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Lessons You Can Learn From Apple’s CEO

Forbes article by Siimon Reynolds

tim cookAs Apple continues to grow from strength to strength, now is a good time to analyze what Tim Cook is doing right.

Here is my view of the key differences between the way Cook works versus the typical CEO or company owner.

1. He Puts Building A Great Company Ahead Of Building A Great Share Price.

Tim Cook has repeatedly stressed that he views endless speculation about the share price as an unwelcome distraction from the real task at hand – producing and selling world changing products. As he expressed it, “Companies that get confused, that think their goal is revenue or stock price or something. You have to focus on the things that lead to those things.”

And even more stridently,” If you want me to only do things for ROI reasons then you should get out of this stock.”

2. He Only Releases A Product When It Is Truly Outstanding.

A case in point is the Apple watch. Cook was under tremendous pressure early last year to announce a release date for the Apple timepieces. He resisted, even when he knew that competitors were working on similar products, because he knew that the product wasn’t yet good enough. Then when he finally announced the watch range, he still did not rush its release into the market.

3. He Is Obsessively Focused On Only A Few Products.

Compare Apple with Samsung. The shear breadth of Samsung’s product range is stunning, but Tim Cook takes an entirely different tact. He is ruthless at saying no to new products, unless Apple can not only produce the best in that category, but actually redefine what that category is.

As he puts it, “You can only do so many things great, and you should cast aside everything else.” And again: “But the DNA of the company, the thing that makes our heart beat, is a maniacal focus on making the best products in the world. Not good products, or a lot of products,but the absolute best products in the world.”

4. He Refuses To Lower Prices For Market Share.

Few industries are under more pressure to reduce prices than the computer sector. But again and again Tim Cook resists. He understands that price lowering is a game that is impossible to win and once begun is extremely difficult to stop. It also means reduced margins, which inevitably lead to lower product quality, which in turn lead to lower customer satisfaction.

Cook is adamant that moving away from premium pricing would greatly erode the Apple brand. “Price is rarely the most important thing. A cheap product might sell some units. Somebody gets it home and they feel great when they pay the money, but then they get it home and use it and the joy is gone.”

5. He Plays The Long Game, Keeping the Company’s Vision In Mind At All Times.

The defining characteristic of Tim Cook’s reign at Apple so far is surely his commitment to the Apple ethos. That philosophy is completely focused on product excellence, and Cook has been absolutely clear that he will stick with that vision for however long he runs the company. “Apple has a culture of excellence that is, I think, so unique and so special. I’m not going to witness or permit the change of it.”

Rather than just admire Tim Cook, why not take a moment now to examine each of the points above and compare them to how your company operates. How could you improve things thinking more like Tim? Which of these five areas should you focus on to take your company to the next level?

Tim Cook is indeed a masterful CEO, but he is following strategies that almost any company could also do.

Including yours.


Posted by:  Steven Maimes, The Trust Advisor



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Stock Exchanges Are Beginning to Take Bitcoin Seriously

Bloomberg News by Olga Kharif

bitcoinThe biggest U.S. stock exchange operators are taking steps to embrace bitcoin, spurring speculation the digital currency is coming up from underground.

Nasdaq OMX Group Inc. revealed Tuesday that New York-based Noble Markets, a platform for trading bitcoin, has agreed to license Nasdaq’s X-stream technology. Noble is adopting the same software used by securities exchanges around the world, and a related system runs the Nasdaq Stock Market, one of the biggest equity exchanges. The news follows the New York Stock Exchange’s January agreement to invest in Coinbase, another platform for trading the digital currency.

Markets for buying and selling bitcoin took a reputational hit when one of the biggest, Mt. Gox, failed in 2014. Mt. Gox filed for bankruptcy after discovering it had lost bitcoins belonging to customers and itself. Deploying Nasdaq’s software could give Noble greater legitimacy.

“It is a vote of confidence in bitcoin the technology,” Nicholas Colas, chief market strategist at Convergex Group, said in an interview. “Now that you are seeing big organizations providing technology, there’s a feeling that bitcoin is here to stay.”

While some bitcoin startups have recently built their own trading technology, Nasdaq’s system has been battle-tested for years. Nasdaq provides trading software to companies including Japan Exchange Group Inc. and Singapore Exchange Ltd., which are among the biggest market operators in the world.

Other Exchanges

“Nasdaq is open to providing its technology to other bitcoin exchanges,” Ryan Wells, a Nasdaq spokesman, said during an interview.

