THE BLOG

29
Oct

Citrix Sharefile, November 2015 Efficient Advisor, and Missing Running Shoes

On today's Weekly, we release the November 2015 Efficient Advisor, look at Citrix Sharefile's Fuse 2015 contribution and T3 Enterprise, and "borrow" Director of Technology Support Joe Leyboldt's shoes.

The post Citrix Sharefile, November 2015 Efficient Advisor, and Missing Running Shoes appeared first on Orion Advisor Services.

29
Oct

A 16-Year-Old Strategist Enters ’40 Act Country

A 16-year-old tactical asset manager just entered the mutual fund business, and it already has $1 billion in mutual fund AUM.

Egg Harbor Township, New Jersey-based Hanlon Investment Management launched the Hanlon Managed Income Fund and the Hanlon Tactical Dividend and Momentum Fund. Sean Hanlon, CEO of his eponymous shop, confirms that part of the rapid growth of the two new funds comes from his team their advisory clients in the same strategies out of the SMAs and into the new funds.

Hanlon teamed up with Gemini Fund Services to launch the funds, and he aims to launch more soon.

To read the entire MF Wire story, click here.

28
Oct

Seeing (The Wrong) Stars

star gazing

Content provided by Case Eichenberger, CLS Client Portfolio Manager

CLS portfolio managers often get questions from clients about Morningstar’s renowned star rating system. But these days, the questions are more commonly about exchange-traded funds (ETFs) than mutual funds. Some of the most common ones are: Why do some ETFs that CLS uses have low Morningstar Rating™? And, why don’t we just use the highest-rated Morningstar ETFs to build portfolios?

As one of the largest active money managers of ETFs*, we pride ourselves on our ETF knowledge. So, here’s our answer, (but first, remember that an overwhelming majority of ETFs are passive and exist simply to track an index). The ETFs aren’t actively managed, which means it is up to the manager (CLS) to add value by combining ETFs to suit the investor’s risk tolerance (aggressive, conservative, etc.), objective (accumulation, income, etc.), or a combination of other factors.

Currently, Morningstar’s rating methodology  for ETFs is very similar to that used for mutual funds. The ratings are based on risk-adjusted performance, and ETFs are measured against others in their respective category. For example, the iShares Core High Dividend ETF (HDV) is a two-star fund in the Large (Cap) Value category. This rating is below average for the category, so why use this ETF? Well, that brings us to our first point: the objective, or fit, of the fund in a portfolio.

Let’s say an investor expresses the need for immediate income generation from his/her assets to live on. How would you gain access to large value equity space in the U.S.? Would you buy the highest Morningstar-rated fund with the largest assets in the category? If so, you could buy the Vanguard Value ETF (VTV), which has a four-star rating. But remember, the investor needs to tilt towards dividend yield for income. This is where HDV may better satisfy the investor’s objectives. HDV has a 12-month yield of approximately 4% while VTV is just approximately 2%. How the fund fits the objective is important.

Let’s look at it another way. Let’s say an investor is heavily invested in U.S. stocks, and would like to diversify further with international equities, specifically in Japan. A quick survey of Morningstar’s ratings could lead you to Deutsche X-trackers MSCI Japan Hedged ETF (DBJP). This ETF has a five-star rating. Compare this to the iShares MSCI Japan ETF (EWJ), which has three stars. The choice seems obvious, doesn’t it? Not so fast. You have to first deconstruct the difference. In this case it is due to the Japanese currency (yen) being devalued against the American dollar. DBJP takes out the yen exposure, while EWJ has currency exposure. Would you rather own a currency-hedged ETF (DBJP) or let the currency diversification help in the long run (EWJ)? The choice isn’t so clear anymore. Again, it comes down to the manager to add value here.

So how does Morningstar calculate ratings? High returns are rewarded; that makes sense. But what if an ETF has much higher returns than its benchmark, and another ETF has lower returns but is more in line with its benchmark? Which would you choose? If you choose the one with the lowest tracking error, it may have lower returns, but you may be more comfortable with what you’re getting. And, again, it is the manager’s job to add value in such choices.

OK, we’ve pointed out why Morningstar’s ETF ratings may not be the best basis for investing decisions. What else should be looked at? With experience in the ETF space for well over 10 years, CLS tracks all the ETFs (over 1700) and has variable measures on each. We look at the expense ratio, the cost of holding, and the market impact cost of trading the ETF. We also look at the structures of the ETF for possible tax considerations, such as whether it distributes a K-1. We host ETF providers at our Omaha, Neb. headquarters to conduct due diligence, and we send out due diligence surveys to providers and visit their headquarters.

We do all this to become even better at determining which ETF is best for the investor, without bias and within a high fiduciary standard. So what’s a better basis for investing decisions? There’s your answer.

