How do I invest if I am scared of losing money?
It’s a month of world harvests and Atlantic hurricanes (214 of them). Of a temperature roller coaster and of market crashes (1907, 1929, and 1987 – days with the word “Black” tying to their names, stand out). Of bonfires and of Great Fires (Mrs. O’Leary and her cow were framed, I tell ya). Of wars (from the Battle of Hastings in 1066 through the Second World War, October was unchangingly seen as your last endangerment for a quick land grab surpassing wintry weather sealed you lanugo for the season) and rumors of wars (the Cuban Missile Crisis which, happily, didn’t trigger a global war in part considering of President Kennedy’s familiarity with the political intransigence and misunderstanding that triggered the First World War). Of a thinning wall between the Here and the There and of troublesome spirits leaking through.
I sympathize with Joy Fielding’s unravelment of the month in her murder mystery, Tell Me No Secrets (2016): “October was unchangingly the least unspoiled of months… full of ghosts and shadows.”
In the Observer this month
source: google.com
Devesh Shah, who has a formidable value of wits as an investment professional, takes a long and tightly unsettled squint at where upper interest rates are taking us in “Another such victory and I am undone.”
Lynn Bolin reminisces on his first year in retirement, offering reflections on both the portfolio implications and the need to set goals far vastitude money.
Lynn Bolin moreover weighs in on the newly launched T. Rowe Price Wanted Appreciation Equity ETF and compares it – not entirely favorably – to its famous forebear, T. Rowe Price Wanted Appreciation Fund.
On the 25th year-end of the Long-Term Wanted Management collapse, roughly the 15th year-end of the Global Financial Crisis, and the third year-end of the Covid bear, all of which hit emerging markets harder than any other, we squint at the EM funds that have been through it all and identity the few who have served their investors honorably despite “the slings and arrows of outrageous fortune” (with a nod to Prince Hamlet) … and moreover those that manage to crash at every opportunity, and that still hold billions in assets.
I highlight two funds in the SEC pipeline that might withstand watching, most notably the Hilton Small-MidCap Opportunity ETF.
And The Shadow, as always, tracks the industry’s news, including a series of lawsuits (hello, TIAA!) and SEC enforcement deportment (against DWS, William Blair, Wellesley Asset Management, and others), new names, new Vanguard ETFs and the closure of one unshortened family of funds.
The Hunt for Red October
(With due credit to Leuthold’s Doug Ramsey for appropriating the phrase to capture the current moment in the markets. Increasingly unelevated from Doug.)
MFO, among a thousand others, has loudly bemoaned the pernicious effects of a zero-interest-rate environment. Briefly, it punishes savers and so discourages savings, it rewards market gambles, and so encourages speculators. Savings rates plummet while earnings-free companies soar.
We are just now realizing the price of getting what we wanted. Devesh Shah lays out the consequences in depth in this month’s essay, “Another such victory and I am undone.” A snapshot of some of the fallout:
The highest mortgage rates in 20 years, 7.35% on a 30-year, is freezing the housing market, with potential owners reluctant to surrender their existing 3% mortgages and potential buyers reluctant to seem expensive new ones.
About $1.2 trillion in commercial real manor loans mature surpassing the end of 2024, and they will all have to be refinanced at sometimes dramatically higher rates plane as lease income dwindles and offices remain empty. It is unclear how many would-be borrowers will be worldly-wise to get refinancing and plane increasingly unclear how many could sire their combination of higher payments and lower income.
The 10-year Treasury yields 4.69%, its highest level since early 2007. The 2-year Treasury has a yield of 5.1%, its highest level since 2006 (both as of October 1. 2023). And since yield is inverse to price, it’s no surprise that the Total Bond Market ETF (BND) is underwater and the Long-Bond ETF (BLV) is way underwater. Long immuration are not “underwater for 2023.” No, no. “Underwater for the past 1-, 3- and 5-year periods.” JPMorgan senior strategist Marko Kolanovic frets that “History doesn’t repeat, but it rhymes with 2008.”