Noble was founded by John Betts, whose resume features stints at Goldman Sachs Group Inc., Morgan Stanley and UBS Group AG. Betts said his finance career included designing trading systems. His time working for the giants of finance may be a sign of maturation for bitcoin, and contrasts with Mt. Gox, which was originally envisioned as a place to buy and sell playing cards for the game Magic: The Gathering.

Nasdaq’s involvement is a good sign, according to Adam Draper, a venture capitalist at Boost VC who invests in bitcoin startups.

It “obviously shows that they think bitcoin is here to stay,” he wrote in an e-mail, referring to Nasdaq.


Posted by:  Steven Maimes, The Trust Advisor


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Charles Schwab Unveils Institutional Intelligent Portfolios Details

schwab aaAutomated investment management solution for RIAs offers broad customization; competitive pricing at 10 basis points; no fee for advisors with $100MM+ custodied at Schwab

More than 3100 Schwab Advisor Services clients registered for a company webcast today to hear details on Institutional Intelligent Portfolios™ – the company’s automated investment management solution for independent registered investment advisors (RIAs). Among its robust feature set, Institutional Intelligent Portfolios will offer advisors the opportunity to create a diverse set of client portfolios utilizing more than 200 ETFs across all major fund families, a sophisticated advisor-branded digital experience for clients of advisors, integration with Schwab systems, and a two-tiered pricing structure based on total assets custodied with Schwab – all supported by the strength and expertise of the industry’s leading custodian. Institutional Intelligent Portfolios will be available in Q2 2015.

Advisor Services’ executive vice president, Bernie Clark, Schwab Intelligent Portfolios executive vice president, Naureen Hassan, and Advisor Services technology and strategy senior vice president, Neesha Hathi led today’s webcast, which addressed the changing investing landscape and details of Schwab’s advisor platform.

“Institutional Intelligent Portfolios provides RIA firms with access to a sophisticated, technology-based solution that can help RIAs capture and serve the transfer of wealth between generations, enable them to reach a broader market segment, and perhaps even serve some existing clients’ needs,” said Bernie Clark, executive vice president and head of Schwab Advisor Services. “With this in mind, Institutional Intelligent Portfolios can be deployed by RIAs in a way that suits their business and can play a valuable role in serving more clients in an efficient and profitable way, while complementing the invaluable wealth management services and client experience RIAs currently provide. More than just a new technology, this solution is an opportunity for RIAs to continue to transform the advisor office to better serve new and existing clients.”

With more than one-third (36%) of independent registered investment advisor (RIA) firms doubling their assets under management and revenues in the past five years1, RIA firms are actively seeking ways to institutionalize their business operations and processes to support firm growth and meet the evolving needs of existing and emerging clients. According to Schwab research, most advisors (56%) believe automated investment management solutions could supplement their current offerings and help drive growth2. Furthermore, 79 percent of firms are serving clients with assets below their firm’s stated minimum.3

“Automated investment management is a transformative topic in our industry today. Technology advancements, new market entrants and shifting consumer preferences for conducting more of their business online are driving this movement to investment automation,” said Naureen Hassan. “We designed Institutional Intelligent Portfolios to deliver scale and seamless integration to advisors in addition to what we believe is a hard-to-match feature set to help advisors maximize their investing and client expertise, while also expanding their reach as efficiently as possible.”

Robust ETF portfolios — portfolios designed by RIAs

With Institutional Intelligent Portfolios, advisors will make a number of decisions that reflect their investment philosophy and how they want to use the solution for their clients. Advisors can design portfolios for their clients selecting, at their discretion, from a broad set of more than 200 ETFs and 28 asset classes across all major fund families using four strategies; taxable and IRA-specific portfolios, municipal bond portfolios, or income portfolios. Advisors may choose to offer tax-loss harvesting. Portfolios must maintain a minimum of four percent in cash. Cash will be held in Schwab Bank, is FDIC-insured, and pays an indexed, market-based interest rate.

Sophisticated advisor-branded digital experience for advisor clients

Advisors will be able to add their own brand identity including their firm’s name, logo and contact information for use in an end-client web portal and mobile app. Advisors will have tools that help facilitate conversations with clients via co-browsing and the platform will be integrated with Schwab Alliance, the company’s website for advisor clients. Performance reporting will be available through the client web portal and mobile app. The platform also offers 24/7/365 customer service when advisors are unavailable.

