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ETFs are from Mars, mutual funds are from Venus

etf-covestor

Watch what they do, not what they say.

That’s the thinking of analysts who pay closer attention to money flows than sentiment polls, when they’re trying to get a sense for how investors really feel about the market.

For example, some analysts keep close tabs on inflows and outflows in mutual funds and ETFs to gauge the overall mood of investors.

However, “some curious dichotomies” emerge when it comes to the behavior of mutual-fund and ETF investors, according to ConvergEx Group.

For example, mutual-fund investors have pulled more than $5 billion from U.S. stocks so far this year, while adding nearly $53 billion to bond funds.

Conversely, ETF investors have poured nearly $26 billion into U.S. equities.

So it seems that ETF investors are much more bullish on the stock market than their mutual-fund counterparts. Yet the disparity could be driven more by demographics than bullishness.

“Our heuristic for comparing ETF and mutual fund flows is largely informed by the relative age of the asset owners,” according to ConvergEx.

“Mutual funds were the hot investment product of the 1980s and 1990s; ETFs took over that title in the 2000s and still hold it today,” the analysts wrote in a recent note. “Ask a broker or registered investment advisor how receptive their clients are to ‘new ideas, and they will tell you that the response tends to correlate with age. This is why mutual fund flows tend to skew towards fixed income, and ETFs to equity products. In short, these trends are as much demographic as they are about the capital markets or business cycle.”

So while the S&P 500 continues to climb to new record highs, there appears to be a generational clash between ETF and mutual-fund investors. ETFs are baskets of securities that trade like individual stocks on an exchange. They can be bought and sold during the day, while mutual funds are priced once a day at the close.

“Mutual fund assets still trump ETF balances by +$5.0 trillion to $1.9 trillion,” according to ConvergEx. “Will older investors continue to clip their coupons, or will they cycle back to U.S. equities? Or will their younger investment brethren step up and keep investing in ETFs? Either way, we’ll keep having to follow the money to find out.”

Certainly, this is a theme to watch as the bull market stretches into its fifth year.

At Covestor, some of the portfolios on our investment marketplace invest in ETFs, including diversified portfolios with management fees starting at zero. Covestor clients choose portfolios, and the positions and trades are replicated in their own brokerage accounts.

To learn more about how Covestor works, contact our Client Advisers at clientservices@covestor.com or 1.866.825.3005. Or you can try Covestor’s services with a free trial account.

DISCLAIMER: The information in this material is not intended to be personalized financial advice and should not be solely relied on for making financial decisions. All investments involve risk, the amount of which may vary significantly. Past performance is no guarantee of future results.

What investors may be missing about Finisar

finisar

On June 24, Finisar Corporation (FNSR) reported results which showed that revenues were up, but margins were down. Future guidance was conservative. As of July 18, the stock is down more than 30% from its recent high.

In my opinion, any small-cap company that reports disappointing news has a tendency to be sold off quickly. This may be because traders can now continue to short stock until the price finds a bottom. Before a loosening of the old short trading rules by the Securities and Exchange Commission in 2010, a stock could only be shorted on an uptick in most cases.

For the fourth quarter of 2014, FNSR reported its seventh consecutive quarter of revenue growth and annual revenue growth of 23.8%. Fourth-quarter revenue increased by 4.1% over the third quarter and by 25.7% over the fourth quarter of the prior year.

Margins were another story, according to the financial results. The so-called GAAP operating income decreased 7% ($11.5 million) to $21.6 million. Non-GAAP operating income decreased 12.7%  ($7.4 million) to $38.9 million.

Finisar Chief Financial Officer Kurt Adzema cited the impact of a recent acquisition and seasonal telecom price reductions, among other reasons, for the decline in margins in a conference call.

Jerry Rawls, Executive Chairman of FNSR, noted that wireless products lowered the corporate margins but are increasing revenues. The business is profitable and it opens the door for FNSR to create new opportunities with those customers.

The company’s wireless products are older and off-the-shelf, so they don’t require much research and development costs. As Rawls explained in the call:

“This wireless opportunity is large for us and its growing and we expect it to grow even more in Q1, which is why consequently we’re guiding gross margins down in Q1… even though the company is guiding for high growth in revenues. The fourth generation wireless expansion in China …. is hundreds  of thousands of …… new LTE towers.”

In January,  2014, Finisar purchased a German company, u2t Photonics, that fills out the company’s offerings of 100 gigabit products. U2t now has low profit margins, but when their production is transferred to the new China plants within the next year, that may improve things. The 100 gigabyte products are in high demand, have large profit margins and the business is expected to have grow significantly, according to Adzema.

