In the quest for smart investment strategies, the role of asset allocation is pivotal. In his book, ANTs: Using Alternative and Non-Traditional Investments to Allocate Your Assets in an Uncertain World
By Dr. Bob Froehlich
Excerpt via publisher, John Wiley, the author provides valuable insights into how a substantial portion of a portfolio’s performance is influenced primarily by the proportion of funds allocated to stocks, bonds, and a growing range of alternative and non-traditional assets. While investor selections within these categories contribute to overall performance, their impact is secondary. This book guides readers in determining the optimal allocation of approximately 90 percent of a portfolio towards alternative and non-traditional asset classes.
Traditionally, individual investors have focused largely on the “big three” asset classes: stocks, bonds, and cash, largely due to limited options. However, this landscape is evolving, enabling individuals to invest alongside large institutional players by diversifying into alternative and non-traditional asset classes.
Consider the federal government as a colossal corporation. Mary Meeker attempts to analyze this comparison in her comprehensive report, “USA Inc.,” which spans 266 pages. She posits that by evaluating the government’s financial situation as a business, we can gain insights into our nation’s fiscal challenges and forecasts. Meeker, a partner at KPCB and former financial analyst at Morgan Stanley, concludes that “USA Inc.’s financials are discouraging” when scrutinized against any public corporation’s standards. For those interested in a closer look, the PDF is available for download; a hard copy can also be purchased here
The recent revision of fourth-quarter GDP growth has brought discouraging news. As reported by the U.S. Bureau of Economic Analysis here, the growth was less robust than previously thought—a critical detail as the economy gears up to face potential shocks from rising oil prices due to turmoil in the Middle East.
Rising Oil Prices Pose New Threat to U.S. Economy
New York Times/Feb 24
Oil prices surged over 10 percent recently, surpassing $100 per barrel. Dean Maki, chief economist at Barclays Capital, warns that a sustained $10 per barrel increase could reduce U.S. economic growth by approximately two-tenths of a percentage point. The Federal Reserve had previously predicted growth of 3.4 to 3.9 percent for 2011, a notable increase from the 2.9 percent observed last year.
Calibrating the Macro Effects of Higher Oil Prices: Results from the MA Model
Macroadvisers/Feb 24
Assuming consistent long-term inflation expectations, monetary policy, and financial-market stability, our simulations indicate that a $10 increase in oil prices for a year starting in Q1 2011 would:
• Reduce GDP growth by approximately 0.3 percentage points in the first half of the year and 0.2 percentage points overall.
• Headline PCE inflation could rise by about 0.1 percentage points, and the unemployment rate may also increase by a similar margin.
Though January was a challenging month for various sectors, it appears that durable goods manufacturing showed a glimmer of hope. New orders for manufactured durable goods increased by 2.7% on a seasonally adjusted basis in January, marking the highest monthly increase since last September. However, the robust headline figure may mask some underlying complexities.
In the latest round of jobless claims, there is a flicker of optimism, though it may not last. Recent fluctuations in the claims data have often led to premature excitement about recovery in job growth. Last week, new unemployment benefit claims dropped to 391,000, the lowest figure since summer 2008, as reported by the Labor Department here. Nonetheless, just as the labor market seemed to be gaining momentum, the escalating situation in Libya and the consequent surge in oil prices cast a pall over these promising indicators.
The RAFI US 1000 ETF (PRF)—the original exchange-traded fund focused on “fundamental indexing”—has recently marked its fifth anniversary, and its performance has been commendable. Since its inception in December 2005, the fund has consistently outpaced traditional benchmarks like the S&P 500 and Russell 1000. The success of fundamental indexing, as demonstrated by Rob Arnott’s designs at Research Affiliates, suggests that there is merit in this innovative investment approach.
The political unrest in Libya has driven oil prices to a 28-month high. Typically, such surges in crude prices evoke concerns about soaring inflation, a sentiment echoed once again as market reactions unfold.
Oil Rises to Highest Since 2008 as Libya Unrest Stokes Concern
Bloomberg/Feb 21
Oil prices have surged to their highest in over two years in London, driven by escalating violence in Libya and concerns that the unrest will disrupt supply throughout the Middle East and North Africa. “With Libya producing 1.5 to 1.6 million barrels a day, any instability raises alarms,” commented Andrey Kryuchenkov from VTB Capital. “As long as the situation remains unsettled, prices will likely remain elevated.”
Crude Near 28-Month Highs On Libyan Supply Cuts
Dow Jones Newswires/Feb 22
“Libya is the first significant oil exporter caught in the crisis, which may have doubled the risk premium on oil prices to around $10/barrel,” stated consultancy Capital Economics.
If you view climate change as a pressing issue, it’s crucial that your asset allocation strategy reflects this belief. According to a new study from Mercer, the consulting firm, it’s time to scrutinize how climate change impacts investment strategies. Given the contentious nature of climate-related topics, this recommendation could spark debate. Mercer elaborates on this subject in their report titled “Climate Change Scenarios—Implications For Strategic Asset Allocation”.