28 February 2011

High fees hamper traget-date funds

The importance of keeping a close watch on fees that are paid for investment advice is illustrated by the latest controversy about the idea of so-called 'target date' funds. These funds invest in a mix of stocks and bonds that grows steadily more conservative as investors' retirement—or "target"—date approaches. But while this structure is supposed to help investors saving for their retirement it creates additional pitfalls on the already stony road to build a retirement pot that is sufficiently large to cover the needs of a rapidly-aging population.

27 February 2011

Hedge Fund Manager accused by SEC

Florian Homm, once a high-flying hedge fund manager in Germany, is accused by the SEC of having manipulated share prices. A prominent German news magazine claims that losses of up to US$ 200 million remain unexplained. Good looks and a good talk should never be the basis for entrusting one's hard-earned money to an investment manager.

21 February 2011

IMF proposes new 'virtual currency'

Investors should be prepared for the next global conspiracy of the 'global elites' that is intended to confiscate their assets. Recently the IMF proposed a significant expansion of the SDR scheme. At a time when the world drowns in liquidity this is the last thing that anyone interested in stable currency value would wish for.

19 February 2011

Gold purchasers to be registered - first step to expropriation?

If you have still any trust in governments then think again and read this article

How not to rank financial advisers

A survey in Barron's Magazine ranks the top US financial advisers. Assets under management are the first - and we presume most important - measure mentioned in the article. At Private Banking Advisory we would rate the Financial Advisers according to performance first, second and third. It is a tragedy for investors that assets under management seem to be the most important criteria in this 'survey'. The importance of independent and unbiased advice regarding performance, risk and costs are strikingly illustrated by this approach

Bundesbank loses last sensible bullwark against Inflationists

Axel Weber's resignation from the top of the German Bundesbank leaves the world adrift in a sea of paper money that irresponsible politicians and their puppets at the helm of the main central banks use to paper over the cracks of their incompetent economic policies. Gold, Silver and other hard assets may have reached record highs but given this sad political backdrop a change in flight to safety is not in sight.

16 February 2011

Is Gold a Hedge against Inflation?

I notice today that in an interview an asset manager stated that Gold was not suitable as a hedge against inflation. The manager - let him remain unnamed - picked the year 1980 when Gold reached a temporary all-time high of more than $US 800 as the base period and claimed that in real terms even Gold at its current price of around $ 1350 has not held its ground against inflation. But you can prove anything with statistics. If the comparison were made with the price of $US 35 on which the price was fixed by the US Government until the early 1970s the comparison would be very different. A look back to 1792 shows that gold more than held its own in real terms since then.

15 February 2011

Gold: the safest asset

The hectic search for the presumed wealth that Egypt's former President Hosni Mubarak is supposed to have stashed away highlights the importance of not only putting some assets into safe havens but also to select the right asset. Assets that are claims or liabilities on other countries or are stored electronically cannot be considered safe under all conceivable circumstances. While we have sympathy for the quest for Mubaraks assets it leaves a sour taste as no proper legal procedure seems to have been followed. Authorities in some countries seem to be driven by political correctness and it is obvious that they will be the willing executioners if other countries want to bring assets of their citizens under control. Gold is one asset that will be very difficult to trace. Its compactness means that is requires little storage space, it is neither an asset nor a liability and given proper attention can easily be stored in a safe place.

12 February 2011

Capital Controls coming to the US?

We are not yet in the camp of the panic mongers who frighten Americans but we are continuously advising investors to make sure that they don't put all their investment apples into the same basket. Keep a fair share of your wealth beyond the reach of local politicians and tax authorities. Then you will be prepared to most eventualities.

Diversify your assets - also geographically!

The history of the past 100 plus years has provided ample illustration for the fact that even the mightiest empires may fall. So any investor is well advised to plan for the worst case scenario - however unlikely it may appear at the moment. The costs of doing so are very moderate in comparison with the potential gain: to have a nest egg to fall back on if one has to leave one's country because of political turmoil. As geographical diversification of assets provides a benefit in any case the investor in effect is incentivised to put some - or the larger part - of his assets beyond the reach of the authorities in his homeland.

9 February 2011

UCITS III Hedge Funds - don't be blinded by the label

Ordinary investors already have enough trouble understanding what hedge funds do, how they are structured and what risks they face when investing in them. So the well-meaning improvement in transparency that regulators and their political pay-masters have intended by releasing the new UCITS III regulations may well be lost on ordinary mortals. But the danger is that a new label can blind investors to the still substantial risks hidden in hedge fund structures as these funds are more lightly regulated than ordinary investment funds. The recommendation by market insiders that investors just have to be more careful and do more analysis of risks is missing the point as the recipients of the advice are simply not able to do this sort of analysis. Using advisers instead just means pushing the can down the road as one risk is substituted by another one: now the investor is supposed to know which adviser to select and basically to put his trust in him and hope for the best.

8 February 2011

Investors awake and look after your interests!

'Price competition is largely absent from the (retail) financial services sector' writes Pauline Skypala, Editor of the FTfm Magazine (31 Jan 2011). She blames information asymmetry and lack of consumer engagement for this state of affairs. While we cannot expect all investors to attend university and learn about the most recent financial product innovations they can try to find outside help to defend their interests when dealing with financial advisers. High fees - not to mention risky investment strategies - present a serious drag on investment performance that can be reduced - if not eliminated - by careful analysis of fees, investment risk and performance statistics.

