ebook essays pieces of the puzzle
Monday, November 15th, 2010
the closed-end trap

Closed-end funds are great when you are on the right side of them, when the portfolio is working in your direction and the market price relative to the net asset value is amplifying that action.  Unfortunately, the opposite can happen too.  California municipal closed-end funds are a case in point, such as the Pimco California Municipal Income Fund (PCQ), shown here.  I’m not sure who was buying it in June at a ten percent premium, given the fact that the news was growing grim and credit default swaps on the State of California were gapping out.  It took a long time for the California municipal market to get hit, but it finally started to happen in the last week or so.  Those who chose PCQ as their vehicle got a double whammy, as the entire premium vanished in a hurry.  (Chart:  Bloomberg terminal.)

new asset classifications

Speaking of California, while its retirement plans make headlines for their impact on the state’s budget, the system charged with managing the assets, CalPERS, remains a force in the markets due to its size.  Therefore, institutional investors keep an eye on what it’s doing.  According to Pensions & Investments, the investment committee of CalPERS has approved a new asset allocation construct, “combining public and private equities into a new growth classification” that will represent 63% of assets, and adding two new categories, real assets and inflation-linked assets, at 13% and 4% respectively.  (The remainder is made up of fixed income and cash.)

This is a good, if limited, example of how classifications are changing at the margin to reflect risk categories rather than traditional asset classes.  The other reality this illustrates is how long it takes to get things done.  There were articles about the possibility og this change (at CalPERS) early in 2010, and it’s not even a done deal.  The full board votes on it in December.

new adv requirements

On Friday, Advisors4Advisors hosted a webcast about the new Form ADV Part 2 requirements for investment advisors.  If you have advisors who manage assets for you, you can expect to get new information from them, most likely by March 31.  If you are an advisor, you are faced with a pretty significant task.  The slide deck prepared by the presenters (from RIA Compliance Consultants) is a guide to some of the material from the webcast, but many additional details were covered, all pointing to the amount of time it’s going to take, especially this first year.  Since the form is now supposed to be in “plain English,” an 83-page SEC handbook (!) of what that means might be a good place to start.

free historical data

It’s amazing what’s available online these days, and if you are the type that likes to have historical data at your fingertips, MarketSci Blog put out a great set of links that you’ll want to save.

a small piece of pie

Thanksgiving is right around the corner, and two years ago I used the imagery of a pie (OK, a pie chart) to think about what a small piece of pie it takes to represent the time and resources devoted to true innovation in product and methods at investment firms.  The relative performance (and relative compensation) game inhibits creativity and progress.  But:  “Today becomes tomorrow, and those who have contemplated how things might change and have taken risks can accomplish great things.”  It’s too bad that’s not a part of the culture of the business.