Adzema also pointed out that Finisar is spending heavily on capital expenditures for investments in China, including two new buildings. “Depreciation is going up approximately $2 million a quarter and so obviously that has some impact on gross margins. The first building will be fully occupied by the end of the Q2 and the second building completed in the fall and occupied by the end of Q4,” Adzema said.

I read the details on results and a transcript of the conference call. In my opinion, the company’s explanation of margin pressure is credible. The cost of revenue went up about $21 million to $208 million. The details are not defined, but this could certainly be mostly attributable to product mix in my view.

The operating expenses, including R&D, sales and marketing and other items, went up about $2.8 million. In my opinion, the acquisition of u2t could have contributed to this increase.

FNSR added about $8.3 million of GAAP net income from the sale of a majority owned subsidiary Finisar Korea Ltd. There was a $3,384 charge for “change  in excess and obsolete inventory reserve.”

On the positive side, FNSR is scheduled to complete two new plants in China that will significantly increase capacity and lower costs. Finisar is also developing new, higher-margin products in the “Web 2.0 market,” according to Adzema said.

“We expect it to grow for years to come. The size will depend on the aspirations of each Web 2.0 operators… but they…have plans and dreams for networks that crisscross this country. So it’s pretty amazing in terms of optics.”

In my opinion, the market reaction to the company’s results may be overblown. I believe it is possible that the demand for FNSR products will continue to grow and the stock may trade higher from its recent sell off.\

Photo credit: Brandon O’Connor via Flickr Creative Commons

Try Covestor’s services with a free trial account. Or you can contact our Client Advisers at 1.866.825.3005.

DISCLAIMER: The investments discussed are held in client accounts as of June 30, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.

What could derail this rally? Four things investors should watch

rally-derailed

Despite the some recent fluctuations, major U.S. stock indices like the S&P 500 Index (SPX) and Dow Jones Industrial Average (DJIA) markets are still setting record highs.

On July 14, Goldman Sachs (GS) revised its year-end target for the S&P 500 to 2,050, up from the previous target of 1,900. Against the backdrop of the U.S. Federal Reserve’s accommodative monetary policy, strong corporate earnings, and improving job markets, individual investors are plowing money back into the U.S. stock markets.

About $100 billion has been added to equity mutual funds and exchange-traded funds in the past year, ten times more than the previous 12 months, according to data compiled by Bloomberg and the Investment Company Institute.

At Julex, our quantitative model still indicates “risk on” and a continued bull market. Although no significant risks are imminent in the market now, investors should be mindful of four things that could derail market rallies.

Rising Interest Rates

After the Fed ends its quantitative easing bond purchases in October, the timing and path of rate increases will present uncertainties in the markets. If the Fed raises interest rates slowly in an orderly fashion like the last tightening cycle, the market rallies may continue for a long while.

Should the Fed raise rates in a hurry to fight potential inflation threat, it will be hard for the market to digest and significant market corrections may occur. We believe that the slow rise in interest rates is more likely scenario, but it will be data dependent. The unemployment rate and inflation rate are the most important data for the Fed to determine the course of action.

Subpar Revenue Growth

With forward P/E of S&P 500 Index at 15.6, which is higher than the ten-year historical average of 13.8, the room for further expansion may be limited. To support the continued bull markets, corporations need to continue growing revenue.

In recent years, corporations have achieved earnings growth by cutting costs. However, with profit margin at historically highs, it becomes hard to expand margin further.

Revenue growth has a lot to do with economic performance. The US economy is doing better, but it’s only growing at a 2% or so annual pace. Robust revenue growth cannot be supported by subpar economic performance. We do think the US economic growth will pick up, but it is still questionable how robust it will be.

Fragile European Banks

Europe still remains a risk to markets. Worries about a major lender in Portugal recently sent U.S. stocks on an early swoon after Banco Espírito Santo International delayed coupon payments relating to some short-term debt securities. On July 18, the lender’s parent company, conglomerate Espírito Santo International SA, filed for creditor protection.

Although the Europe just crawled out of recession, the recovery is still fragile and its banking system is still fragmented, especially in Portugal and Greece.

Middle East Tensions

Rising tensions throughout the Middle East and potentially higher oil prices are also risk factors. Egypt has regressed to military rule, Syria is still mired in a civil war, and the extreme group, ISIS, seizes city after city in Syria and Iraq.

