Don’t Get Lost in the Crowd

Busy pedestrian street in city

Content provided by Kostya Etus, CLS Portfolio Manager

In case you weren’t aware, the College World Series (CWS) graces Omaha this time of year and visitors come from all over the country to experience this great event. Omaha does not host too many of these large events therefore hotels are booked to max capacity and traffic slows way down in the downtown area. While I was enjoying the CWS festivities this weekend, I noticed that things were a lot busier than usual. I came to find out that the U.S. Olympic Swimming Trials were being held at the CenturyLink center, right across the street from the ballpark. If you thought things were congested before, this was overkill. But, just wait a week, after all the events are over, Omaha will quickly get back to its typical calm atmosphere.

There is a similar situation that occurs in financial markets and it is called the “Crowding Effect.” Crowding occurs when there is a “hot” investment that everyone (the crowd) flocks to. Hey, everybody else is doing it, don’t you want to be popular? When everyone is buying the same thing, there are more buyers than sellers and the price is artificially driven up (more demand than supply). This price increase does not reflect the fundamental soundness (financial strength) of the investment and it becomes overvalued (overpriced).

Then we reach a climactic moment when there are no buyers left, but you’ve got plenty of sophisticated hungry shark sellers circling, just waiting for a drop of blood… did I just see a fin? Some particular event, a perceived “crisis,” will trigger the notion of the hot investment not being as hot anymore. Panic ensues and everyone starts swimming for the shore – but sharks can swim faster. So, by the time you get out you find out you are missing an arm.

How can you avoid this? Don’t swim out too far with the crowd… or carry a harpoon.

  • Focus on undervalued investments
  • Look at the contrarian view – investing is a zero sum game, find out why sellers are selling a “hot” investment
  • Be aware of all inherent risks with an investment
  • Analyze the smart money – find out what institutional investors are doing – not retail investors (the general public)
  • Sell the loved, buy the unloved

If you reach the shore and look back, you may see a small boat still out at sea surrounded by sharks with “CLS Investments” on the side and three guys in it, all smiling… are they psychotic?… maybe (especially if there is a Russian on board), but most likely it is because they know they will be having shark for dinner.

It just so happens, it’s also Discovery Channel’s Shark Week this week. Let’s go shark hunting!

For the movie buffs like me: “I’m not going to waste my time arguing with a man who is lining up to be a hot lunch.”




How Fuse 2016 Benefits Advisors

Learn about how Fuse 2016 will benefit you with its integration focus in today's Orion Weekly, and get caught up on all the other recent Orion news.

The post How Fuse 2016 Benefits Advisors appeared first on Orion Advisor Services.


How to Use Technology to Create an Experience for Your Clients

Use Technology to Create an Experience

Technology has changed how we interact, and you need to use it for your benefit. Learn how you can use technology to create an experience for your clients.

The post How to Use Technology to Create an Experience for Your Clients appeared first on Orion Advisor Services.


Brexit: Follow the Saying and Keep Calm….

Great Britain and EU, Brexit referendum concept

Content provided by Scott Kubie, CFA, CLS Chief Strategist and Rusty Vanneman, CFA, CLS Chief Portfolio Manager

British voters elected to leave the European Union (EU) yesterday. At market open, investors reacted swiftly to the news, pushing global markets sharply lower. The news came as a surprise. Betting markets and financial markets had moved in the direction of “Bremain” in recent days, exacerbating the losses experienced after the vote. The rally in recent days will raise the drama factor from today’s declines. International stocks were up 5% this week, through Thursday, and European stocks were up even more.

The only known result from Brexit is that we can expect more market volatility.  Economic uncertainty typically translates into market volatility.  And there is economic uncertainty with many views regarding what Brexit might mean from an economic standpoint.  Some do feel deep concern over spillover effects to global economic growth. Japanese stocks, for example, fell over concerns that global economic growth will push them into negative economic growth. Spanish stocks fell even earlier. For example, Santander, a Spanish bank, derives much of its profits from its British operations. A decline in Eurozone growth may also threaten the Spanish economic recovery under way. Some people, however, feel strongly that Brexit is a clear long-term economic positive for the U.K. economy. Only time will tell.

The CLS Portfolio Management (PM) team has already begun the process of combing through areas that dropped for potential value as well as looking for areas that may have risen excessively (bonds and the dollar). This process will be careful and disciplined, in contrast to today’s initial market reaction.

In Britain, the political dominoes have begun to fall. Prime Minister David Cameron resigned, clearing the way for a fellow Conservative who supported Brexit, (Boris Johnson is a likely candidate), to become the next prime minister. The vote is non-binding, meaning Parliament will need to pass laws expressing the wishes of the voters. Once those laws are passed, Britain and the EU will begin negotiations on the terms of exit. EU rules suggest an exit period of up to two years. A parting supporting economic growth is in the interest of citizens of Britain and the countries in the European Union.