Unmatched value, competitively priced to help firms grow and serve clients efficiently

The platform will have a two-tiered pricing structure based on total assets custodied with Schwab outside the Institutional Intelligent Portfolios program. For those with less than $100 million in assets under management (AUM) with Schwab, there will be a 10 basis point platform fee. For those firms who maintain more than $100 million in AUM at Schwab above and beyond Institutional Intelligent Portfolios AUM, there will be no fee. Advisors will determine their appropriate management fees, which will be billed through the standard Schwab custodial billing process. No account service fees, trading commissions or custody fees will be charged to advisors’ clients.

Streamlined, automated rebalancing, tax-loss harvesting and client onboarding

Institutional Intelligent Portfolios will provide a paperless account open and funding experience for advisors’ clients. Advisors will have robust client management tools, including automated rebalancing and the opportunity for tax-loss harvesting for accounts greater than $50,000. Institutional Intelligent Portfolios will work with advisors’ existing workflows and integrate with Schwab Advisor Center – a website that provides custody, trading, and support services for independent registered investment advisors who custody with Schwab. Account data will also be included in Schwab data downloads and can be imported into advisors’ portfolio management systems. Additionally, Schwab will provide advisors with a specialized service team to help with set up and ongoing support for their firm and their clients.

“Automated investment management is here to stay and our goal is to ensure that our advisors are prepared to participate in this potential growth opportunity on their terms in the most seamless way possible,” said Clark. “We have been working closely with advisor groups over the past year to shape our offer so that it meets RIA’s needs. Institutional Intelligent Portfolios is one of many innovations we’re investing in to support RIA firm growth. It is designed to help advisors continue to do what they do best – serve their clients.”

Advisors can go to to sign up for ongoing updates about the platform and its availability.

About Charles Schwab

At Charles Schwab we believe in the power of investing to help individuals create a better tomorrow. We have a history of challenging the status quo in our industry, innovating in ways that benefit investors and the advisors and employers who serve them, and championing our clients’ goals with passion and integrity. More information is available at


Posted by:  Steven Maimes, The Trust Advisor



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Cruz Does Not Mention Family Ties To Goldman Sachs

cruzPresidential candidate hides spouse’s ties to Goldman.

This week, Ted Cruz was the first to throw his hat in the ring for the GOP presidential candidacy.

But during his speech, reference to his wife’s tenure at New York-based Goldman Sachs Group Inc. was suspiciously missing.

His wife, Heidi, has worked with the company since 2005 and served most recently as regional head of their Houston office.

Why the omission? Ever since the great recession, Wall Street has been a sensitive topic for the GOP, even as campaign funds continue to stream in.

During the 2012 presidential race, Democrats blasted Mitt Romney on his work in private equity.

Big names in the party are seeing the need to distance themselves, like when Rand Paul, the Kentucky senator, said that his party “cannot be the party of fat cats, rich people and Wall Street.”

During his speech on Monday, his wife and their two daughters joined Cruz.

In an attempt to connect with female voters, Mr. Cruz mentioned Mrs. Cruz’s childhood entrepreneurial venture, Heidi’s Bakery. “She goes on to a career in business, excelling and rising to the highest pinnacles, and then Heidi becomes my wife and my very best friend in the world,” said Mr. Cruz. Aides to the Cruz campaign say he is planning on stressing the effect strong women have played in molding his life during the campaign.

According to the New York Times, Mrs. Cruz is “a vegetarian with a Harvard M.B.A.” Mrs. Cruz told the Times in October of 2013 “I think it works really well for our family for us both to have careers, and I know what my commitments are to Goldman.”

However, Investment News reported that she would be taking unpaid leave to support her husband’s campaign, quoting a person briefed on the matter.

Posted by:  Sarah Huebscher, The Trust Advisor



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When You Must Take Money Out of Your I.R.A. or 401(k)

NYT article by Ann Carrns

iraThe 15th isn’t the only significant tax deadline in April.

If you turned 70½ in 2014 and have an individual retirement account, you have until April 1 to make your first withdrawal — known as a “required minimum distribution” or “minimum required distribution,” in tax lingo. The rule also generally applies to other tax-deferred retirement accounts, like 401(k)s.

If you don’t take out the money by the deadline, you may face a hefty penalty: You will owe an excise tax equal to half the amount that you failed to withdraw. So if you were required to withdraw $4,000, but you withdrew nothing, you would owe a $2,000 penalty.