There are more potential disruptions of oil supply here. As oil prices are already creeping higher, any further disruption in production would likely send them higher. Increasing oil and gasoline prices would represent a painful blow for consumers and the global economy. In general, a $10 increase in the price of oil cuts 0.2% to 0.3% from GDP.

Qualitatively and quantitatively, we still believe we are in a continued bull market and “risk on” regime and have our managed portfolios positioned accordingly. The four economic and market factors we are tracking are all point to a positive risk-taking environment (see graph below). However, investors need to be aware of the potential risks in the markets.

risk

Try Covestor’s services with afree trial account. Or you can contact our Client Advisers at 1.866.825.3005.

DISCLAIMER: The investments discussed are held in client accounts as of June 30, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.

What Walgreen’s tax-inversion move means for investors

walgreens-wag

Several recent merger and acquisition (M&A) headlines in the pharmaceutical industry have a common underlying motivation. Consider the following: AbbVie’s courtship of ShirePfizer’s abortive pursuit of AstraZeneca,Salix Pharmaceutical’s acquisition of Cosmo, and Mylan’s purchase of Abbott Laboratories’ generics business.

This wave of proposed deals is partly due to potential tax savings through a mechanism known as a tax inversion. A tax inversion is a transaction through which a US company relocates its headquarters to a lower-tax jurisdiction by merging with a foreign company.

As the pharmaceutical industry consolidates in an effort to reduce costs after years of disappointing drug discovery efforts, many companies seek the added benefit of escaping high US corporate income taxes.

Tax inversions have become more frequent, with 11 transactions completed since 2012 and at least as many currently pending, mostly in the healthcare industry. The large number of deals has attracted political scrutiny, drawing calls from some members of Congress and the White House to curtail the practice.

The optics make for good political fodder: a company undergoing a tax inversion may retain its local operations entirely, but it begins paying taxes to a foreign government instead of the US. Under current law, a US company can redomicile to a foreign jurisdiction as long as foreign shareholders own at least 20% of the combined company. Congressional proposals to raise this threshold to 50% at the end of 2014 have only accelerated inversion attempts this year.

With this backdrop, several activist investors have been pressuring Walgreen Company (WAG) to reconsider the structure of its two-step acquisition of Alliance Boots (BOOT), Europe’s largest drug wholesaler and a leading health-and-beauty franchise.

WAG acquired 45% of Alliance Boots in 2012, and it currently has the option to buy the remaining 55% during a six-month exercise window in early 2015. Although the current structure would not result in a tax inversion, there are several ways WAG could adjust the terms in order to reduce the company’s tax rate close to the 21% rate in the United Kingdom, where most of Alliance Boots’ operations are based. (Alliance Boots is incorporated in Switzerland for other tax reasons).

A June Deutsche Bank report estimated that a tax inversion could save WAG nearly $1 billion in taxes by 2018, increasing EPS by about 15%.

Despite political opposition, WAG management has begun to seriously consider a tax inversion. Though he had previously dismissed the idea, CEO Greg Wasson stated on the company’s most recent conference call that the board is actively evaluating the tax structure of the second-step transaction among other “opportunities below the operating [income] line.”

On the same call, management pulled its previously announced fiscal 2016 operating earnings, cash flow, and net debt targets for the combined company. WAG performance had been running below target earnings, though it was on track to meet the latter two goals.

Analysts initially expressed concern that WAG might be backing away from its previous optimism about the transaction, but management indicated that they remain confident and plan to release new guidance that better reflects the combined company’s capital structure. In my opinion, this is clear evidence that management plans to restructure the second step of the transaction and pursue a tax inversion.

With 240,000 employees, WAG is a large employer sensitive to political issues. Pursuing a tax inversion is far from a certainty, but I believe management’s commentary suggests that it is the most likely outcome. Irrespective of the political consequences, the earnings boost would be a clear boon to shareholders.

So, what does all this mean for the Hedged Value portfolio, which holds a long position in Walgreen? Despite my expectation that WAG will ultimately undergo a tax inversion, that is not why I own it. An inversion could still be derailed by Congress or internal opposition.

I own WAG because I believe the quality of its retail franchise and its earnings power in combination with Alliance Boots are underappreciated by the market and not fully reflected in its current valuation. Through its purchasing consortium with Alliance Boots and AmerisourceBergen (ABC), WAG is the largest generics buyer in the world.