*Morningstar, April 2015
This material does not constitute any representation as to the suitability or appropriateness of any security, financial product or instrument.  There is no guarantee that investment in any program or strategy discussed herein will be profitable or will not incur loss.  This information is prepared for general information only.  It does not have regard to the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report.  Investors should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized.  Investors should note that security values may fluctuate and that each security’s price or value may rise or fall.  Accordingly, investors may receive back less than originally invested.  Past performance is not a guide to future performance.  Individual client accounts may vary.  Investing in any security involves certain non-diversifiable risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk.  These risks are in addition to any specific, or diversifiable, risks associated with particular investment styles or strategies.
An ETF is a type of investment company whose investment objective is to achieve the same return as a particular index, sector, or basket. To achieve this, an ETF will primarily invest in all of the securities, or a representative sample of the securities, that are included in the selected index, sector, or basket.  ETFs are subject to the same risks as an individual stock, as well as additional risks based on the sector the ETF invests in.
The Morningstar Rating™ rates funds on a risk-adjusted measure, and stars are assigned using a scale further described in Morningstar’s methodology. CLS is not affiliated with Morningstar or any of the companies listed above. While some CLS portfolios may contain one or more of the specific funds mentioned, CLS is not making any comment as to the suitability of these, or any investment product for use in any portfolio.
27
Oct

Fuse 2015 Spotlight Series: Citrix Sharefile

Read today's blog entry to learn more about Fuse 2015 award winner Citrix Sharefile and their contribution to their Orion integration.

The post Fuse 2015 Spotlight Series: Citrix Sharefile appeared first on Orion Advisor Services.

23
Oct

Back to the Future!

grant blog picture

Content provided by Grant Engelbart, CFA, CLS Portfolio Manager

October 21, 2015 was a great day. It was the day that Marty McFly and Doc Brown traveled to in Back to the Future Part II! The “prophecy” failed to be completely true – the Cubs still haven’t made it to the World Series despite their run this year. But a number of companies have created hover boards. The concept of time travel, both going back in time to change something or having knowledge about the future is something we as humans seem to be enamored, if not obsessed, with.

Investing is definitely not exempt. The regret of not investing at some point in the past – whether at lows or highs – is common and even academically studied. The ability to predict the future is elusive but desired by nearly all market participants. Fear of the future, a prominent theme throughout the Back to the Future films, is always on the minds of investors.

Regardless, I am going out on a limb to predict the future of the stock market: it will look like the past. Take a look at the chart below; it shows the growth of $1 since 1926, and yearly stock market returns since. The scale is displayed in logarithmic form because the returns are so robust. The market has trudged through the Great Depression, World War II, Cuban Missile Crisis, Tech Bubble, Great Recession – and plenty of other things that have made people shout “Great Scott!” On so many occasions in the past, investors have asked themselves, “Is now the right time to invest?”, and the answer is always a resounding, “Yes!”

So, what will the road to your future look like? “Roads? Where we’re going we don’t need roads.”

grant blog chart

The views expressed herein are exclusively those of CLS Investments, LLC, and are not meant as investment advice and are subject to change.  No part of this report may be reproduced in any manner without the express written permission of CLS Investments, LLC.  Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such.  All opinions expressed herein are subject to change without notice.  The graphs and charts contained in this work are for informational purposes only.  No graph or chart should be regarded as a guide to investing. This information is prepared for general information only.  It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report.  You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized.  You should note that security values may fluctuate and that each security’s price or value may rise or fall.  Accordingly, investors may receive back less than originally invested.  Past performance is not a guide to future performance.  Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk.  These risks are in addition to any unsystematic risks associated with particular investment styles or strategies.
2633-CLS-10/23/2015
22
Oct

Your Favorite Assist, Figlo Integration, and Financial Planning

Watch today's Orion Weekly to learn about a new Integration partner, and tell us about your favorite Orion Assist for a chance at some Orion swag.

The post Your Favorite Assist, Figlo Integration, and Financial Planning appeared first on Orion Advisor Services.

20
Oct

The Value of Risk Budgeting

Content provided by Joe Smith, CFA, Senior Market Strategist

Last month, I had the opportunity to participate at the annual NorthStar Summit in Nashville, Tennessee. The event allowed me to get to know more than 75 of the most successful advisors we partner with at CLS. As I did, I got a sense of what makes these individuals wonderful folks to work with. First, they all have a passion for what they do: empower their clients. Second, they provide a great amount of value by helping manage their clients’ expectations through good times and bad. Third, they are firm believers in the power of risk-budgeted portfolios.

Sitting on the plane back to Omaha and reflecting on the entire conference experience, I came to an interesting realization. What gets me excited about coming into work every day at CLS is very similar to what motivates our advisors: the ability to deliver an amazing client experience.  The key to that client experience all comes down to the ability to manage risk and expectations on a consistent basis. Risk budgeting goes beyond helping me as a professional investor think about optimal portfolio positioning; it is an important tool our advisors leverage to keep clients’ expectations anchored in the short term, so they can achieve financial success in the long term.