The rule applies to traditional I.R.A.s, as well as the Simplified Employee Pension, Simple and rollover varieties.

The April 1 deadline applies only for the first required withdrawal; after that, the deadline for annual mandatory withdrawals is Dec. 31 of each year. (That means if you wait until April 1 for your first withdrawal, you will have to make two withdrawals in the same calendar year. That is something to keep in mind, since it may bump you into a higher tax bracket.)

Despite the size of the potential penalty, many people are slow to take out the cash. Fidelity Investments reports that as of Dec. 26, 2014, more than half (59 percent) of the company’s investors who were eligible to take their first required withdrawal from an I.R.A. in 2014 had not yet taken the full amount required. And, of those, 43 percent had not yet taken any withdrawal at all. (Taking a partial withdrawal reduces, but doesn’t eliminate, the penalty).

It may be that people just like pushing deadlines. But it’s also difficult for many to make the psychological shift from putting money into their retirement accounts to taking it out.

“You’ve been saying, ‘This is my nest egg,’ and you didn’t want to touch it,” said Maura Cassidy, director of retirement products at Fidelity. “Now, you have to tap into it.”

Some people may not recognize that the federal government, after encouraging them to squirrel money away, now wants them to make withdrawals.

“You cannot keep retirement funds in your account indefinitely,” the I.R.S. says in a discussion of retirement topics on its website.

“Basically, the I.R.S. wants to start collecting the taxes,” said Kevin O’Reilly, a financial planner in Phoenix.

Since the required amount doesn’t have to be taken in a lump sum, Mr. O’Reilly suggests that to avoid bumping up against a deadline, you may want to set up partial automatic withdrawals when you become eligible, so you receive smaller amounts periodically throughout the year.

Here are some questions about required retirement account withdrawals:

How do I know how much to withdraw?

The minimum distribution is based on your account value and your life expectancy. Each year, the IRS publishes life expectancy tables at the end of I.R.S. Publication 590. Investment companies also have calculators on their websites. Merrill Edge’s site has this example: If a traditional I.R.A. is valued at $87,000 and life expectancy is 22.5 years, you would divide $87,000 by 22.5 to get $3,866.67 as your mandatory withdrawal amount.

Can I withdraw more than the minimum amount required?

Yes; you just can’t withdraw less.

Does the minimum withdrawal rule apply to Roth I.R.A.s?

No. Roths are an exception; there is no withdrawal required during the life of the account holder. Also, you generally don’t need to take minimum withdrawals from a workplace 401(k) plan if you are still working.

If I failed to make a required minimum withdrawal, can I seek a waiver?

Yes. You can ask the I.R.S. to waive the penalty by submitting an explanatory letter along with Form 5329. You generally should have some sort of reasonable explanation — for example, you or your spouse fell ill, and you were distracted. You should also explain what action you are taking to remedy the problem.


Posted by:  Steven Maimes, The Trust Advisor



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Nevada Considers Legalizing Physician Assisted Suicide

Courthouse New Service article by Laney Olson

Physician-Assisted-SuicideNevada is joining several legislatures across the country in considering legalization of physician-assisted suicide.

State Senator David Parks, D-Las Vegas, and seven cosigners introduced Senate Bill 336 on March 16. It would authorize “a physician to prescribe a controlled substance that is designed to end the life of a patient under certain circumstances.”

Nevada law gives terminally ill patients the right to refuse life-sustaining treatment. SB336 extends those rights by giving patients the right to “self-determination concerning medically assisted, informed, voluntary decisions about dying with dignity and avoiding unnecessary suffering.”

State Senator Tick Segerblom, D-Las Vegas, said he co-sponsored the bill because he’s seen quality of life deteriorate in terminally ill patients.

“We should all have the right to control our own destiny,” Segerblom said in a statement. “As long as that decision is educated and voluntary, I support it.”

An Oregon based organization, Death with Dignity, is working with legislators nationwide to help write end-of-life bills. Oregon enacted its Death with Dignity Act in 1994.

Death with Dignity said it is working with Parks and co-sponsor state Sen. Ben Kieckhefer, R-Washoe, “to provide a peaceful and dignified death for those suffering from terminal illnesses.”

SB336 will require patients to be diagnosed by two physicians, make two verbal requests at least 15 days apart, make a written statement and be mentally competent. The suicide drug or drugs can be administered only by the patients themselves.