The company may realize significant benefits from reshaping the global pharmaceutical supply chain, continuing to improve the in-store experience, and expanding internationally. While the successful completion of the merger with Alliance Boots and continued smooth integration of the two companies is an important part of the investment thesis, my investment is not predicated on a tax inversion.

One of the perennial challenges of investing with a long time horizon is deciding what to do – if anything – when near-term events independent of the long-term thesis may influence a holding’s share price. WAG presents just such a challenge today. To what extent might other investors’ expectation of an inversion already be reflected in the share price?

If management decides not to heed activists’ recommendations, might they choose to sell and place downward pressure on the share price? Conversely, if a tax inversion is successful, might the share price rise to reflect the increased earnings of the company?

Ultimately, these considerations are secondary to valuation. I believe WAG already trades below the fair value of its earnings power, even without an inversion. If management decides not to pursue an inversion and the share price declines, that could present a buying opportunity. If the inversion takes place, I would view it as a nice bonus.

As a result, Cable Car has not adjusted its position in WAG. We will find out soon — management plans to announce the updated transaction details in late July or August.

Photo credit: Phillip via Flickr Creative Commons

To learn more about Covestor, contact our Client Advisers at clientservices@covestor.com or 1.866.825.3005. Or you can try Covestor’s services with a free trial account.

DISCLAIMER: The investments discussed are held in client accounts as of June 30, 2014. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.

Investing for less than the cost of a latte a month

latte

The Covestor Core Portfolios take the work out of building diversified portfolios of ETFs, and in at least one way they’re unique in the asset management business.

Why? Because they have no management fees. Investors only pay the low operating costs of the underlying ETFs, and trading commissions. For an account of $100,000 in the the Covestor Core Portfolios, investors can expect to pay only about 0.17% of assets to cover ETF expense ratios and trading commissions.

Covestor doesn’t charge investors anything for running these portfolios. Zero. Zilch. Nada. Nothing.

And the financial media is picking up on the story.

For example, Mutual Fund Wire reports on how the Covestor Core Portfolios give investors access to diversified portfolios with extremely low costs.

“For less than the cost of one Starbucks grande latte a month, investors can now own diversified, buy-and-hold portfolios from Covestor,” said CEO Asheesh Advani.

These passively managed portfolios of ETFs are designed to complement the more than 100 actively managed portfolios on Covestor’s investment marketplace.

Advani also explained how Covestor can impact financial advisers as well as asset-management firms.

“We think online investment firms will ‘disrupt’ the financial adviser business in many good ways,” he told Mutual Fund Wire. “Services like Covestor are leading the trend to transparency, and also putting pressure on traditional advisers to justify their fees. These are all wins for investors.”

Read the full story at Mutual Fund Wire.

Try Covestor’s services with a free trial account. Or you can contact our Client Advisers at 1.866.825.3005.

DISCLAIMER: The information in this material is not intended to be personalized financial advice and should not be solely relied on for making financial decisions. All investments involve risk, the amount of which may vary significantly. Past performance is no guarantee of future results.

Getting your financial house in order before the baby arrives

babyThe crib is ready and you finally decided on which color to paint the nursery. Now it’s time to get your financial house in order before the new baby arrives.

In the latest installment of Covestor Radio, Kimberly Clouse discusses how to prepare for this major life and financial milestone.

The U.S. Department of Agriculture estimates that it will cost the average middle-class family about $235,000 to raise a child born in 2011 to age 18. Clouse, Covestor’s Chief Client Advocate and Advisory Board Chair, talks about how to plan for a new baby, including health insurance, updating your will and reviewing your life insurance coverage.

Her full interview on Covestor Radio is embedded below:

DISCLAIMER: The information in this material is not intended to be personalized financial advice and should not be solely relied on for making financial decisions. All investments involve risk, the amount of which may vary significantly. Past performance is no guarantee of future results.

Can we take a summer vacation from the euro crisis this year?

portugal-euro-crisis

Ah, summer. The best time for backyard barbeques, outdoor fun … and a European banking crisis.

In what has seemingly become an annual ritual, the eurozone crisis is back in the headlines spooking investors. This time, the trouble is emanating from Portugal, where bond yields have jumped on concerns over the financial system.

The parent company of Banco Espírito Santo (BES), one of Portugal’s largest banks, this week said it has delayed the payments on some of its debt.

“The tumult is a stark reminder that investors — despite recent optimism about Europe — are still worried about the overall health of the region’s financial system,” the New York Times reports.

Recent weakness in European financial stocks had hinted that something could be amiss.

