I was struck by the following piece of data in Barron’s, courtesy of Jim Stack, whom I respect a lot, from Investech Research.
He recently upped his weighting in treasuries to 36% because "equity fund assets, as of Dec. 31, had increased to $4.9 trillion, 22% above where they were at the last market top in 1999. At the same time, consolidation has reduced the number of funds by about 200. Bottom line: More money is chasing fewer good funds, some of which aren't welcoming new investors."
There is an obvious flaw with the data as presented. I have no idea if the flaw is in the research or in the way in which Barron’s presented the research.
The data, as presented, does not account for new money coming to the market through 401k contribution, IRA contributions or other new savings. Any money invested in late 2002 is up a lot. Not being a researcher I don’t know how to adjust the inputs or the outputs but I don’t think the numbers portray the situation accurately.
Long time readers know I am no perma-bull trying to justify why the market should go up. I do think the market is headed lower this year but if I am right I don’t think it will be because of the reasons stated above.
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10 comments:
I'd agree with your rough logic Roger - obviously there's been a lot of other money available to come into the market over the past six years.
Not exactly sure how to account for it, but certainly +3.6% per year (22%/6yrs) doesn't really seem alarming on the face of it. After all, aren't the boomer's supposed to be putting a lot more savings/investment aside for the upcoming retirement years?
On the contrarian view too, I'm seeing a lot more articles in our financial press up here saying that our fund managers are seeing good value in US stocks. Much more than in years past. I personally think your financial sector seems to offer generally good value.
JW
I think this year will NOT be a year for indexing or sector investing. Individual issues, foreign and domestic, will reward the astute investor. A sense of the political climate internationally will also be of great importance. We sometimes tend to ignore that awful conflicts can erupt over a series of uncontrolled events. Bonds? I still like modest maturity GMAC Smart Notes blended with funds such as the Fidelity Strategic Income Fund for about 25% of the portfolio.Bottom line, significant money can and will be made in 2006.
Can you name a year that wasn't a sector pickers market?
Well, adjusted to 1999 dollars WRT CPI, that's actually $4.11 trillion; might be one way to account for 'new money' anyway, at least in a rather crude table napkin calculation way. But I still think CPI understates inflation which is one reason I continue to favor commodities long term despite the recent hammering of same.
Speaking of commodities I came across this item WRT DBC from Index Universe at http://www.indexuniverse.com/index.php?section=6&id=1311
The good news: Deutsche Bank Commodities ETF (DBC) has cut its maximum expense ratio from 1.9 percent to 1.3 percent and is experiencing healthy trading volume. The fund appears to be tracking its index well w/ no surprises thus far that I can see.
The bad news: The oil futures market is currently in contango (spot price lower than futures price) so profits in the sector with the largest weight in the fund are not looking good at the moment. The light, sweet crude oil and heating oil contracts held by DBC are rolled monthly so next month should clarify things a bit (no surprise if Spring spot prices are lower but futures should anticipate, natch ...unless they're anticipating catastrophe).
RW
great info and insight, RW.
Thank you!
In response to naming a year where sector investing will not be lucrative, I believe I had: 2006. The state of tension in the world at this juncture is greater than the market is admitting,possibly the greatest since since the late 1930s. I am not a "head for the hills with your gold freak", but investors should tred very carefully, and be thankful that our military remains superb in spite of the far left and their minions. I know I'm off point in regards to investing with this post, but let's look at the deterioration of international order and resultant mayhem to tempor our faith for the security analysts living inside their small world (Iraq Bonds with higher credential than GM??).
my comment meaning in the past.
i don't think there has ever been a year that was a stock picker's market.
while I share a lot of similar concerns, you comment implies that something diffent will happpen (IE stock picker's market).
there is nothing new here. problems with energy, terror, political uncertainty and so on.
If any or all of this pans out, our market and economy will suffer. This is not unprecedented.
Roger, as a subscriber to Investech I can assure that James Stack never made a statement tying portfolio allocation (36% Treasuries) to mutual fund assets.
In the latest issue, Stack explores alternatives to some of top performing mutual funds in the Investech mutual portfolio that have been closed due to the +$4.9 trillion increase in assets. This was for the benefit of new subscribers and/or new money. Not as a justification for any portfolio allocation.
I copied and pasted from Barron's. If it is incorrect I will try to keep my eye out for a retraction.
Roger, the Stack quotation in your posting is indeed straight out of the latest issue of the newsletter.
It's the "He recently upped his weighting in treasuries to 36% because" part that someone else (Barrons? you?) threw in. Stack never wrote anything like that in the newsletter.
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