THE BLOG

25
Feb

What Does Smart Beta Mean For Individual Investors?

innovate lightbulb

Content provided by Joe Smith, CFA, Senior Market Strategist

Smart beta ETFs are a popular topic in the ETF industry. This year’s Inside ETFs Conference, which drew almost 2,200 advisors and investment professionals, focused heavily on smart beta ETFs and what they mean for the industry. In breakout sessions and presentations, most of the conversation focused on the products and the advantages they can deliver over traditional market-cap-weighted indexes and active managers. But what most interests me is smart beta’s impact on the people who matter most – our clients. These innovative products have the potential for a meaningful impact on individual investors. Here’s how:

First, smart beta ETFs are built on the promise of consistency, not superior returns as many strategists or experts might say. A rules-based investment approach provides clients the security of knowing the investment process will not drift from its original mandate due to short-term behavioral biases.

Second, smart beta ETFs translate into more identifiable risk factors that are common across markets. These usually have embedded rules to target desirable risk factors or exclude undesirable risk factors. This means investors no longer have to be at the mercy of their traditional active stock pickers to decide when to rotate in and out of risky propositions.

At CLS, our X-Factor Investment Theme utilizes smart beta ETFs as additional tools for executing risk budgeting in all market conditions. In January, we relied heavily on minimum volatility and quality-oriented smart beta ETFs. As the chart illustrates below, each option delivered tangible benefits in differences of return outcomes for investors across all equity asset class segments, including the U.S.

Joe chart

So what’s the takeaway? Smart beta ETFs are here to stay and can provide great opportunities to help mitigate risk in heightened periods of uncertainty. We use smart beta because of its ability to seek greater consistency and improved outcomes within our risk budgeting approach. We believe these tools can empower investors by offering transparency, flexibility, and greater control – all at a lower cost. These tools will help investors meet their goals – and that’s what we’re here to do.

 

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.
1124-CLS-2/9/2016
25
Feb

Get Your March 2016 Efficient Advisor Now

    Click here to see our upcoming webinars and get registered Read the latest Orion blog and get to building new, custom reports Download your copy of the March 2016 Efficient Advisor now   0066-OAS-2/25/2016

The post Get Your March 2016 Efficient Advisor Now appeared first on Orion Advisor Services.

23
Feb

How to Save You from Yourself

Smooth road

Content provided by Kostya Etus, CLS Portfolio Manager

At CLS, our focus on global markets and balanced portfolios has faced tough headwinds over the past year. But does that mean we should abandon ship? If we tossed our investment plans overboard every time the waters got rough (to stretch a metaphor here), we would be chasing performance. And if there’s one thing we know, basing investment decisions on performance-chasing instead of time-tested investment philosophies is the surest way to tank returns.

Global, balanced portfolios can provide a smoother ride for investors over time and a better, long-term experience. Here’s why:

A Global View

Historically, globally diversified portfolios have earned superior risk-adjusted returns, but recent underperformance has made investors wary. The inherent benefits of international diversification, however, have not changed. In fact, the argument for global investing is growing stronger.

While the U.S. still makes up the majority of the global market, international markets have grown over time and now account for nearly 47% of the total world market. Many countries are growing faster than the U.S., making them attractive places for investment allocation. Technological advances along with structural reforms have also opened up new investable markets and driven progress in many developing countries.

Checks and Balances

Diversification is the main benefit of balanced portfolios. Combining asset classes with low correlations tends to produce portfolios with lower volatilities. Portfolios with lower volatility (risk) typically lead to steady returns and eliminate short-term market noise.

One of the more overlooked benefits of diversification is that it saves investors from themselves. The natural human tendency is to buy winners and sell losers. This typically leads to buying at peaks and selling at troughs. Sticking to a balanced portfolio avoids some of these dangerous human behaviors, such as abandoning a long-term investment philosophy based on one-year returns.