Key points:

  • Much of the decline is just giving back gains earlier this week.
  • Our portfolios will likely lag today –giving back some relative performance from earlier in the week — because of drops in international stocks and currencies.
  • Fundamentals will likely change – but may take years to resolve.
  • The market often overreacts to political surprises more negatively (or positively) than they should.
  • Everyone in the exit process has an incentive to maintain economic growth.
  • CLS PMs are evaluating opportunities based on new prices using our disciplined process.




The Dos and Don’ts of Saving for Retirement

a young boy looking with a chart (focus on boy's hand and pen)

Content provided by Kostya Etus, CFA, CLS Portfolio Manager

There have been numerous studies about the dismal savings rates of Americans. One recent survey* found that a third of the population has no retirement savings at all and a majority are significantly behind on their savings. Millennials are causing the most alarm as they will have fewer safety nets (such as corporate pension plans, which seem to be going the way of the Dodo) to rely on in retirement than previous generations. Gen Xers face another troublesome issue as they are frantically trying to rebuild their savings that were decimated by the Great Recession of 2008.

If you feel you may be in either camp, you are not alone. But there are some easy dos and don’ts to help get you on track and feel more reassured about your retirement.


  • Diversify. Everything in life should be diversified, but let’s start with investments. Utilize a variety of asset classes in your investment accounts (stocks, bonds, cash, etc.) for smoother returns over time with lower risk.
  • Manage tax locations. Utilize a mix of account types, such as tax-deferred (401(k)), tax-free (Roth), and taxable (standard individual) accounts because the future is uncertain, and each can be beneficial in certain scenarios.
  • Max out available employer 401(k) matching. It’s free money!
  • Save on taxes. Don’t forget contributing pre-tax dollars to your employer’s retirement plan lowers your current tax bill.
  • Utilize direct deposits. Putting away savings automatically every month takes some of the planning and worry out of the process.


  • Accumulate debt. Don’t get deep into debt, but don’t use paying off debts as an excuse to avoid saving for retirement either. You can pay off debts and save at the same time.
  • Invest in one stock. The idea is to diversify your holdings with many securities to mitigate the risk of any one position having a severe loss.
  • Cash out early. Try not to pull money out of your retirement account. First, there may be penalty fees involved, but more importantly, you are eating into your retirement livelihood. If you cannot keep your retirement account open for any reason, simply roll it over to another account.
  • Chase performance. Don’t consistently sell out of poor-performing investments and buy outperformers. Aside from increasing transaction costs, you may miss out on significant turnarounds as markets tend to be cyclical. In other words, focus on the long term.
  • Move to cash. The stock market is volatile, but historically it has recovered and often outperformed over long periods of time. You are better off staying invested and diversified. Getting scared and moving to cash may cause you to miss out on significant gains, which may make it harder to recoup losses in the future.

Now that you have had a chance to go through these brief suggestions, think about your own situation. Do you want to be eating ramen or relaxing on a beach when you retire? There is no better time than now to stay balanced, diversified, and save, save, save!





An Expanded Integration Lineup, Plus a Fuse 2016 Judge Profile

Check out today's Orion Weekly to see our expanded integration lineup with two new integrations, and read Michael Kitces' Fuse 2016 profile.

The post An Expanded Integration Lineup, Plus a Fuse 2016 Judge Profile appeared first on Orion Advisor Services.


Fuse 2016 Judges Profile: Michael Kitces

Learn more about what to expect from Fuse 2016 and see what Michael Kitces hopes to see from this year's event in today's judge profile.

The post Fuse 2016 Judges Profile: Michael Kitces appeared first on Orion Advisor Services.


When Transfer Agent Fees get the 15(c) Treatment

Fund Directions quoted The Gemini Companies’ CEO, Andrew Rogers, in its article titled, “When Transfer Agent Fees get the 15(c) Treatment.” The article discusses how the recent SEC attention on transfer agencies has put the way mutual fund boards look at their relationships with TAs and the fees they charge in the forefront.

“Boards have different styles that work for them,” according to Andrew Rogers, CEO at Gemini Companies, a fund administration, accounting and transfer agency services provider. Rogers also serves as an interested trustee for the Northern Lights Trust funds board of directors, for which Gemini is considered a related party. He explained that the Northern Lights board requires Gemini to undergo a detailed assessment on all services and fees, similar to the 15(c) process for reviewing advisory fees. “It’s just a best practice,” according to Rogers. “Adopting 15(c)-like measures is very prudent for the board in overseeing various vendors.”

Even within the same fund family, there is a range of practices, according to Rogers. “All of our series trusts do not have the same process. Every board has their own style.” As such, Rogers said a regulatory framework that allows boards to exercise individual business judgement, rather than a prescriptive rule book formalizing the TA fee review process, makes the most sense.

To read the full article click here.




