EM debt seems risky

At RBA, we search for gaps between perception and reality, and this seems to be the case for emerging market debt. Investors have been lured to these securities by their higher yields, yet the underlying economic and currency fundamentals are deteriorating without commensurate widening of spreads.

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Worried about the Downside?

There have been numerous academic studies that suggest investors' reactions to market risk are not symmetric. Investors consistently react more negatively to losses than positively to gains. At RBA, we incorporate this asymmetry in our sentiment work. Data clearly show that no group of investors is currently willing to take excessive US equity risk. Pension funds, endowments, foundations, hedge funds, individuals, Wall Street strategists, and even corporations themselves remain more fearful of downside risk than they are willing to accentuate upside potential.

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Rich Bernstein on "The Nightly Business Report"

Rich discusses the importance of having a financial plan and focusing on the long term on "The Nightly Business Report" on PBS.

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A Classic Barometer

Investors seem a bit too eager to tout emerging market equities. Much as they did with technology stocks during the early-2000s, investors today are looking for the best re-entry point. Data clearly do not support anymore the notion that emerging markets are a superior growth story, yet investors seem to be ignoring the classic warnings signs for fear of missing out. One such classic warning sign is the slope of the yield curve. Historically, steeper yield curves have been reliable forecasters of stronger overall nominal economic growth and stronger profits growth. While US yield curves remain extraordinarily steep, emerging market yield curves tell a very different and disconcerting story.

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The Importance of Beta Management

Morningstar recently released "Mind the Gap-2014" which demonstrated that investors are generally very poor beta managers. The Morningstar data showed that investors' performance lagged that of their funds by about 250 basis points per year for the past ten years because of poor beta management, i.e., investors tend to be very poor allocators of capital. Beta management is the core of RBA's strategies, and we decided to reissue our 2011 report on beta management in light of these Morningstar data.

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American Industrial Renaissance Revisited

We first wrote about The "American Industrial Renaissance" in 2012, and it remains one of our favorite investment themes. We continue to implement this theme through small US-centric industrial companies and small financial institutions that lend to public and private industrial firms. It remains unlikely that the United States will be the manufacturing powerhouse that it was during the 1950s and 1960s, but many factors are suggesting that the US industrial sector will continue to gain market share.

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Financial Times - Japan Shows Itself a Better Growth Story Than Emerging Markets

Most investors readily admit the global credit bubble is deflating, but they have not significantly altered core investments accordingly. One of the biggest opportunities in the post-credit global economy is Japanese equities because Japan has the potential to increase competitiveness versus the emerging markets. Observers of Japanese stocks tend to focus on Prime Minister Shinzo Abe's policies, but such analyses might be overlooking a larger, even more favourable issue.

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Market Share: The Next Secular Investment Theme

It is well known that corporate profit margins are at record highs. US margins, developed market margins, and even emerging market margins are generally either at or close to record highs. A myopic focus on profit margins may miss an important investment consideration. Whereas most investors remain fearful of margin compression, we prefer to search for an investment theme that could emerge if margins do indeed compress. Accordingly, our investment focus has shifted toward themes based on companies who might gain market share.

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