The Threat of Us

To evaluate and quantify the human nature effect, we compared Morningstar’s investor return data, which compares the average investor’s returns in a fund over a period of time, to the total return for all U.S. mutual funds (over 20,000 funds with one-year performance and almost 13,000 funds with five-year performance). The results were fairly consistent across time periods. The investor return underperformed the total return by about 1%. That difference is known as the behavior gap, i.e., the cost associated with human behavior. Interestingly, the behavior gap was fairly consistent across all Morningstar categories. Thus it’s clear that no matter what people are investing in, they need to be saved from themselves.

Here at CLS, we’re not about chasing performance. And we’ll stick to what we believe works –  global, balanced portfolios.

Behavior Gap

The views expressed herein are exclusively those of CLS Investments, LLC, and are not meant as investment advice and are subject to change.  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. 1125-CLS-2/9/2016
23
Feb

NLD Launches Advisor Knowledge Center

Northern Lights Distributors, LLC (“NLD”) has unveiled the online Advisor Knowledge Center, which is available on its recently redesigned website.

The Advisor Knowledge Center provides interactive and informative content, including original blog posts, articles, white papers and videos, from NLD focused on Competitive Edge, Marketing Resources, Distribution Planning and Distribution Activity—the four cornerstones of distribution that NLD addresses in customized fund distribution plans for advisors.

“As the mutual fund universe continues to evolve, so too do the distribution strategies and processes that help advisors reach investors and raise capital,” said Brian Nielsen, Chief Executive Officer of Northern Lights Distributors. “Advisors need to stay abreast of new developments on the distribution front in order to generate scalable growth for their mutual funds and other pooled investment vehicles, and our Advisor Knowledge Center serves as an educational hub that can keep them up-to-date.”

To read the entire release,  click here.

23
Feb

Building Performance Reports Based on Client Personalities

With Orion, you can build performance reports based on client personalities with ease. Read today's blog and then dig into Report Builder.

The post Building Performance Reports Based on Client Personalities appeared first on Orion Advisor Services.

19
Feb

The Battle to Reach the Pinnacle

Collage of various business elements, success concept

Content provided by Robyn Murray, Freelance Writer

When Mark Matthews goes home for the holidays, there’s a routine. First, eat. Second, find the nearest basketball court. “We’re very competitive,” Matthews says, “everyone plays sports; everyone sings in the choir; everyone knows how to cook.”

Home, for Matthews, is Detroit and a family of five sisters and brothers, who all played football and basketball through school. “My older brothers think because they’ve been around longer, they know more about sports,” he says with a laugh. “But me and my younger brother – we’re younger, so we know we’re better.”

Matthews’ father, a former all-city running back, taught his kids to put everything on the field. “He didn’t come to every game, but when he did it was time to show up,” Matthews says. “Letting him down was not something you wanted to do.”

Today, Matthews is a junior investment research analyst at CLS Investments in Omaha, NE. where he combines his fiercely competitive streak with a love for numbers and learning. “I want to wake up every day being better than the guy I was yesterday,” he says. “A continuous improvement, a continuous battle to reach the pinnacle.”

Hit the Ground Running

Matthews went to Benedict College in South Carolina after high school where he played football and studied accounting – he’d always loved math – but after he took a class in finance, there was no going back. “Finance is one of few things outside of sports that allows you to fuel that competitive spirit,” he says. It also feeds his natural curiosity. “The surface is never what it is with finance – you have to dig deeper,” he says. ““That sort of mystery – that changing dynamic is always drawing me.”

After college, Matthews looked around for graduate universities where he could get a head start online and found Creighton, a respected name in the financial world that shares a hometown and investment philosophy with another respected name, Warren Buffett. “Buying a dollar for 50 cents,” Matthews recalls. “First class I ever had. I’ll never forget it.” That lesson instilled an admiration for value investing and for Buffett. “I’ve read his book three times,” he says, “and I’ve watched [a documentary about him] more times than I care to admit.”

In 2014, Matthews decided the online path wasn’t providing enough networking opportunities, so he made the move to Omaha. “I came here with the mentality of hitting the ground running,” he says, “to take advantage of every opportunity that would get me closer to where I wanted to go.” Soon, he landed an internship at TD Ameritrade and after graduating with his MBA at Creighton, was offered a job at CLS. There, the portfolio management team’s mantra of fighting for every extra basis point is a natural fit. “I’m motivated by competition,” he says. “I’m success-driven, goal-driven, end-result driven. I want to be the first one there and the last one to leave.”