 

The views expressed herein are exclusively those of CLS Investments, LLC, and are not meant as investment advice and are subject to change.  No part of this report may be reproduced in any manner without the express written permission of CLS Investments, LLC.  Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such.  All opinions expressed herein are subject to change without notice.  This information is prepared for general information only.  It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report.  You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized.  You should note that security values may fluctuate and that each security’s price or value may rise or fall.  Accordingly, investors may receive back less than originally invested.  Past performance is not a guide to future performance.  Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk.  These risks are in addition to any unsystematic risks associated with particular investment styles or strategies.
A client’s risk budget is derived from the client’s specific answers to CLS’s Confidential Client Profile questionnaire, which establishes the client’s financial goals, ability to handle risk, and overall investment time horizon. The individual client risk budget is expressed as a percentage of the risk of a well-diversified equity portfolio.
2510-CLS-10/6/2015
16
Oct
14
Oct

ETF Trading During Volatile Markets

Tight rope

Content provided by Josh Jenkins, CFA, CLS Associate Portfolio Manager

ETFs got a lot of attention during the spike in market volatility in August. On the morning of Monday August 24, certain ETFs traded substantially below the value of their underlying securities. Many experienced a halt in trading on several occasions before market functionality normalized a few hours after the open. In total, more than 100 ETFs experienced a trading halt. It is important to highlight, however, ETFs did not cause the abnormal market behavior; rather, they were a symptom of it. Prior to the opening of the New York Stock Exchange (NYSE), the S&P 500 eMini Futures contract halted after trading down 5%. According to a recent iShares report, 46% of NYSE-listed equities did not begin trading during the first 10 minutes the market was open, and 178 different stocks experienced at least one trading halt.

What Did Cause the Volatility?

Negative sentiment arising from extreme volatility in Asian markets overnight transferred to the U.S. market in the early hours of August 24. This led to the NYSE activating the rarely used “Rule 48” about 30 minutes before it opened. This rule means designated market makers do not have to announce stock prices at market open. Since those prices have to be approved before trading can begin, suspending this requirement allows trading to occur sooner. The general purpose of the rule is to allow for faster and simpler openings of stocks. An unintended consequence of this rule, however, is ETF market makers lack information needed to price ETFs.

Uncertainty regarding the price of underlying securities led to extremely wide bid-ask spreads. When the NYSE finally opened, panicked investors exacerbated the problem by entering market orders that pushed prices down further. The combination of much wider than usual bid-ask spreads and the use of market orders caused some investors to execute trades substantially below the underlying basket’s value. The point to emphasize here is that unusual behavior seen with ETFs was the direct result of unusual behavior in the stock market itself.

Were CLS Portfolios Impacted?

Immediately upon the market open, CLS portfolio managers and traders were aware the market was not behaving normally. CLS was in contact with the capital markets desks of ETF issuers and lead market makers to get an understanding of what was happening. No trades were conducted in CLS portfolios until normal functionality returned to the markets in aggregate.

How Can Investors Protect Against This Scenario?

The most important thing to do is stay the course. Investing is a long-term game that requires a long-term plan, so don’t discard it at the first sign of trouble. Remember that volatility is normal, and when it picks up the best thing to do is usually nothing. When you do make a trade, consider entering a limit order. This reduces the possibility of moving the markets yourself or being taken for a ride by others.

 

The views expressed herein are exclusively those of CLS Investments, LLC, and are not meant as investment advice and are subject to change.  No part of this report may be reproduced in any manner without the express written permission of CLS Investments, LLC.  Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such.  All opinions expressed herein are subject to change without notice.  This information is prepared for general information only.  It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report.  You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized.  You should note that security values may fluctuate and that each security’s price or value may rise or fall.  Accordingly, investors may receive back less than originally invested.  Past performance is not a guide to future performance.  Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk.  These risks are in addition to any unsystematic risks associated with particular investment styles or strategies.
An ETF is a type of investment company whose investment objective is to achieve the same return as a particular index, sector, or basket. To achieve this, an ETF will primarily invest in all of the securities, or a representative sample of the securities, that are included in the selected index, sector, or basket.  ETFs are subject to the same risks as an individual stock, as well as additional risks based on the sector the ETF invests in.
2511-CLS-10/6/2015
12
Oct

Piscitello Kicks Gemini’s Distro Support Up a Few Notches

Gemini Fund Services’ Northern Lights Distributors arm is going out to the marketplace with an internal sales desk and more to support mutual fund shops’ distribution efforts. Next up: an advisor knowledge center, slated for next year, and more new hires.

Alma Piscitello, a Morgan Stanley veteran who joined Northern Lights a year ago as head of strategic relationships specifically to build out this kind of distribution support, sat down with MFWire on the sidelines of Gemini’s recent conference in Music City. Also last year, Northern Lights soft-launched an internal sales desk, which they call the “active marketing” unit, and they’ve been working out the kinks. Now, Piscitello says, Northern Lights’ active marketing service is ready for prime time.

To read the entire Mutual Fund Wire story, click here.