As the Market Lurches, New Options to Avoid Getting Seasick

AppId is over the quota
AppId is over the quota
WHEN it came to stock market volatility, 2011 was pretty close to the mother of all roller-coaster rides.

The Standard & Poor’s 500-stock index had several daily swings of 2 percent or more in August alone. The Dow Jones industrial average seesawed more than 400 points for four straight days that month. With the sturm und drang of European and American debt woes continuing, we may see more bipolar market oscillations.

The investment climate — even among wealthy investors — has cooled toward stocks that have full exposure to the market’s ups and downs. A recent survey by the Spectrem Group found that “while somewhat more moderate in risk tolerance than in 2009, investors remain more interested in protecting principal than growing their assets.”

So it comes as no surprise that Wall Street has hatched a new generation of products that cater to those who hate market volatility. Not only can you reduce your exposure to the most spasmodic stocks, you can also bet against wild price swings, although neither strategy is a flawless safeguard against market risk.

This new generation of “low-volatility,” exchange-traded funds focuses on established companies with consistent earnings flow and dividends.

You can now find a low-volatility fund for nearly every corner of the global stock market. The PowerShares S.& P. 500 low-volatility fund invests in 100 companies from the index that “exhibited the lowest sensitivity to market movement, or beta, over the past 12 months.”

Skittish about emerging-market stocks? The iShares MSCI Emerging Markets Minimum Volatility Index Fund could be worth a look. Tilting more toward small companies in the United States? The Russell 2000 Low Volatility fund focuses on small- and micro-cap stocks with strong growth prospects.

What if you want to bet squarely against the downward volatility of the S.& P. 500 index? Then you might consider the iPath S.& P. 500 Short-Term VIX fund, a complex exchange-traded fund based on futures contracts that track the implied volatility of the index.

For an even broader approach, Lance Gunkel — a fee-only certified financial planner with Sherpa Investment Management in West Des Moines, Iowa — uses the SEI Managed Volatility Fund, which covers a low-volatility index representing 3,000 stocks that may also invest in futures and options. The fund’s load-adjusted return was nearly 10 percent compared with a nearly flat performance for the S.& P. 500 Index last year.

The companies in the low-volatility funds he chooses for his clients tend to be “cash-flow rich with low price/earnings ratios, dividend paying with a value tilt,” Mr. Gunkel said.

While there is an appeal to tamping down portfolio extremes, the low-volatility strategy is no substitute for a comprehensive reduction of market risk. While many low-volatility funds track stocks that have had fewer price swings on average over the last year, that may not be the most prudent way to avoid future volatility.

If low-volatility funds were concentrated in “safer” stocks like dividend-rich utilities and major energy producers in 2011, unless they shifted gears to match market sentiment for this year’s favored sectors, they might fall victim to “sector rotation,” as professional money managers shift into other industries and sell the favored stocks of the previous year. Last year’s darlings may be this year’s goats.

Also keep in mind that most of these funds have been started within the last few years. Few, if any, have been battle-tested in a 2008-style collapse, which is when you would need them to offer real protection. (And they are not to be confused with balanced funds that have a mix of bonds or cash, or more exotic “inverse” funds that move in the opposite direction of stocks.)

Lee Munson, the author of “Rigged Money” and a financial planner and registered adviser with Portfolio, in Albuquerque, said he was “offended by the gentle marketing lie” of low-volatility funds because they did not address the larger need to reduce market risk in times of market crisis. Every low-volatility fund is still exposed to the market. And still looming is “event risk,” like the threat of a European country defaulting on its debt.

A lot of investors, Mr. Munson maintained, mistakenly “confuse low volatility with low risk,” adding: “You can’t call a Lexus a Mercedes. People think that when the market goes down, I won’t get hurt in these funds. They’re all stocks.”

Mr. Munson suggested a more enlightened view that looks at “risk budgeting,” or gauging how much risk you can take, and design a portfolio that tracks your tolerance — or intolerance — for stock market exposure.

