I think that you’d agree that an outlook for the economy and the markets necessarily must include an assumption about inflation. Financial planning and asset allocation models more often than not require an inflation estimate as an input. How do you come up with one? No doubt you try to stay informed about the forecasts of economists whose opinions you respect and may use their inflation outlooks to synthesize your own. There is an additional way to help you to arrive at your own estimate: – watch the bond market.
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How fragile is the recovery? Very fragile. The price of oil hit $107 earlier this morning. We should be concerned because of the story told on the following chart. (Prices are not adjusted for inflation.)
David Rosenberg of Glushkin Sheff drew my attention to this in his Breakfast with Dave (you’ll need to register to view this) letter of February 23rd.
In my post, The Expense Paradox, I attempted to demonstrate a lack of evidence for an indirect relationship between a mutual fund’s expense level and its performance, at least in the case of equity funds. I used a chart like the one below to support my observation. The notion that higher expense levels necessarily mean lower return levels cannot be supported, at least when it comes to equity mutual funds.
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In the previous post I attempted to characterize Berkshire Hathaway in terms commonly used for mutual funds, that is, style, excess return and risk. I did indicate at that time that there was another way to view the company, which is in terms of its exposure to economic sectors. A review of the numbers reported in the company’s 2009 annual report shows that revenues from all of the non-insurance businesses of Berkshire Hathaway have been growing steadily relative to the insurance component. Would a multi-factor analysis support this?
About the time of the earlier post Kushal Kshiragar of MPI was working on just such an analysis, which was posted March 4th on the MPI Blog as “If It Walks Like a Duck…Classifying Berkshire Hathaway.” It can be viewed here. [click to continue…]
Over the past several months a lot of attention had been focused on Berkshire Hathaway’s announced acquisition of Burlington Northern and the related 50:1 split of Berkshire’s B shares (BRK.B) needed to pull it off. The split has occurred and the merger ought to be completed within a week. As a result, a piece of Berkshire Hathaway is within the reach of a much larger population of investors than ever before.
I thought it would be interesting to take a look at BRK.B in the same way that I might a mutual fund. What follows may establish a perspective on the stock for those who share my curiosity. However, it’s superficial. More analyses done in greater depth will come in the future, including a monthly BRK.B chart book.
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Over the past several years the market value of U.S. stocks relative to foreign stocks has been trending downwards, reaching the point where they now represent roughly 45% of the whole.
And during the same period foreign stocks have outperformed U.S. stocks. So it could be implied that a global equity allocation having U.S. in the majority represents an active bet that may have been costly. Of course it all depends on which stocks are held, if active management was employed. [click to continue…]
Emerging markets stocks have been the performance champs for some time. They also have been the return drivers of many of the top-rung international and global portfolios. To establish a perspective on the position of the emerging markets relative to the world equity market, I ran a two-factor analysis of the MSCI All Country World Index using MSCI’s World and Emerging Markets (EM) indices as the explanatory variables. (Together they make up the AC World.) The result is shown below.
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Next we’ll be taking a look at the models used for target funds to see how well they have worked.
The term paradox has a number of meanings. When the subject of fund expenses is raised a couple of its meanings might apply.
In recent years, more often than not, the impact of fund expenses on fund returns has been included in discussions of the relative merits of two or more funds. Retail investors are informed, primarily by means of the media, to avoid “expensive” funds because of an expected adverse impact of fund expenses on future returns. Fiduciaries are counseled to avoid funds (and share classes) that have “above average” expense structures. If any of this is to make sense, we should be able to find a clear relationship between fund expenses and returns. [click to continue…]