The First P: People

Business people meeting at table in conference room

Content provided by Rusty Vanneman, CFA, CLS Chief Investment Officer

I’m often asked to describe the role of a Chief Investment Officer (CIO). A short answer that seems to work in many parts of the country (especially here in Nebraska) is that a CIO is like a football coach. The CIO is accountable for the investment team, how it’s managed, and how it ultimately performs. Of course, a team doesn’t just depend on one person. It takes a lot of talented people working for the same purpose to make a winning team. At CLS, I’m lucky to have one.

Another way I describe the CIO’s role is being responsible for the four Ps: people, philosophy, process, and performance. The four Ps have provided an effective checklist throughout my career, not only in managing my team but also in selecting money managers for my clients.

For many years, I worked in Boston. I was either on, or managing, high-performing teams building portfolios of mutual funds. To do my job, I interviewed Portfolio Managers across the country and who managed every asset class, conducting well over 2,000 interviews. Our task was to identify managers and funds that we could confidently use for our clients and shareholders. After doing our due diligence, did we trust the managers? Respect them? Like them? In that order actually – and we didn’t have to necessarily “like” managers if we thought they were good, but we did need to have a working relationship with them. What I’ve learned from that experience is the most important P to being a successful CIO is the first one: people.


How I manage the people on my team is by offering them respect, providing resources, and facilitating an open, collaborative atmosphere. For a more complete picture, here are a few questions I’m often asked about our team at CLS:

  • How does the portfolio management team make decisions?
  • Each strategy at CLS is team-managed. Each portfolio vote is majority-rule; it does not have to be unanimous.
  • How does the CLS Investment Committee (IC) get involved in investment decision-making?
  • The CLS IC is comprised of the senior investment professionals at CLS and additional senior management. It meets quarterly. The IC is fully responsible for two items: (1) the CLS Risk Budgeting white paper – our foundational document for how we manage money, and (2) the CLS Investment Themes, which every CLS portfolio must articulate in some way. These IC votes must be unanimous.
  • Does the team have good chemistry?
  • Successful investment professionals typically have a combination of humility and confidence (some may call it ego!), so we do have some spirited internal debate on the markets, portfolios, and performance. But we are a team built for performance. We play hard each day at practice, but we are unified on game day.
  • Does the team have adequate resources?
  • At CLS, we have a dozen people on the investment team. Compared to other ETF strategists (i.e., money managers who build portfolios mostly of ETFs), this is very competitive. And we have multiple people who have managed money for several decades, including veterans from Fidelity Investments in Boston, Goldman Sachs in New York, and Russell Investments in Seattle. Our team members also have experience at TD Ameritrade, Schwab, and E*TRADE. We have a variety of third-party tools ranging from FactSet to Bloomberg, which help with security selection and portfolio management. Bottom line, we’re loaded with resources (but, of course, we always want more)!
  • What are our credentials?
  • Besides our many years of investment experience, we currently have five Chartered Financial Analysts (CFAs) on board. We also have three candidates sitting for their final exams in the next few weeks. We have a Certified Investment Management Consultant (CIMA®), a Chartered Market Technician (CMT), and a portfolio manager who is a Chartered Alternative Investment Analyst (CAIA) candidate.
  • How accessible are they?
  • At CLS, we like to think we are primarily known for two things: Risk Budgeting and the access advisors have to our portfolio management team. We communicate often, whether through presentations, written commentary, videos, or podcasts. We want advisors and investors to be comfortable about how we manage their money. CLS portfolios should behave as expected. If investors are receiving our messages, there are no surprises.
  • Are they disciplined? Competitive? Passionate about the markets? Achievement-oriented?
  • Personally, these are all qualities I look for in investment professionals and new hires. This is the environment I want to foster and the environment advisors and clients should expect.

This first P: people, is critical to understand when selecting a money manager. Ultimately, it’s about developing comfort with that person – do you trust them, respect them, like them? That, in turn, should lead to comfort with a portfolio or strategy and how it behaves over time (recognizing, of course, that no strategy works all the time). An investor doesn’t want to be surprised by how a strategy or portfolio behaves, so make sure you conduct this first step of due diligence and select the right person for the job.

Stay tuned for my take on the next three P’s.




Andrew Rogers, CEO of The Gemini Companies, recently discussed innovation and its impact on the fund industry in the year ahead for Money Management Executive. 

“The mutual fund industry is experiencing deep changes in many areas of risk management and distribution that could create disruptions, opportunities, and innovation. The area of risk management is highlighted in the derivative rules proposed by the SEC.

With the formation of liquid alternatives, leveraged products, and proliferation of derivatives in many investment companies, the SEC is concerned about the potential of systematic disruption within investment companies. The industry will need to create systematic ways to measure risk and service providers will need to partner with investment advisors to create robust risk reporting that satisfies regulators and boards.”

To read the full article click here.