It is also possible to reallocate easily to include more bonds to offset equity holdings. Real diversification includes investments that do not move in lock step when the market turns south.

A qualified investment adviser or certified financial planner can also help you hedge risk in other ways, like buying options on specific stocks or indexes you may own. The goal, as always, is to developthe portfolio that best provides for your needs in the least stressful way.

View the original article here

Peliculas Online

Lenders Returning to the Lucrative Subprime Market

AppId is over the quota
AppId is over the quota
“Even I wouldn’t make a loan to me at this point,” Ms. Alejandro said.

In the depths of the financial crisis, borrowers with tarnished credit like Ms. Alejandro were almost entirely shut out by traditional lenders. It was hard enough for people with stellar credit to get loans.

But as financial institutions recover from the losses on loans made to troubled borrowers, some of the largest lenders to the less than creditworthy, including Capital One and GM Financial, are trying to woo them back, while HSBC and JPMorgan Chase are among those tiptoeing again into subprime lending.

Credit card lenders gave out 1.1 million new cards to borrowers with damaged credit in December, up 12.3 percent from the same month a year earlier, according to Equifax’s credit trends report released in March. These borrowers accounted for 23 percent of new auto loans in the fourth quarter of 2011, up from 17 percent in the same period of 2009, Experian, a credit scoring firm, said.

Consumer advocates and lawyers worry that the financial institutions are again preying on the most vulnerable and least financially sophisticated borrowers, who are often willing to take out credit at any cost.

“These people are addicted to credit, and banks are pushing it,” said Charles Juntikka, a bankruptcy lawyer in Manhattan.

The banks, for their part, are looking to make up the billions in fee income wiped out by regulations enacted after the financial crisis by focusing on two parts of their business — the high and the low ends — industry consultants say. Subprime borrowers typically pay high interest rates, up to 29 percent, and often rack up fees for late payments.

Some former banking regulators said they worried that this kind of lending, even in its early stages, signaled a potentially dangerous return to the same risky lending that helped fuel the credit crisis.

“It’s clear that we are returning to business as usual,” said Mark T. Williams, a former Federal Reserve bank examiner.

The lenders argue that they have learned their lesson and are distinguishing between chronic deadbeats and what some in the industry call “fallen angels,” those who had good payment histories before falling behind as the economy foundered.

A spokesman for Chase, Steve O’Halloran, said the bank “seeks to be a careful, responsible lender,” adding that it “is constantly evaluating the risks and costs of funding loans.”

Regulators with the Office of the Comptroller of the Currency, which oversees the nation’s largest banks, said that as long as lenders adhered to strict underwriting standards and monitored risk, there was nothing inherently dangerous about extending credit to a wider swath of people.

In fact, an increase in lending is a sign that the economy is improving, economists say. While unemployment remains high, consumers have been reducing their debts. Delinquencies on credit card accounts and auto loans are down sharply from their heights in the crisis. “This is a natural loosening of credit standards because the banks feel they can expand again,” said Michael Binz, a managing director at Standard & Poor’s.

And lenders miss many potential customers if they focus just on people with perfect credit.

 “You can’t simply ignore this segment anymore,” said Deron Weston, a principal in Deloitte’s banking practice.

The definition of subprime borrowers varies, but is generally considered those with credit scores of 660 and below.

The push for subprime borrowers has not extended to the mortgage market, which remains closed to all but the most creditworthy.

Capital One is one lender that has been courting borrowers with damaged credit, even those who have just emerged from bankruptcy, with pitches like, “We want to win you back as a customer.”

Pam Girardo, a spokeswoman for Capital One, said, “Our strategy is to provide reasonable access to credit with appropriate guardrails in place to ensure consumers stay on track as they rebuild their credit.”

Ms. Alejandro, 46, was one of the borrowers fresh out of bankruptcy courted by Capital One. So far, she has turned it down.

View the original article here

Peliculas Online