Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Diversification a Hedge?
Old 05-10-2006, 09:47 AM   #1
Thinks s/he gets paid by the post
 
Join Date: Jun 2004
Location: W Wash
Posts: 1,643
Diversification a Hedge?

Studyjust released by Merrill Lynch indicates that nearly all asset classes are now well correlated with S & P 500. Only consumer products seem to be counter-cylclical.* Apparently much of this alignment has happened in last 5 years
Where does that leave the individual investor in search of a financial cushion? The Merrill researchers say bonds remain a good bet to rally when U.S. stocks sink. Another potential source of diversification is consumer-staples stocks. Consumer staples have become the only stock market sector less correlated to the S&P 500 today than in 2000. The reason: oil- and technology-obsessed investors have no interest in Tide or toothpaste, which is why stocks like Altria (Research), Proctor & Gamble, (Research) and Wal-Mart are stuck in neutral despite fine fundamentals.
http://money.cnn.com/magazines/fortu...6864/index.htm

Looks like a time to revisit asset categories.* Isn't there an ETF that sector specific to Consumer Products?* I know Fidelity has a sector fund for the category.* Or do you buy P &G and enjoy the dividends.
nwsteve
nwsteve is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Diversification a Hedge?
Old 05-10-2006, 09:52 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
Re: Diversification a Hedge?

"Hedge funds aren't hedging much any more
This is particularly ironic for hedge funds, given their name. "Fewer and fewer hedge funds are doing what hedge funds are supposed to do, which is provide uncorrelated returns," says Pinkernell.

It's not that veteran hedge fund managers forgot how to do their jobs. The problem is that the huge sums flowing into alternative investments have given rise to a new breed of hedge fund, one that's a gussied-up mutual fund masquerading as a hedge fund to collect gaudier fees.

"If you think your hedge managers are just providing you with what you could get with an S&P index fund, then absolutely you should not be paying fees of 1.5 percent [of assets] and 20 percent [of profits]," says Tim Jackson, head of hedge fund research for Rocaton Investment Advisors."


I would actually suggest that this is a poor explanation. More likely, there is so much pressure on hedge fund managers to deliver return that they have been less and less willing to short stuff in a generally rising market. Foolish on both the client and the manager's part. The clients are foolish to push returns over risk control and hedging. The managers arre foolish to give in to the pressure.

__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Re: Diversification a Hedge?
Old 05-10-2006, 10:06 AM   #3
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,855
Re: Diversification a Hedge?

Quote:
Originally Posted by nwsteve
Studyjust released by Merrill Lynch indicates that nearly all asset classes are now well correlated with S & P 500. Only consumer products seem to be counter-cylclical. Apparently much of this alignment has happened in last 5 years
I think more people are beginning to understand that correlations change over time. IOW correlations don't stay correlated. I didn't expect them to move this quickly, though-- I wonder if higher volatility & financial velocity is speeding up everything?

Quote:
Originally Posted by nwsteve
The Merrill researchers say bonds remain a good bet to rally when U.S. stocks sink.
No kidding, Merrill-- really?!? I wonder how much people pay for that insightful analysis?

Quote:
Originally Posted by nwsteve
Another potential source of diversification is consumer-staples stocks. Consumer staples have become the only stock market sector less correlated to the S&P 500 today than in 2000. The reason: oil- and technology-obsessed investors have no interest in Tide or toothpaste, which is why stocks like Altria (Research), Proctor & Gamble, (Research) and Wal-Mart are stuck in neutral despite fine fundamentals.
Looks like a time to revisit asset categories. Isn't there an ETF that sector specific to Consumer Products? I know Fidelity has a sector fund for the category. Or do you buy P &G and enjoy the dividends.
nwsteve
Either buy iShares' "Dow Jones U.S. Consumer Goods Sector Index Fund" (IYK) (of which P&G comprises 15%), individual stocks trading at multi-year lows, or the Fidelity sector fund, or... Berkshire Hathaway. It's interesting to note how many of BRK's stock holdings mirror the IYK ETF and how many more "boring" consumer-products companies they own outright.

But all of the above, Berkshire included, seem to be trading at or near multi-year highs.
__________________
*

Co-author (with my daughter) of “Raising Your Money-Savvy Family For Next Generation Financial Independence.”
Author of the book written on E-R.org: "The Military Guide to Financial Independence and Retirement."

I don't spend much time here— please send a PM.
Nords is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Diversification Sweet Spot Rich_by_the_Bay FIRE and Money 78 11-18-2006 02:14 PM
Anyone here a Hedge fund fan? mickeyd FIRE and Money 21 07-11-2006 02:10 PM
Global vs local diversification donheff FIRE and Money 2 04-28-2006 05:10 AM
When to pay capital gains for greater diversification bamsphd FIRE and Money 21 11-29-2005 12:15 PM
Painful Diversification yakers FIRE and Money 20 08-23-2005 10:58 AM

» Quick Links

 
All times are GMT -6. The time now is 09:29 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.