Infrastructure projects designed to help us unmodified or transmute to a rapidly destabilizing climate have huge upfront wanted costs. Those can wilt prohibitive to finance when interest rates rise and lenders grow anxious.
Consumers have kept the economy unsinkable in the squatter of persistent worries, but calculations by the Fed suggest that the savings piled during Covid and later deployed in “revenge spending,” will be worn-out by the end of this month. Consumer credit vellum debt now tops $1 trillion and carries an stereotype interest tuition of 21-28%, depending on which estimate you accept.
Along with that, repayments on $1.7 trillion in student loans resume in October without a three-year suspension. That affects well-nigh 40 million people who tend to be relatively young and relatively poor; most (70%) plan on slashing discretionary spending and shifting vital purchases to unbelieve stores.
All of which makes people – consumers and managers – very anxious. Part of that uneasiness is manifest in the gap between the cap-weighted S&P 500 (up 10% YTD) and both its equal-weighted version (up 1.6%) and the Russell 2000 small cap alphabetize (up 2.5%). The unveiled health of the stock market seems mostly a reflection of the mania virtually tech and telecom (again). Jaime Dimon recommends that you “batten lanugo the hatches.” Predictions of recession, imminent or over the next 16 months, are rife.
What’s an investor to do in the squatter of worry?
If you’ve got a long-term plan and a willingness to ignore noise, “nothing” is often your weightier answer.
Doug Ramsey, Senior Investment Officer of The Leuthold Group, and Co-Portfolio Manager of the Leuthold Core Investment Fund and the Leuthold Global Fund, hosted a web undeniability on September 26 with investors. The undeniability was subsequently titled “The Hunt for Red October,” which I liked unbearable to swipe.
Highlights of Doug’s presentation:
Leuthold does a minute-by-minute tracking of hundreds of statistical indicators, aggregated in their Major Trend Alphabetize (MTI). Monetary and liquidity metrics are poor and getting worse. All monetary indicators are now negative. Money supply growth is the lowest since the 1930s. They are getting worse. Longest yield lines inverse in history, one of the deepest, one of the most extreme.
“The weight of the vestige puts the MTI on the cusp of portending a significant new down-leg in stocks.”
Equity exposure in their tactical portfolios, such as Leuthold Core, has drifted lanugo by 3-4%. Core’s net exposure in late September was under 50%.
We’ve seen the worst performance of small caps – overly – coming off a withstand market low. Depending on how you value them, this is among the cheapest that small caps have overly been relative to the rest of the market. There’s the prospect of a “generational ownership opportunity coming out of a moderate recession considering they’re so unseemly and lag so much.”
Contrarily, they alimony getting EM sell signals.
Leuthold Group will often share a reprinting of the replay if you reach out to them.
Morningstar decided to skip the whole “will there be a recession” thing and go straight to “what’s the weightier place to be when there is a recession?” While she doesn’t exactly compile a “buy” list, reviewer Amy Arnott does recount the record derived from the past four or five recessions:
Modest midterm changes to Snowball’s portfolio: as long-time readers know, my own non-retirement portfolio targets a 50/50 split between growth and income; roughly, between stocks and some combination of bonds, alts, and cash. My stock portfolio targets 50% US/50% international, with some tilt toward smaller, cheaper, and higher quality. I do not trade, with an stereotype holding period of increasingly than a decade.
I sold my unshortened position in Matthews Asia Growth & Income. The fund is one of the most inobtrusive ways to wangle Asian equities, but … it was a holdover from Ancient Times when Andrew Foster (now of Seafarer) managed the fund. The fund has earned 0.20% annually for the past five years and 1.20% for the past decade, and my exposure to stocks (60%) and international stocks (40%) were both far whilom their targets.
I widow RiverPark Strategic Income without a months-long comparison of that and Osterweis Strategic Income. They are up 6.05% and 6.81% YTD, respectively. Both are managed by top-tier guys who loathe losing money. Of the two, RiverPark has had noticeably lower volatility. The RiverPark wing unliable me to deploy mazuma sitting in my Schwab worth without materially increasing my risk exposure.
