Lesson from a headline, "A 30-Year Treasury Bond: Probably One of the Most Dangerous Investments You Could Make"

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“A 30-Year Treasury Bond:  Probably One of the Most Dangerous Investments You Could Make” is a great headline. It’s also a great topic.

Why? Because it challenges the average person’s idea of what’s a safe investment. Turning a common idea on its head will attract readers. In this case, it will also do them a service by explaining the downside of investing in 30-year Treasuries.

Kudos to RegentAtlantic Capital for an excellent headline and story idea for their recent press release.

Pick young, small hedge funds for better returns?

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If you face a choice between two hedge funds with equally attractive performance records, you should pick the younger, smaller fund.

At least, that’s what I took away from “Hedge Fund Performance Persistence: A New Approach,” an article by Nicole M. Boyson, an assistant professor of finance at Northeastern University, in the Nov./Dec. 2008 issue of the Financial Analysts Journal (CFA Institute membership or other payment required for online access).

Here’s how Boyson put it: “by selecting funds on the basis of fund age and fund size in addition to past performance, investors can substantially improve the likelihood of superior performance over a selection process based on past performance alone.”

Funds with good track records may eventually underperform, she wrote, because “At some point, these funds will grow so large that the fund manager’s skills will be spread too thin and/or the fund’s trades will have a larger price impact and higher transaction costs than previously–both of which compromise the fund’s performance.”

Boyson found that “A portfolio of young, small, good past performers outperformed a portfolio of old, large, poor past performers by nearly 10 percentage points per year.”

I wish she’d shared how the performance of the young, small, good performers compared to the good performers among the old, large funds.

Access 342 hiring investment research analysts, says Integrity Research

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Access 342, a new kind of investment research firm, is hiring research analysts, according to Integrity Research’s “Who is Hiring in the Current Environment?“

That’s the good news.

The bad news: not many analysts will fit the Access 342 mold. The bar to entry is high. You must be “identified as highly valuable by the buy-side themselves.” 

Also, you’ve got to be willing to risk working for a relatively young firm.

Dan Ariely on "The Financial Markets and the Neurospsychology of Trust"

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Individuals have lost their trust in financial institutions, says Dan Ariely in “The Financial Markets and the Neurospsychology of Trust.”

Everyone knows that. But Ariely also asserts that our stock market problems can’t be resolved until trust is restored–something that  bailout efforts don’t address. 

Ariely says:

I don’t have much faith in the legislation, but I hope that one of the banks will decide to step out of the herd and be the good guy–eliminating conflict of interests and creating complete transparency.

Ariely is the author of Predictably Irrational.

"Female Fund Managers Make Strides," according to Morningstar

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Today women make up 12% of the managers of the 200 largest mutual funds, according to “Female Fund Managers Make Strides,” a Dec. 1 Morningstar article.

Twelve percent may not sound like much, but that’s up 50% from 1998. 

On the other hand, as the article notes, women make up 19% of active CFA charterholders. “it seems reasonable to think that the percent at the biggest funds should lag the CFA charterholders figure by a few years.” Do you agree? 

Related post: “The Testosterone Factor in Mutual Funds“

Will a coupon spur investment management referrals?

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An investment manager recently sent me an email newsletter with a 25% off coupon.

Here’s what the coupon said:

SAVE 25%                                                                     A reminder that as a thank you to our valued clients, those who refer a new managed account relationship to COMPANY NAME will qualify for a credit of one quarter’s management fee.  Please call us for further details about this program.

If you were a client, would this motivate you to make a referral?

"Alternative Careers for CFA Charterholders" on Jan. 14

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I’m one of four panelists presenting to the Boston Security Analysts Society (BSAS) on “Alternative Careers for CFA Charterholders” on January 14.

Among the four of us, we have experience as a due diligence analyst, treasurer, investment technology salesperson, consultant, and writer. We’ll help you understand what each job involves and how you can target your job hunt.

In addition to my role as panelist, I’m a member of the group planning career development events for the BSAS. So, I’m interested in your ideas for other career-related events for CFA charterholders.

Please join us on January 14 if you’d like to learn more about alternative careers.

"Dan Fuss: The 50-Year Opportunity in Bonds"

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Opportunities in the bond market are as attractive now as they have been in at least 50 years, according to Dan Fuss, vice chairman of Loomis, Sayles & Company. He spoke on “The Bond Market Outlook” to the Boston Security Analysts Society on November 24. Fuss co-manages numerous institutional accounts, the Loomis Sayles Bond Fund, and the Loomis Sayles Strategic Income Fund.

What kind of bonds does Fuss like–and why? Read my article, “Dan Fuss: The 50-Year Opportunity in Bonds,” in Advisor Perspectives. 

Investing in strangers’ human capital

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Family wealth advisors say you should invest in your family’s human capital. But what about investing in the human capital of strangers?

The “human capital contract” is coming to the U.S., according to “Betting on Bob” in today’s Boston Globe. How does it work? Writer Rebecca Tuhus-Dubrow explained that “…investors agree to cover the costs of college or graduate school in return for a percentage of the students’ future earnings over a fixed period of time.”

A U.S. company called My Rich Uncle tried, and then abandoned this approach, wrote Tuhus-Dubrow. Human capital contracts have been used outside the U.S. by Lumni, which is starting to apply it here, and Career Concepts of Germany.

According to “Popping the Tuition Bubble,” an article published on the American Enterprise Institute’s website by Frederick Hess and Kevin Carey, “…the smart money would go hunting for bigger returns at less expensive colleges that add great value. After all, other things equal, an investor fares much better by lending a student $48,000 over four years and collecting 4 percent of his or her future earnings than by lending that student $180,000 and collecting the same 4 percent.”

Human capital contracts could help students in this economic crunch. But do they make sense as an investment? What do you think? Please leave a comment.

Build your team–and your client base–with book clubs

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You can train your staff using a book club, suggests Kirk Hulett of Securities America Inc. in “Move Over Oprah,” published in Practice Management Solutions (Nov./Dec. 2008).

Hulett got me thinking. How about running a financial book club for your clients or prospects? It could deepen your relationship with them as you learn more about what makes them tick.