ETF transparency could be better

'Pressure growing for greater transparency' reads a headline in the Financial Times (7 Feb 2011). What is particularly worrying - among some other aspects - is that ETFs are not bound by trading rules that apply to single shares. Neither completed trades nor bid-offer prices have to be reported and investors are to a certain amount kept at a disadvantage vis-a-vis the market makers. As a consequence extra care has to be taken when dealing in ETFs.

Swaps pose new risk for your investment funds

Just when Private Investors would have hoped that a new, more rigorous regulatory regime would protect their assets from careless oversight - or outright fraud - the growing use of swaps by investment managers poses a new risk for the safety of investments. Most Private Investors - and many investment professionals and finance managers - have only the haziest of notions when it comes to the intricacies of swaps (and many other derivatives or 'structured' products) and therefore investors are well advised to obtain help when selecting suitable investment products.

7 February 2011

Which 'Passport' does your Fund carry?

A recent headline suggests that 'Dublin finds hedge fund favour'. (Financial Times, 17 Jan 2011). This aroused my interest as Ireland at present is in the eye of the ongoing banking storm. Proposed EU legislation currently under (endless) discussion will require that alternative investment funds are domiciled inside an EU member state. This is supposed to make it safer for investors to entrust their savings to hedge funds, private equity and other 'alternative' investment funds. But one has to wonder what would really change if a fund is domiciled in one of the smaller EU member states like Ireland, Luxembourg - or even Latvia or Malta. Would investors really be as well protected as in a major country like Britain, France or Germany? What resources do smaller countries have devoted to the supervision of investment funds? Ireland is now home to around 650 hedge funds, tendency rising. What guarantee do investors have if there is a major accident such as the Madoff Scandal where billions of dollars have been squirrelled away by fraudsters under the eye of the regulators? Can investors expect to be made good by the authorities in these countries? Do the regulations even pretend to offer a money-back guarantee in case of fraud or are they just a way for politicians to score cheap points with the electorate and create even more pointless paperwork for businesses?

Media Pundits: Enjoy Experts with Care

The proliferation of news outlets that operate 24 hours a day has led to the need to fill the airspace with constant comment on all markets. Investors should be careful not to confuse the permanent noise on the airwaves and the internet with advice. By all means, enjoy the entertainment and sometimes you may also find a new and useful insight that you can incorporate into your investment analysis. But be aware that the track record of most 'experts' is often less than transparent. Who really knows how the recommendations of the past have performed? Who is being warned when the expert changes his view or adjusts his own personal positions? Nouriel Roubini, Jim Cramer or Mark Faber may talk a good talk but it is not easy - or possible at all - to monitor their track record and when they change their view you may be the last person to hear about it.

'Quant' Investing not without pitfalls

A unit of French insurer AXA agreed to pay $242 million to settle fraud accusations by the SEC that it hid from clients a serious software glitch in a quantitative investment model (Wall Street Journal, 4 Feb 2011)

Are you watching your 'executions'?

No, we are not talking about people being shot, but in this context one could say that investors might get executed, not literally of course, but in the sense that the size of their portfolios gets 'executed'. A lawsuit filed against a prominent investment management firm in the United States illustrates that investors have to be on their guard and carefully monitor not only the investment allocations made by their advisers but also the way that the investments are implemented. The expenses connected with 'executing' investments can be a serious drag on investment performance - even if all deals are above board.

6 February 2011

Should you listen to Investment Research

The fate of a brave and insightful bank analyst who correctly predicted the problems of the Irish banking industry should be a warning sign for any investor who puts his faith into 'sell side' research. While most analysts are diligent and honest investors should never forget that reports published by stockbrokers are sales documents first, objective analysis second.

Are all private investors idiots?

That seems to be the assumption under which regulators in the EU and FSA publish a raft of consultation documents, guidance notes and draft new laws argues Matthew Vincent in the Financial Times. I would like to add that these diktats lack any democratic legitimacy as they are cooked out by unaccountable technocrats and bureaucrats that are not answerable to the citizens.

4 February 2011

Bank Advisers degraded - Study

A study published in Germany states that advisers working for banks have very little ability to perform their fiduciary duties vis-a-vis their clients. They have been degraded to be pure salesmen (or women), every second client contact is expected to lead to a 'sale' and meetings with clients should not last longer than thirty minutes. We can only hope that not all financial institutions adhere to the same school of management but would advise investors to be careful in their contact with financial advisers and take independent advice before entrusting their savings to any provider of asset management services.

3 February 2011

Facebook Share Issue: Where are global regulators?

One amazing aspect of the Facebook deal that is promoted by Goldman Sachs is the fact that global regulators seem to be completely absent - despite the fact that possible questions by the SEC in the United States stopped the placement to US domestic investors. Given the noise made by politicians in all civilised financial markets all over the world about the need for more protection of investors and savers this silence is really DEAFENING and shows how much regulators are behind the curve.

1 February 2011

Swiss Investment adviser accused of Sfr 34 million fraud

In a Ponzi scheme an investment advisor in Solothurn is accused to have defrauded - mostly German - clients of Sfr 34 million. Prosecutors claim that no funds have ever been invested.