The iShares MSCI Europe Financial ETF (EUFN) has broken a key support level from a so-called rising wedge pattern, which could signal a reversal. Chart below from Kimble Charting Solutions:

portugal

Markets appear to have settled down after Thursday’s initial shock, which was noteworthy because markets have been so calm lately.

For investors, the flare-up in Portugal has triggered a “eurozone crisis flashback,” writes Dean Popplewell for Forbes.

“The knock-on effect began a global equity and periphery bond rout and a mini-break from risk trading that saw markets pivot from euphoria to ‘Europhobia,’” he wrote. “Anything affecting one eurozone periphery member basically affects all nowadays — the yields on other peripheral members sovereign bonds also blew out, reminding all of the darkest days of the euro debt crisis.”

This week’s bout of volatility has “at least woken the market up from its deep slumber,” Popplewell added.

Like summer movie blockbusters, it’s the season for the European debt concerns to heat up.

But hopefully this year we can take a vacation from the euro crisis.

Large money managers don’t expect the worries over one of Portugal’s largest lenders to have a lasting impact on global financial markets depite a rout in Europe’s markets Thursday,” reports WSJ.com’s MoneyBeat blog.

“This particular incident seems fairly isolated to the Portuguese bank as opposed to a return to the eurozone crisis of a few years ago,” said Eric Stein, global fixed income portfolio manager at Boston-based Eaton Vance.

Try Covestor’s services with a free trial account. Or you can contact our Client Advisers at 1.866.825.3005.

DISCLAIMER: The investments discussed are held in client accounts as of June 30, 2014. These investments may or may not be currently held in client accounts. Foreign investments may be volatile and involve additional expenses and special risks including currency fluctuations, foreign taxes and political and economic uncertainties. Past performance is no guarantee of future results.

Not all ETFs are created equal

etfs

ETFs have definitely made a big splash with investors in recent years.

There are currently more than 1,600 exchange traded products listed in the U.S. alone, with nearly $1.9 trillion of assets. So far this year, assets have risen by 9%, or $157 billion, with net inflows of $76 billion, according to XTF.com.

ETFs can appeal to buy-and-hold investors who want to track the market with indices and low costs. Traders also use ETFs to jump in and out of entire sectors with one trade.

So, many different types of investors use ETFs, which come in all shapes and sizes. Yet it’s important to remember that not all ETFs are created equal. Investors can think of ETFs as simply a wrapper, or a delivery mechanism, for an investment strategy.

The first round of ETFs tracked familiar benchmarks such as the S&P 500. The investment approach of these ETFs is fairly straightforward — they buy every security in the benchmark and occasionally rebalance along with the index.

Since then, some ETFs have grown more complex. For example, there are so-called smart-beta ETFs that essentially mimic strategies used by active managers, but in a rules-based index.

There are also leveraged ETFs that magnify the market’s daily returns, and inverse ETFs that move in the opposite direction of the market, allowing investors to profit when markets fall or hedge. Some of these ETFs have higher fees and are not appropriate as long-term investments. Adding even more complexity, there are exchange traded notes (ETNs) which are structured as credit instruments, while ETFs more resemble mutual funds.

Again, the point is that not all ETFs are the same. There is nothing magical about the ETF structure that makes it a good (or bad) investment. An ETF is only as good as its investment approach. Of course, investors should also consider an ETF’s fees, liquidity, index tracking error, tax efficiency and other factors.

At Covestor, we have a rather agnostic view on ETFs.

For example, some of the active portfolio managers on our investment marketplace use sector ETFs to establish positions in entire industries. They may also use leveraged and inverse ETFs for short-term trades.

There are several portfolios on Covestor that use ETFs for sector rotation strategies or for asset allocation strategies.

For the Covestor Core Portfolios that have no management fees, our Investment Management team favors very low-cost, diversified ETFs for the building blocks.

So clearly, we think ETFs have a place in portfolios, and we see Covestor as part of the same trend of lowering costs and boosting transparency for investors. As always, it’s up to investors to do the research and know exactly what they’re buying when they decide to purchase an ETF or any investment.

Try Covestor’s services with a free trial account. Or you can contact our Client Advisers at 1.866.825.3005.

DISCLAIMER: The information in this material is not intended to be personalized financial advice and should not be solely relied on for making financial decisions. Past performance is no guarantee of future results.

Jul 3

Kaboom! U.S. investors celebrate Fourth of July with Dow 17,000

fireworks

U.S. investors kicked off their Fourth of July celebrations one day early as the Dow Jones Industrial Average hit 17,000 for the first time in history.

