Fund Managers Waiting to Pull Emerging Market Trigger and Today’s Other Top Stories

 

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Emerging markets have started the year, in much the same way munis finished the last, badly. The MSCI Emerging Markets index has fallen 7.8% so far this year and the average fund in the newly created IMA Global Emerging Markets Bond sector has fall 9.5%.

But despite funds cutting back EM exposure in the last few weeks, many asset managers are eyeing up a return once the market has quietened down.

Mark Harris, manager of City Financial’s multi-asset funds, told FT Adviser that, his quantitative models were flagging emerging market equities as potentially offering cheap access following months of falling prices and currency woes. But he said he was still waiting for “extreme” data points to indicate a good time to buy.

“People have been redeeming from emerging market debt and equity funds, but we’d like to see a big outflow figure or a big negative story somewhere” Mr Harris said.

And he’s not the only one. Henderson co-head of multi-asset Bill McQuaker is also keeping a watchful eye over emerging markets.

“Emerging markets is an area we have to appreciate is getting more interesting,” he said. “We are looking at emerging market debt to see if there is a chance to re-engage and we will do the same with equity.”

If nothing else this proves why individual investors shouldn’t try and chase the market. Even the most sophisticated investor is going to be way behind the curve. In this case, selling EM debt at the exact moment these fund managers are buying.

And which debt are you going to sell? Thomas Byrne wrote in LearnBonds earlier this week. “Blanket selling of assets almost always ensures that healthy babies will be thrown out with the gray bathwater.”

Individual investors are better served by assembling a balanced portfolio of stock and bonds. The exact ratio is dependent on your personal circumstances. Once assembled, such portfolios require little maintenance.

Here are two tips for managing your portfolio from Motley Fool:

  1. At the very most you should rebalance once a year. Over time, certain asset classes will outperform others. Once a year, re-assess your asset allocation and risk tolerance, and buy and sell to stay within a few percentage points of that goal. (This does not mean chase the market.) If you never rebalance, your asset allocation will become skewed over time.

  1. Occasionally check your funds to make sure fees, expenses, and asset allocation are still acceptable. Sometimes funds will begin tracking a different index. Shop around once a year to see if a better product is available.

Do these simple tasks each year and you’ll retire richer and happier than you ever thought possible. No more sleepless nights trying to chase the market, leave that to the professionals, that’s what they’re paid for.

 

Todays Other Top Stories

Municipal Bonds

MarketWatch: – CVS decision isn’t as bad for tobacco muni bonds as Puerto Rico. – The decision by CVS Caremark Corp. to stop stocking cigarettes and tobacco products in its stores doesn’t bode well for holders of municipal bonds backed by payments from tobacco companies. But the more immediate issue for tobacco bonds may be another class of high-yield munis that’s in the news: Puerto Rican debt.

FT: – Puerto Rico cut raises fears over rally. – A strong rally in municipal bonds at the start of the year may stall in the aftermath of Puerto Rico’s downgrade to junk status by Standard & Poor’s, analysts said on Wednesday.

Reuters: – Illinois to sell $1 bln bonds, but investor concerns linger. – A looming revenue decline, heaps of unpaid bills and multiple lawsuits hang over Illinois’ planned $1 billion bond sale on Thursday, though the fiscally-challenged state’s recent pension reform law may afford it a modest break on borrowing costs.

John Cole Scott: – How municipal bond dividend cuts impact NAV performance and investor sentiment. – Last year, we penned an article about why we thought Municipal bond CEFs were about to suffer numerous and painful distribution cuts. The key data that suggested the cuts to our firm was a downward move in average Relative UNII (undistributed net investment income) from +23% to -18% in only seven months.

Bloomberg: – Puerto Rico hinges on offering awaited by BlackRock. – Investors including BlackRock Inc. (BLK) and Vanguard Group Inc. say Puerto Rico’s finances hinge on its ability to carry out a planned debt sale this month after the territory’s credit rating was cut to junk.