Segerblom expects that religious organizations will be the bill’s largest opponents but argues, “It should be a personal decision, not a government-imposed decision.”

Give states have legalized assisted suicide: Oregon, Montana, Washington, Vermont and most recently, New Mexico. Similar bills have been introduced in 21 other states.


Posted by:  Steven Maimes, The Trust Advisor


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The 6 Most Overlooked Income Tax Deductions

Bloomberg News article by Suzanne Woolley

taxes 1Tax experts told us what even seasoned itemizers tend to miss

After you’ve itemized deductions on your income tax for a few years, you get to know the drill. You track charitable contributions—even the little ones—and know what unreimbursed work-related expenses are legit. But even experienced itemizers miss things. We called leading tax preparers to find out what people tend to miss most. Here are their contenders for most-overlooked deduction or tax credit.

Relocation expenses—even if your company pays

No, you can’t double-dip, but if you get a new job that entails relocation at least 50 miles from your last job, you have deduction options. Say your employer covers $5,000, and it costs you $10,000 to move: You can deduct the $5,000 that came out of your pocket for the movers, storage units, mileage on your car and so on, says Jackie Perlman, principal tax research analyst at H&R Block’s Tax Institute.

You take the deduction the year you start your new job, though you have to work full-time for at least 39 weeks to claim the deduction. But if you start in, say, December, 2014, you still claim the exemption for 2014. You just have to expect to stay for 39 weeks into the following year. If you don’t make it that long, you can amend your return to remove the deduction—or include the amount you deducted in the next tax year’s income.

Personal loans gone bad

You’re a good friend. So when your friend needed money a few years ago to pay the rent, you helped. Hopefully you scribbled out a note saying that the loan was for, say, a total of $6,500, and whether you charged interest. Now your friend can’t pay you back. You’ve done everything possible to try and collect, to no avail. You can deduct up to $3,000 of the loan, and the remainder can be deducted in future tax years, says Lisa Greene-Lewis, a CPA and TurboTax blog editor. If you do this year after year, however, the IRS might question your unflinching generosity and wonder if you’re simply making gifts.

Going back to school

This one’s actually a tax credit, which is better than a deduction because it lowers your taxes dollar for dollar. The Lifetime Learning Credit allows someone who decides to go to graduate school—or just take a few courses—to claim 20 percent of the first $10,000 of tuition, fees, books and supplies. The cap is $2,000. There are income limits, though. For single and head of household filers, the credit gets phased out over an income range stretching from $54,000 to $64,000 (and from $108,000 to $128,000 for joint filers). There’s no limit on how many years the credit can be taken, says David Prokupek, chief executive officer of Jackson Hewitt Tax Service.

Summer camp

If you needed to put a child in day camp so you can work or look for work, you can take a maximum credit of $1,050 for one child and up to a maximum $2,100 for two or more. Depending on your income, the percentage of the expense you can take ranges from 20 percent to 35 percent. The $2,100 figure, for example, is 35 percent of the $6,000 maximum allowed for child-care expenses, says Greene-Lewis. Even sports camps are covered. For a married couple, both spouses have to be working, or one working and one looking for work.

Traveling for medical treatment

Say you live in Manhattan, and your doctor says you need to get a particular medical treatment at the Mayo Clinic in Minnesota. Your airfare may be deductible, says Mark Jaeger, Individual Tax Team Lead at TaxACT. The treatment has to be prescribed by a doctor and be essential, such as a cancer treatment. The IRS also allows you to deduct up to $50 per night for lodging per person, which makes it $100 when, say, a parent accompanies a child. If you drive, you can deduct either the actual expenses for gas and the like or you can use the standard mileage rate of 23.5¢ a mile.

The residential energy property credit

If you’ve already done a big energy project at home, such as adding solar panels or geothermal heating, you probably know you can deduct 30 percent of the cost of the improvement, with no limit. But if you’ve been thinking about doing a big project along these lines and have been putting it off, you may not realize that 2016 will be the last year this credit is available. You can get details on the government’s Energy Star website.


Posted by:  Steven Maimes, The Trust Advisor


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Index Funds Can Make Retirement Investing Easier

Newsmax article by Dan Weil

index-fundsInvestment icons from Vanguard Group founder John Bogle to Berkshire Hathaway CEO Warren Buffett constantly extol the virtues of index mutual funds and exchange-traded funds.