I am likely to add Leuthold Core Fund and add to Palm Valley Capital, an unrenowned small- to micro-cap value fund that’s sitting on 80% mazuma and short-term immuration just now. Both managers share my dislike for losing my money. Both have outstanding long-term records, though Palm Valley’s is obscured by the fact that the managers have been responsible for four variegated funds – serially, each with the same strategy – this century.
And eventually, I’ll icon out how to transfer part of my investment in Seafarer Overseas Growth & Income, which I add to regularly, to Seafarer Overseas Value. Paul Espinosa’s fund is probably the most compelling “star in the shadows” of its generation.
“Green hushing” and your future
The Financial Times, doubtless inspired by our spanking-new word on untried hushing, reports that plane European managers have resorted to the practice:
Asset managers have been dropping the word “sustainable” from the names of funds in response to increasing regulatory and reputational concerns. Forty-four sustainable funds removed the label from their trademark name during the first half of 2023, in unrelatedness to 2022, when 99 funds widow “sustainable” to their name, equal to data from consultancy Broadridge. (“Asset managers turn to ‘green hushing’ on sustainable funds,” FT.com, 9/25/2023)
They note, at the same moment, the upsurge of anti-ESG investments. Columnist Robert Armstrong writes,
It is the strongly held view of this newsletter that ESG investing is well-intentioned, confused, utterly ineffective and probably harmful. It does not transpiration corporate behaviour for the better, cannot offer investors unceasingly largest returns, is not a good risk-management strategy, extracts fees from investors and hands them to financiers, lawyers and consultants, is anti-democratic and creates a pernicious lark from the things that do transpiration corporate behaviour, such as consumer boycotts and regulatory action.
But if ESG investing is dumb, does that make anti-ESG investing smart? A few people seem to think so … Morningstar identified 27 investment funds as anti-ESG, together managing $2.1bn as of the first quarter of this year. This is just a speck relative to the money management industry, but it is not quite nothing.
Ultimately, Armstrong can’t find any reason that such funds are a good idea any increasingly than ESG funds are, except for the afar prospect that the visionaries overdue them will stave some of the diamond mistakes made by their counterparts. That said:
The proof of the pudding may have to be in the eating. Given that most anti-ESG funds are quite small, have not been virtually for long and pursue quite varied strategies, there is very little pudding to eat and it is still undercooked. (“Anti-ESG Investing,” FT.com, 9/26/2023)
Assume for a moment that the critics of ESG investing are right. The unresolved question remains:
The planet’s systems are dangerously out of balance. What are you going to do well-nigh it?
If the wordplay is “nothing,” then we’re toast. Almost literally.
is still undercooked. (“Anti-ESG Investing,” FT.com, 9/26/2023)
There is much you can do. (Don’t vote for idiots comes to mind, though I know the term is amorphous.) To the extent possible, stop the personal consumption of fossil fuels. Open flames in your home – in water heaters, furnaces, and stoves – might be replaced by heat pumps, induction cooktops, or clotheslines. You might reconsider the need for an SUV or pickup, which tend to be surprisingly unsafe considering of their poor visibility and slow handling, expensive, and unnecessary. (In general, SUVs are marketed through appeals to personal self-rule as drivers ford rivers, scale mountains, and stilt commercial watercraft lanugo the stream while a deep-voiced narrator drones on well-nigh your worthiness to go anywhere and do anything.) You might ask local officials well-nigh changes to the municipality towers code, which would encourage heat-reducing “green” rooftops and urban trees. You might plant a tree. You might support those who are taking action; Charity Navigator rates a tuft of conservation organizations as having scores of 97 or above. Run for local elected office (on the likely doomed slogan, “I’ll listen openly and try to make things largest for us all”) … or help out with some good soul who is. Stay informed. Stay positive. Alimony moving forward.