While he loves the path he’s chosen, Matthews is still working to reach that pinnacle – the center of the global financial industry. “Wall Street has to be the goal,” he says. “Why get into something not to be the best at it?” He also wants to get back to Detroit one day and invest in his city. It was just two years ago that it filed for bankruptcy, the largest in U.S. history. Witnessing that gave Matthews an appreciation for the consequences of financial mismanagement, and he wants to do what he can to help his hometown right itself.

But, for now, he’ll get by with going home for the holidays. When he texted his older brother to let him know his plans, he got one right back. “Hope you’ve been practicing.”

1055-CLS-1/28/2016

18
Feb

Three Thoughts On The Primary Season

debate podium

Content provided by Scott Kubie, CFA, CLS Chief Strategist

Now that primary season is in full swing, the politically interested among us can practice switching channels to see who is saying what, while reading FiveThirtyEight to dissect the polls. As the Iowa and New Hampshire caucus results rolled in, my thoughts moved to what this election cycle can mean for markets.

Thought 1: The Election Is Not That Important

In December, I was in the dangerous position of fielding questions about the markets and politics from an audience in Tulsa, Okla. Fortunately, they were eating an excellent dinner and weren’t particularly antagonistic. My central message that night remains the same today: Barring the election of Bernie Sanders, the next president of the United States is likely to be more business-friendly than President Obama. However, the business environment under President Obama, while not always friendly, still hasn’t stopped the market from rallying nearly 15% per year since his election in 2008.

Businesses can do well or poorly in all types of environments. Even if my favorite candidate is elected, the likelihood of continued 15% returns on the S&P 500 seems low. This election is important in many ways, but investment performance is much less affected by who is president than many people seem to think.

Thought 2: The Traditional Voter Can Be Roused Off The Sofa

In Iowa, a record 182,000 Republican caucus-goers turned out. Predictions were that high turnout would favor Donald Trump. Instead, Trump underperformed his average poll numbers by 7%. To many, this constituted one of the major surprises of the evening.

However, this is a trend we have seen played out at least two other times. Candidates less favorable to immigration do better in polls than elections. In the United Kingdom, the UKIP party earned fewer votes than its polls suggested in the British elections last summer. In France, the Nationalist Front won about half the regional votes in the initial round of voting. In the final round, it was shut out. In both cases turnout increased for other candidates to make sure those parties were unsuccessful.

Regardless of your personal views, the corporations you invest in generally prefer openness in immigration and trade. In Iowa, late-deciding voters leaned that way. Marco Rubio’s stronger-than-predicted performance owes much to an “anyone but Trump and probably not Cruz” voter pushing turnout higher. In New Hampshire, that vote went to John Kasich.

Thought 3: Socialism Is On A Rebound

#FeeltheBern is an active hashtag on Twitter. That there is a minority of Democrats upset by the pace of change during the Obama administration doesn’t surprise me. What blew me away was listening to my sixteen-year old son’s classmate wax about the benefits of democratic socialism. While there is a difference between democratic socialism and socialism, it concerns me that young people are warming to the message of any kind of socialism.

Those of us who remember the 80’s and 90’s can look back to periods of high growth where workers, companies, and the government were all able to expand as the U.S. economy grew. For children my son’s age, what are their experiences of capitalism?

Beginning in 2006, the United States started a string of 10 consecutive years with GDP growth below 3%. This year will likely be year 11. Young people’s economic experiences have been periods of slow economic growth punctuated by a sharp downturn that blunted raises and put parent’s jobs at risk. Why wouldn’t they be skeptical of capitalism’s benefits?

The odds of socialism making a comeback this election are low. Long term, this political trend, more than any other, should worry investors.

 

The views expressed herein are exclusively those of CLS Investments, LLC, and are not meant as investment advice and are subject to change.  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.  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.
1183-CLS-2/18/2016<h/6>

 

18
Feb

Orion Available in Schwab OpenView Gateway Platform

We're in! Watch today's Orion Weekly to get your news about our availability in the Schwab OpenView Gateway platform.