So it’s no wonder that retirement expert Tom Sightings sees them as a helpful tool for retirement investing. “Investing is so complicated,” he notes in U.S. News & World Report.

“How do I make the time? No time? No expertise? No problem. Invest in stock and bond index funds. They usually do better than managed funds. Many financial institutions offer both mutual funds and exchange-traded funds that index stocks and bonds.”

You might not get fabulously rich from these funds, but you will enjoy the same returns as the overall market, with less risk than if you buy individual stocks and bonds.

And there’s an added bonus. “If you own an index fund, chances are you are diversified,” Sightings explains.

To be sure, if you have a 401(k) plan, he warns against investing too heavily in your own company’s stock. That’s because you don’t want to be excessively dependent on your company.

Meanwhile, John Waggoner of USA Today explains that three crucial factors when you’re searching for retirement investments are safety, dividends and expenses. He lists several funds that shine in those areas.

Waggoner lists several funds that shine in those areas and should be included in a retirement portfolio.

The first is the Vanguard Target Retirement Income (VTINX). This is a fund of funds designed as an all-in-one solution for retirees who want to see both their principal and income increase, he writes. The fund allocates 65 percent of assets to bonds and 20 percent to U.S. stocks.

The fund has produced an average annual return of 5.6 percent in the past three years, sports a yield of 1.8 percent and has an expense ratio of 0.16 percent.

The second fund Waggoner likes is the Schwab U.S. Dividend Equity ETF (SCHD). “If you’re looking for a portfolio of large-company stocks with a long history of raising dividends, this is the fund for you,” Waggoner writes. “The fund’s criteria looks not only for high dividends, but high-quality earnings and balance sheets as well.” The fund has generated an average annual return of 16.5 percent over the past three years and has a yield of 2.6 percent.


Posted by:  Steven Maimes, The Trust Advisor


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Bill Gross’s Replacements Thrive at Pimco

Bloomberg news article by Miles Weiss

billThe new managers of the Pimco Total Return Fund have been trumping former boss Bill Gross since he left the world’s largest bond fund, boosted by an opposing bet tied to short-term U.S. interest rates.

Following Gross’s surprise Sept. 26 exit, the trio that took over the $125 billion fund reduced its exposure to debt maturing within five years, according to filings. Gross went the other way on shorter-term debt after joining the Janus Global Unconstrained Bond Fund on Oct. 6, plowing two-thirds of its net assets into corporate bonds coming due before 2018.

The two sides differed last year on when the Federal Reserve would begin to raise interest rates, with Gross signaling a longer wait than those who replaced him at Pimco. Forecasting that the Fed would tighten as early as June, Total Return’s new managers Mark Kiesel, Scott Mather and Mihir Worah concluded that short-term bonds were overpriced and repositioned the fund, helping it to emerge from a two-year slump and outperform Gross’s Janus vehicle.

“There was a whole group of people who thought the Fed was not even going to tighten this year,” said Terry Pigott, the head of Glacier Peak Capital Management, a Gladstone, New Jersey-based firm specializing in short-term Treasuries. “That is where everybody got burned.”

Total Return’s new management team is betting that bonds coming due in seven to ten years will outperform those with both shorter and longer maturities. Agnes Crane, a spokeswoman for Newport Beach, California-based Pimco, declined to comment on the fund’s changes. Erin Freeman, a spokeswoman for Denver-based Janus Capital Group Inc., declined to comment on Gross’s fund.

High Stakes

The stakes are high for both firms. Gross, 70, needs to convince potential clients that he can deliver strong returns at a smaller mutual fund whose strategy and performance benchmark differ from Pimco Total Return, where he built one of the industry’s best long-term records. His former employer must staunch $100 billion in net redemptions that Total Return has suffered since splitting with Gross, who co-founded Pimco in 1971 and oversaw its main fund since inception in 1987.

Pimco Total Return beat 91 percent of intermediate bond funds by returning 2.6 percent from Sept. 27 through March 10, according to Chicago-based Morningstar Inc. The $1.45 billion Janus Global Unconstrained trailed 85 percent of nontraditional peers since Gross assumed charge on Oct. 6, declining 1.6 percent with dividends as of the same date.

