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Investors Should Learn And Unlearn Many Things From Investment Ideas That Worked In 2013 (Barron's)
In a new Barron's piece, Jeffrey Kleintop at LPL Financial lists 10 lessons from 2013, that investors should heed as the prep for the new year. First up are five key takeaways.
1. "Bonds can lose money." 2. "Sentiment can matter more than fundamentals." 3. "Time heals all wounds," as money rushed into U.S. stock funds in 2013 after they experienced years of net outflows following the financial crisis. 4. The market can be led higher by defensive stocks. 5. Historically, annual returns have been in the 5%-10% range only eight times in the past 86 years. 2013 saw 30% returns in the S&P 500 showing that "annual returns are rarely average."
But Kleintop also points out that there were some things that worked in 2013 that investors need to unlearn. 1. "Diversification is worthless," because a buy and hold strategy in U.S. stocks would have done very well in 2013. 2. Sometimes the biggest risks don't materialize. Just because they didn't in 2013 doesn't mean they won't again or that they weren't real. 3. After the great run that stocks had this year, some think that stocks can go up in a straight line. But they shouldn't Kleintop warns, saying there's volatility in the years ahead. 4. That dividends don't count. "In an income-hungry market, dividends are likely to be attractive to many investors in the years ahead." 5. "Policy is all that matters."
There's A Massive Buying Opportunity In The Muni Bond Market (Investment News)
Follow Detroit's default and the debt crisis in Puerto Rico, investors are antsy about investing in municipal bonds. But in an Investment News column, Roberto Roffo, a portfolio manager at Advisors Asset Management, writes that this fear is "irrational." Citing a survey by Bank of America he points out that year-to-date defaults through Nov. 26th stood at $2.47 billion, compared with $3.81 billion for all of 2012.
"According to those numbers, the municipal market would need a 54% increase in its current total in the last month of the year just to match last year's defaults," he writes. "Add on top of that fact that $2.47 billion is only 0.08% of the $3 trillion municipal market. Break the numbers down a little and only include investment grade securities, according to a study done by BNY Mellon, the worst default rate they could for find is 0.30% and that is for BBB bonds after 10 years. Compare this default rate to similarly rated corporate bonds over the same timeframe at 4.74% and the fear seems unjustified." All this negative news has created a "massive buying opportunity," he writes saying that if rates do rise going forward, "the steepness of the yield curve can provide a cushion."
There Is More Downside To Gold In 2014 (Societe Generale)
Gold ETFs have seen the strongest outflows among all asset classes, writes Societe Generale's Patrick Legland in a note to clients. "Some gold investors have been forced to sell following the sharp fall in the gold price (amplified by margin call effects)," he writes. There are three negative factors that were in play in January and still hold true. 1. Stocks are still at historical lows relative to gold. 2. The U.S. economy is recovering. 3. Inflation is still under control.
Moreover, now that the Fed has announced that it will taper its asset purchases to $75 billion a month, gold won't benefit from unlimited QE. Legland and his team write that "despite the ongoing correction on gold, we still see further potential downside for next year."
How Advisors Can Minimize The Impact Of Taxes On Gift Giving (The Wall Street Journal)
Towards the end of the year and around the holidays many wealthy individuals tend to donate large sums of money to the charities of their choice. But this is a time when advisors should start to think about how to "minimize the impact on taxes on their clients' portfolios and net worth," writes Peter Land, of New York-based HighTower in a Wall Street Journal column.
One way to do that is by donating securities that have appreciated. "By donating stock that's up 50% from where you bought it, the donor avoids the capital gains tax and gets a full write off," writes Land. "The charity also avoids capital gains tax when they sell it, because of its 501(c)(3) status. The other thing that's appealing about this is that clients are not taking money out of their checkbook. Because they're taking this out of their investment portfolio, I think psychologically they don't see it as a lot of money."
Stocks Are In A Big Breakout And Should Rise In 2014 (Business Insider)
Bank of America's Michael Hartnett thinks that "policymakers slowly winning 'War against Deflation' …bad for bonds… good for stocks."
"[The] end of World War I and World War II, and successful early-1980s 'war against inflation' caused [a] massive inflection point in interest rates and [a] big breakout in stocks. The same thing is happening now," Hartnett told Business Insider. "In the absence of higher inflation and/or lower earnings, stocks should be up again in 2014."