ETF Trends: – iShares to roll out new muni bond ETF Thursday. – iShares unit, the world’s largest ETF issuer, will introduce the iShares 2019 AMT-Free Muni Term ETF (NYSEArca: MUAH) Thursday.

 

Education

LearnBonds: – Expect continued uncertainty and volatility in 2014. – If the rest of 2014 is like the first 37 days or so, the word that will be used to describe the financial markets will be “volatile.” The disruptions coming this past two weeks centering especially in the currencies of several emerging countries is just the latest upheaval to cause market to move in a direction opposite the one that was forecast a month or so ago.

 

Treasury Bonds

WSJ: – Jeffrey Gundlach, Bill Gross reap windfalls from Treasury rally. – Some large U.S. bond funds reaped the windfall of a surprising turn in global financial markets since the start of the year as investments in Treasury bonds rallied and riskier bets went sour.

Bloomberg: – Treasuries decline for a third day as unemployment claims drop. – Treasuries fell, pushing 10-year note yields higher for a third day, as a report showed initial claims for unemployment benefits fell last week, reducing demand for U.S. government debt as a haven.

ETF Strategy: – WisdomTree launches floating rate Treasury bond ETF. – WisdomTree, a leading provider of exchange-traded funds, has announced the launch of the WisdomTree Bloomberg Floating Rate Treasury Fund (USFR), an ETF providing exposure to floating rate notes issued by the US Treasury.

 

Corporate Bonds

WSJ: – Debt investors again head to safer shores. – Bond investors have been buying up ultrasafe debt and pulling back from higher-yielding bets in recent weeks, suggesting waning confidence that rates will rise and the Federal Reserve will continue to withdraw its bond-buying stimulus.

 

High Yield

BusinessWeek: – Contagion rejected as biggest bond buyers double down on junk. – Michael Buchanan knew exactly what to do as markets were rocked in recent weeks on concern turmoil in developing nations from Argentina to China and Turkey would cause the global economic recovery to derail: buy junk bonds.

ETF Trends: – Junk bond ETFs gain traction despite risk-off environment. – Undaunted by the recent volatility in risky assets, some investors are turning to speculative debt and junk bond exchange traded funds as they buy on the short-term dips.

BCA Blog: – Check out the spread between stocks and high yield bonds. – Junk bonds have outperformed equities by a wide margin since their inception in the late 1980s. However, our Global Asset Allocation service anticipates a change for the following reasons.

 

Emerging Markets

Forbes: – Off-radar emerging markets worth owning. – Fund managers love emerging market debt for its yield. Where else can investors own a bond paying 10.5%?

Barron’s: – Emerging-market caution. – I spent the early part of my career investing in emerging stock, bond and currency markets. It was the 1990s, and at that time, those markets were truly emerging.

 

Catastrophe Bonds

Artemis: – Capital weighted cat bond spreads at issuance hit low in 2013. – The decline in catastrophe bond and insurance-linked security (ILS) spreads and premiums over the last year has been well document, with some tranches seeing 40% declines in pricing over comparable issuance a year earlier.

 

Bond Funds

MoneyMarketing: – The lack of liquidity a concern in bond markets. – Liquidity may mean different things to different investors but we would define it as the ability to buy and sell bonds in decent amounts at a reasonable cost and in the desired timeframe.

YourMoney: – Is the bond fund exodus set to continue? – After a dismal 2013 for fixed income, will investors return to bond funds? We ask the experts for their views…

Investing.com: – Is the bond market really hot? – Marketwatch.com noted earlier this week that “bonds are suddenly the hot investment.” Barron’s offered a similar analysis a few days earlier: “Bond prices have surged so far this, defying conventional expectations.” But deciding if the bond market is “hot” relies rather heavily on your definition of the asset class and choice of time period.

 

“Bond Squad is my favorite bond investing newsletter. It combines common sense with deep market knowledge.”

- Marc Prosser, Publisher of Learn Bonds

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Get a free two-week, no commitment trial of Bond Squad by emailing Tom at thomas.byrne@wsandm.com

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