Prior to leaving, Gross had positioned Pimco Total Return to profit if short-term debt outperformed medium-term bonds. The new managers unwound that wager in the fourth quarter, selling many of the investment-grade corporate bonds that could get hurt by rising short-term rates, including debt issued by American International Group Inc., Morgan Stanley and Bank of Nova Scotia. The fund kept high-yield bonds that are less sensitive to such rate movements, a Feb. 27 regulatory filing shows.

Yield Gap

At the same time, Pimco Total Return entered into swaps with a notional value of $53 billion that would pay off if short-term interest rates rise. The firm exited $22.5 billion of swaps that lose money when short-term rates climb.

The moves were designed to profit if medium-term bonds bested short-term ones, leading to a narrower gap in yields. That’s what happened in the fourth quarter: the extra yield that 10-year Treasuries paid over 2-year notes shrunk to 1.51 percent from 1.92 percent.

“We have moved our yield curve exposure out of what we think is the significantly overpriced front end and focused our exposure in 7- to 10-year maturities,” Mather wrote in a February strategy commentary. That and other shifts “will pay off in the year ahead.”

Performance ‘Detractors’

At the Janus Global Unconstrained fund, Gross took the opposite approach to shorter-term bonds. Of the $975 million in corporate debt that he purchased in the quarter, more than 90 percent comes due by 2017, according to a Feb. 27 filing with the U.S. Securities and Exchange Commission.

Gross, using options, futures contracts and interest-rate swaps, echoed his previous Pimco wager by investing in 10-and 15-year Treasuries, while shorting 30-year bonds. The net result of the derivatives trades was a $2.2 million loss.

The Janus fund traded futures “with the expectation that the long end of the yield curve would steepen while the short end of the curve would remain anchored,” the firm said in a quarterly shareholder report. The positions were performance “detractors,” even as energy investments hurt more.

Gross has come around to the view that higher interest rates are likely at midyear as near-zero borrowing costs threaten to create bubbles in the stock and bond markets.

“The Fed is willing at this point to at least acknowledge that by raising interest rates 25 basis points in June,” he said in a March 2 Bloomberg Television interview.


Posted by:  Steven Maimes, The Trust Advisor



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The Fastest-Growing ETFs

Bloomberg Markets article by Charles Stein

The business of exchange-traded funds is dominated by three big players: BlackRock’s iShares, Vanguard Group, and State Street, which collectively control 82 percent of the roughly $2 trillion invested in ETFs.

Other firms are fighting to gain market share, and several have made their way into Bloomberg Markets’ annual ranking of the fastest-growing funds over the three years ended on Dec. 31.


Charles Schwab Investment Management has two of the funds on this year’s list: Schwab U.S. Large-Cap and Schwab U.S. Broad Market. “Those ETFs are boring as dirt,” says Dave Nadig, chief investment officer at research firm, pointing out that the Schwab ETFs track common market indexes. They’re also very cheap, which is their main appeal, he says.

Schwab charges 4 cents for every $100 invested, a penny less than Vanguard charges for similar products. Schwab customers can buy and sell ETFs for no commission. The low-cost approach helped the firm amass $27 billion in ETF assets as of Dec. 31.

The Guggenheim S&P 500 Equal Weight ETF—a so-called smart-beta fund—almost quadrupled its assets in the three years. As the name implies, the ETF tracks a version of the popular benchmark in which all 500 companies are weighted equally, rather than being measured according to their market capitalization. Since the end of 2008, the equal-weighted product has outperformed its traditional counterpart, thanks to the strong showing of smaller-cap stocks, whose influence is greater in the equal-weighted index. In the six years ended on Dec. 31, the Guggenheim offering returned 21 percent a year compared with 17 percent for the SPDR S&P 500 ETF Trust, the biggest ETF by assets.

“Investors chase performance,” says Alex Bryan, an analyst at Morningstar who follows passive products. Bryan has a warning for investors in the Guggenheim ETF: Because small- and midcap stocks are now relatively expensive, “I would not expect that kind of outperformance to persist.”

Invesco PowerShares, the fourth-largest U.S. ETF provider, had one of the 10-fastest-growing ETFs, the PowerShares FTSE RAFI U.S. 1000 ETF. Also a smart-beta product, the ETF weights its holdings according to book value, cash flow, sales, and dividends rather than market cap. Only two of the 10 fastest-growing ETFs are repeaters from last year’s list: Schwab U.S. Broad Market and Vanguard Health Care. Health care was the best-performing sector in the S&P 500 over the past three years.


Posted by:  Steven Maimes, The Trust Advisor


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