the passion that college basketball brings!

It’s common knowledge that people love excitement and surprises. It’s also human nature to root for the underdog and many times those two themes can certainly play out on the basketball court as well as on the stock market floor. Much like two college basketball teams that never play each other our imaginations are swept up in wondering who will “win” between a relatively unknown investment or a popular stock that has the media in a frenzy.

You may be asking what does a basketball tournament have to do with managing your portfolio or the investment world in general? At first glance there might not be much but we thought we would have a little fun and couple it with some asset allocation parallels. After all, there are many folks who have simply thrown their hands in the air at one time or simply succumbed to the notion that investing is like educated gambling. There could be some truth to that depending on your approach…

For those of you that are not familiar with the NCAA and its annual basketball tournament there are 68 teams selected and each is seeded according to their results throughout the regular season and their relative rankings. Every March the NCAA holds a single elimination tournament to crown an undisputed champion. Part of the appeal of such a tournament is that theoretically any team that makes the “big dance” has a shot at winning it all. Each and every year there is a proverbial “Cinderella” team that surprises everyone including all the ‘so-called’ experts. Prior to the tournament there is always plenty of banter and opinion on who wasn’t invited or further arguments around the seeding of the teams that did make it. That’s where we see a parallel of sorts to investing and having to make decisions among the multitudes of investment choices. With so many investment choices available, there are also as many differing opinions.

In the “real” March Madness tournament this year there appears to be a hands down favorite with the undefeated Kentucky Wildcats. Hardly any office pool or basketball analyst is betting against such a heavily favored team. If they win it all it will be the first time in over 30 years that a team stays unbeaten the whole season. Our own version of this (using investment themes and choices) shares the premise that we have four very decent #1 seeds but there is no slam-dunk pick that everyone agrees on. For this reason, our 2015 bracket is perhaps as important as ever to understand that a dark horse could win it all…

Before we begin digging into each “region” of our bracket, let’s please revisit something everyone claims they know but so very few actually follow with consistent discipline. (Asset Allocation)

If you have ever looked at a chart of all the different asset classes and how they perform year to year…there is rarely a pattern or consistent way to determine next years “winner”:

https://www.callan.com/research/files/757.pdf

For the purposes our annual investing bracket we have “seeded” or ranked four major asset classes (like the regions) and chosen several individual picks within each. There is some basic science applied to this process. We consider how the “pick” did over the past 12 months and also how it had trended over the past three months. In some cases we gave a lower performing investment a higher seed if it was trending well with recent strength or was more consistent over a longer period of time.

Each asset class (Large Cap, Small Cap & Mid Cap, Bonds/Alternatives, and International) was ranked and seeded, then corresponding seeds were assigned to “picks” that we are either adding to the portfolio or establishing new positions in. Note that we’re not highlighting 68 new investments and will only discuss some investments that we are either actively involved in or looking to add to most portfolios.

OK...Let’s dig into some of the key match-ups and explain why our Final Four going into Q2 2015 looks the way it does (CLICK HERE to view our 2015 Bracket):

Large Cap

This is typically viewed as

Read more...

 

Dear Mr. Market:

 

For a guy who is usually full of surprises you’re scripting 2015 like a boring rerun of last year. As you’ll recall we had a rough start to the year with the S&P 500 dipping -3.1% in January but then February came around and erased all the negative returns for the year with a very strong month. As a matter of fact the S&P 500 had its best month in almost five years with a gain of +5.5%. The Nasdaq bubbled up (pun intended) even higher at +7%.

Everything is fine and dandy, right? The media is as giddy as they’ve been in ages. They’re showing us charts and comparisons of Nasdaq 5,000. Nothing could go wrong from here, could it? Is this another perfect backdrop for the four most dangerous words in investing?

“It’s different this time”.

It’s without question that the market could continue to run higher. We’ll discuss this and the likelihood of it happening in the last section of this article. First let’s review where we’re currently at and what we did last month:

Here’s the current summary of the MPG Core Tactical 60/40 portfolio mix, which is updated as of this writing (March 2, 2015).

Click here to compare our portfolio against the benchmark

What adjustments did we make?

Read more...

The financial services industry is notorious for creating new terms and services in an effort to meet the ever-changing needs of investors. Often these ‘solutions’ are quickly adopted and become broadly used while others simply fizzle away only to be quickly forgotten. Unless you’re inside the industry you won’t hear the term “Robo-Advisor” but with advertising and slick marketing you will soon be solicited by one.

As with any new service or product there are many different models that companies are using as they rush to be part of a new fad. The basic definition of a Robo-Advisor is:  a class of financial adviser that provides portfolio management online with minimal human intervention. You might not be aware of these offerings but with several large firms introducing new strategies this year it is a safe bet that you will hear about Robo-Advisor’s in the coming months.

The vast majority of these firms have only

Read more...

Complimentary Portfolio Analysis

We offer a complimentary review and thorough analysis of your portfolio. Let us see if something can be improved with how you are currently positioned.

Call Today

Watch the MPG Video

Market Snapshot

Seeking Alpha Certified

Live Chat