Author: Anu Heda

Advisors investing in prop products – strange sounding…

Posted by Anu Heda on Apr 24, 2011, in Thoughts , tagged with ,

Registered Rep chronicled the story of a few Independent Advisors & RIAs starting their own investment vehicles.  A primary selling point is transparency – if the advisor manages the vehicle, he/she can share daily transactions and holdings.

So many asset managers; so many investment vehicles; so many investment strategies – these advisors could not find any investment product that provides the transparency and the strategy they seek?  Naturally, I was a little skeptical.  The virtues of open architecture are well-documented and many providers invest heavily to reinforce those benefits.  So why bother?

Maybe there’s a different play though.  I can think of two investor types that may prefer this:

  • Nervous Nellies – They want to spend their evenings fretting over holdings, performance, and other data points.  For that reason, they like trading in specific equities and even mutual funds.  They may have bought into the concept of alternative investment strategies, but can’t reconcile the opaque nature of hedge funds.
  • Bragging Bills – They want exclusivity at the cocktail party.  An adviser who provides these clients access to some fund without easy access can boast about it.  It’s sort of hedge fund “lite.”  (And this may improve prospecting for the FA.)

Is the advisor unable to find a product or is there value in having a proprietary product in the bullpen?

Best Blogs of the Week

Posted by Anu Heda on Apr 24, 2011, in Best Blogs of the Week , tagged with , , , ,

Each Monday, we’ll share the last week’s three best industry blogs. Hopefully, it’s something interesting to read as you get back into the flow.

  1. Russell on tax implications for investors – great use of charts and history to make the topic interesting and educational
  2. BlackRock on the construction of its silver ETF – now I know. I did wonder this and knew I could read SEC documentation about it.  But reading that documentation never sounds appealing.
  3. Franklin Templeton’s Mark Mobius on Africa’s potential – he has one theory and then just 2-3 specific reasons to consider that theory.

Did you read anything within the industry as interesting? Let us know via e-mail.

Is Anything Absolute?

Posted by Anu Heda on Apr 22, 2011, in Thoughts , tagged with , ,

This question occurs as we develop a marketing and sales approach to investment vehicles labeled “to seek absolute returns of …”  There’s a desire for investment providers to sell absolute returns, but I don’t know if there’s an interest in thinking in absolute terms.  Putnam has a set of videos that describe the absolute return mechanics.  They even produce an engaging blog dedicated to absolute return as well.  Does any of this content (or other) convince you to use absolute return investment products?

Humor me and imagine two scenarios –

Scenario 1  – FundCo’s Absolute Return had a 2% return in ’08.

Scenario 2 – OtherCo’s Absolute Return did 20% last year (’10)

In casual conversation among non-professional investors, mismatching years like this is pretty common.  If someone told you about both scenarios, where would be the first place you would go to compare these past results? If you’re like me, you may use Google finance to understand that FundCo was 39 percentage points better than the S&P in ’08, while OtherCo was about 10 better than the S&P in ’10.

My thinking is relative, not absolute.  I understand that these manufacturers are striving to produce a return regardless the direction of financial markets.  That’s a difficult frame of reference to set with prospective investors.  Professional investors provided with different funds’ returns for the same year typically look at each fund relative a relevant benchmark.

So while I haven’t seen anything compelling yet, I realize we’re still in the first act for absolute return products.  There’s a long way before the show is over.  Yet thus far, it’s not been very convincing.

Impressions on Independent Insurance

Posted by Anu Heda on Mar 09, 2011, in Thoughts , tagged with

As part of a current engagement, we’re meeting with numerous independent insurance agents.  It’s exciting to have time with these agents as we recognize how difficult their jobs can be.

I’ve been asking “why do you recommend one insurance provider over another?”  The varied answers are interesting.  But three reasons come up frequently:

  1. Price
  2. Longevity
  3. Brand

The first makes sense.  It’s a difficult sale to tell someone to select a more expensive plan.  The second captivates me.  An agent will mention that a certain company has provided insurance “for over a hundred years” with a lot of enthusiasm.  I presume it’s effective because that message consistently and quickly came from each different agent.

Brand is straight-forward.  Interacting with agents, you can see the “mom test” (does my 70+ year old mother know that this firm exists?) in action when using a large firm.  For small firms, they revert to longevity when possible.  I hear messages such as:

  • Well, it’s The Hartford.  I’m sure you know The Hartford, right?
  • For that plan, I recommend Philadelphia.  I know you may not know them, but they’ve been in the business for over a hundred years; really great company.

I imagine over time, these reasons have become easy to close a client with.  Our nature to respond to them is pretty interesting and crucial for developing sales & marketing plans.

New Complexity with New Indexes

Posted by Anu Heda on Mar 03, 2011, in Thoughts , tagged with , , ,

Last week, Mike wrote a compelling post about index investing, specifically the complexities and volatility.   I thought that was timely after reading the news that Russell Investments and a partner were creating 24 new indexes based on the Fundamental index methodology.  This method uses adjusted sales, operating cash flow and dividends plus buybacks instead of market capitalization for weighting securities within an index.  It’s a really interesting approach and seems to have numerous merits.

I’m not the right person to discuss the merits of one approach versus the other.  This different approach brought a thought to mind: we should evaluate and scrutinize any backwards looking data closely.  I have some first-hand experience with that.  … [read more]