The post Orion Available in Schwab OpenView Gateway Platform appeared first on Orion Advisor Services.

16
Feb

Little Known But Helpful Facts in Orion Connect

Check out some of the lesser-known but still amazing things you should know how to do in Orion Connect.

The post Little Known But Helpful Facts in Orion Connect appeared first on Orion Advisor Services.

12
Feb

The CLS Investment Team Goes To the Movies: The Big Short

Objects related to the cinema on reflective surface.

Content provided by Rusty Vanneman, CFA, Chief Investment Officer

Recently, the CLS Investment Team went to the movies (after the markets closed, of course!). It’s a great time of year for high-quality movies, and our choice was the critically acclaimed, The Big Short. The movie is about the financial crisis that stemmed from the real estate bubble nearly 10 years ago, and is based on a book by one of our favorite authors, Michael Lewis. The movie has an outstanding cast and was an absolute must-see. It was also a great excuse for the team to get together.

In short, the movie delivered – it was fantastic in many ways. But it was also flawed.

First, the fantastic. The film took complicated and arguably dry subject material and made it entertaining and understandable. That’s big. The acting was also brilliant, especially by Christian Bale, perhaps one of the greatest actors today (although he surely exaggerated his character). It was quirky in a good, artsy sort of way with interesting camera work supplemented by a great soundtrack. It was opinionated, thought-provoking, and funny. There were quotes that will surely pop up in investment team meetings in the year(s) ahead: “What’s that smell? Opportunity!” and “Truth is like poetry and most people – hate poetry.”  All in all, The Big Short is totally deserving of the praise it’s received. I could watch it again, and I no doubt will many times.

But it also delivered many wrong messages, some of which could be powerfully disruptive to investors.

  • It was disappointing because the film gave the appearance that the market meltdown was so predictable and preventable – that only fraud and stupidity stood in the way of innocent people getting hurt. It wasn’t that Markets move up and down due to many variables. It’s just not as simple as the movie suggests. As a money manager during that time, I too was concerned (as many others were) about the economic/market conditions then and had sold real estate, financials, and overall market exposure. But I didn’t decisively know when and how much the market would falter. Nobody really knows. Nobody. A message that the economy/markets are predictable is always dangerous and ultimately hurts investors. If investors truly think a forecast is certain, they’ll overly concentrate their portfolios and take unnecessary risks. Sure, concentrating a portfolio can create big upsides, but it can also create permanent damage. That’s why I always encourage balanced portfolios. They’re humble enough to admit I don’t know what will outperform, and they help keep investors in the game. Staying invested is arguably the most important variable for investors to reach success.
  • The oft-mentioned point that just about everybody in the industry is fraudulent, stupid, or both is nothing short of ludicrous and insulting. Ugh. There are bad eggs in every industry. And the cause behind the economic crisis was a stew of factors, both private and public.
  • Many viewers will probably want to be in hedge funds after watching the movie. But (assuming they have the opportunity to invest in them anyway) they have to understand a hedge fund’s incentives. Hedge funds are not long-term investments. They are wired for short-term kills. They need to make money fast so portfolio managers can make money fast. It’s the way their incentives work. If they don’t make their profit targets, the funds close down and re-open so they can pass Go, collect their $200 and start fresh. In short, while some of the best investment talent in the industry is indeed managing hedge funds, hedge funds are usually not right for most investors – they are often too expensive and too risky.
  • This next point is a pet peeve of mine. Have you ever noticed that when the market corrects, stats get thrown around stating something like “X trillions of dollar was lost”? But we never see “X trillions of dollars was created” beforehand and “X trillions of dollars was created after the market recovered.” Scare tactics don’t help anybody – except those that benefit from scared investors.

It’s probably best to remember The Big Short is first and foremost about entertainment. It’s not a documentary. Nonetheless, it’s a great movie – and I bet it wins some major awards.

 

The views expressed herein are exclusively those of CLS Investments, LLC, and are not meant as investment advice and are subject to change. This information is prepared for general information only. All opinions expressed herein are subject to change without notice.

1123-CLS-2/9/2016