The Dow climbed to a fresh record after upbeat employment data showed the economy continues to slowly recover.

Also, monetary pyrotechnics from central banks have helped light a fire under financial markets.

Indeed, the market has been resilient as geopolitical instability around the world, from Ukraine and Thailand to Syria and Iraq, has hardly made a dent.

The Dow breaking through 17,000 signals ““continuation of a bull market,” said Gary Kaltbaum, president of Kaltbaum Capital Management, in a USA Today report. “I am not a big round number person, but I guess it has meaning.”

The SPDR Dow Jones Industrial Average ETF (DIA) is up about 4% so far this year even though the global economy is far from peak condition.

What explains the disconnect? One of the biggest reasons is that the world’s major central banks in the U.S., Europe and Japan continue to pump unprecedented amounts of liquidity into the global economy and markets.

While the U.S. Federal Reserve has consistently reduced its purchases of bonds, Fed chief Janet Yellen has made it clear that she and her colleagues aren’t in rush to raise interest rates. Nor is the European Central Bank, which is experimenting with negative interest rates on deposits, or the Bank of Japan.

As a result, an impressive array of asset classes advanced in the first half of 2014, as the Wall Street Journal pointed out in the chart below. Through June 27, gold was up 9.7%, while the Commodity Index advanced 8.1%, the 10-year U.S. Treasury note 6.4%, the MSCI World Index of developed-world shares 4.8% and the MSCI Emerging Markets Index 4.3%.

wsj

Within in the U.S. stock market, sectors such as energy, healthcare, real estate and utilities all registered double digit gains during the first half.  Here’s a breakdown by Morningstar of best performing sectors as of June 27, 2014:

sectors

As for individual stocks, blue chip stocks such as Intel (INTC), Cisco Systems (CSCO), Caterpillar (CAT), Merck (MRK) and Walt Disney (DIS) are clocking in with double digit gains and outperforming broader market indices such as the Dow Jones Industrial Average by a wide margin.

intel

Not everyone thinks the market rally is a sure thing going forward. For one thing, there is no statistically significant correlation between returns in the first and second half of the year.

And while a sudden shift toward monetary tightening is unlikely, there are worries about the strength of the U.S. economy even though employment data has been picking up. The U.S. economy contracted at an annualized 2.9% in the first quarter, the most since the depths of the last recession as consumer spending cooled. The International Monetary Fund recently cut its 2014 U.S. economic growth forecast to 2% from 2.8%.

At some point, investors may need to factor in whether a sluggish U.S. economy can grow fast enough to keep corporate profits expanding at a fast enough pace to justify current valuations. The trailing price-to-earnings ratio of S&P 500 is 19 and 22 for the Nasdaq, both up from last year.

For now, though, the global investors seem more focused on monetary stimulus than underlying fundamentals despite the risks ahead.

DISCLAIMER: The information in this material is not intended to be personalized financial advice and should not be solely relied on for making financial decisions. All investments involve risk, the amount of which may vary significantly. Past performance is no guarantee of future results.

Jul 1

Should investment advisers eat their own cooking?

financial-advisor One way that investment advisers can clearly align their interests with investors is by putting their own money in the same investments that they recommend.

Roger Neustadt, co-portfolio manager of the Chantico Fixed Income portfolio, recently appeared on HealthyLife’s News@7 radio broadcast to discuss why investors should ask if advisers “eat their own cooking.”

That will allow investors to see whether advisers are investing in the same stocks or mutual funds they recommend to clients.

"A financial adviser is supposed to invest your money to make more of it. Certainly there are many questions that can be asked related to investment theories or research services," Neustadt told News@7. "But the most important question that people are not asking when they’re presented with a financial plan … is whether the adviser invests their own money in those.”

As a manager on Covestor’s marketplace, Chantico Advisors is investing its own money in a portfolio that is replicated in investors’ own brokerage accounts. In other words, portfolio managers on Covestor like Chantico are eating their own cooking.

In the radio interview, Neustadt also discussed his outlook on interest rates, and how ETFs compare with traditional mutual funds.

His full interview with News@7 interview is embedded below:

DISCLAIMER: The information in this material is not intended to be personalized financial advice and should not be solely relied on for making financial decisions. Neither Covestor Limited nor its representatives are engaged in rendering tax, accounting or legal advice. A qualified professional should be consulted regarding the effect of such considerations on the matters covered in this article. Past performance is no guarantee of future results.