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Stocks edge higher on bank earnings, economic news
By CNNMoney staff @CNNMoneyMarkets January 19, 2012: 12:16 PM ET
NEW YORK (CNNMoney) — U.S. stocks advanced for a third straight session Thursday, as investors welcomed a slew of positive news on both the earnings and economic fronts.
The Dow Jones industrial average (INDU) added 35 points, or 0.3%, the S&P 500 (SPX) rose 7 points, or 0.5%, the Nasdaq composite (COMP) increased 23 points, or 0.9%.
Morgan Stanley (MS, Fortune 500) posted a loss, but it wasn’t as deep as analysts had expected, and shares of the bank surged almost 6%.
“The positive bank results were really unexpected,” said Tyler Vernon, chief investment officer at Bilmore Capital. “The past six months have been a terrible environment for banks, but it looks like things are getting better, which is generally better for the economy, too.”
Meanwhile, the government released an onslaught of economic data, including reports on housing, unemployment claims and inflation. Investors were encouraged as initial jobless claims fell to their lowest level in nearly four years, in another sign of improvement in the long-suffering labor market.
However, concerns that the sharp drop may be one-time blip rather than a start of a new trend kept a lid on gains, said Vernon.
“Traders are concerned about seasonality factors, and worried that claims could return to the status quo over the next coupe of weeks, so they’ll wait to see what happens,” he said.
Is trading dead?
U.S. stocks advanced to finish at six-month highs Wednesday, as investors welcomed the International Monetary Fund plan to boost its bailout fund and contain Europe’s debt crisis.
Investors remain focused on Europe’s crisis this week. Early Thursday, Spanish and French bond auctions drew solid demand, calming some fears about Europe’s ability to fund its debt.
Greek officials will continue talks with the group representing private-sector investors and banks Thursday in an attempt to reach an agreement on the size of the writedown these creditors will take. No accord has yet been announced, but the creditors’ representative says one may come in the days ahead.
World markets: European stocks finished higher. Britain’s FTSE 100 (UKX) ticked up 0.7%, the DAX (DAX) in Germany rose 1% and France’s CAC 40 (CAC40) added 2%.
Asian markets ended notably higher. The Shanghai Composite (SHCOMP) and the Hang Seng (HSI) in Hong Kong both climbed 1.3%, while Japan’s Nikkei (N225) gained 1%.
Economy: The government released December data on inflation, building permits and housing starts, as well as its latest tally of weekly jobless claims.
The Labor Department reported that 352,000 people filed for initial unemployment benefits last week, down sharply from a revised reading of 402,000 claims in the previous week. It is also the fewest number of people filing for jobless claims since the week ending April 19, 2008.
Is Romney’s effective tax rate lower than yours?
Consumer prices held steady last month, largely due to declining gas prices. The government’s key measure of inflation, the Consumer Price Index, showed prices were virtually unchanged from November to December.
The index for items minus food and energy rose 0.1% in December, after rising 0.2% in November.
Housing starts fell 4.1% in December, to an annual rate of 657,000 units. Building permits slipped 0.1% to an annual rate of 679,000.
The Philadelphia Fed Index showed that manufacturing activity continued to improve in January in the mid-Atlantic area, rising to 7.3 from 6.8 in December.
Companies: Bank stocks gained traction in early trading, with shares of Goldman Sachs (GS, Fortune 500) rising more than 2%, a day after the firm reported earnings that beat estimates.
Citigroup (C, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) both filed disappointing results in the past week, while Wells Fargo (WFC, Fortune 500) reported solid earnings.
Eastman Kodak (EK, Fortune 500) filed for Chapter 11 bankruptcy protection Thursday. Once a component of the Dow Jones industrial average, the company was recently trading around 39 cents a share.
UnitedHealth Group (UNH, Fortune 500) reported fourth-quarter earnings that beat forecasts.
Some of the nation’s biggest tech firms will report their corporate results after the closing bell Thursday, including Google (GOOG, Fortune 500), IBM (IBM, Fortune 500), Intel (INTC, Fortune 500) and Microsoft (MSFT, Fortune 500).
Google is expected to post robust earnings of $10.49 a share, up from $8.75 a year earlier. Microsoft’s earnings are expected to remain essentially flat compared to the prior year, at 76 cents a share. IBM’s earnings per share are projected to climb from $4.18 a year earlier to $4.62.
Currencies and commodities: The dollar fell against the euro and British pound, but edged higher against the Japanese yen.
Oil for February delivery added 41 cents to $101 a barrel.
Gold futures for February delivery ticked down $3.90 $1,656 an ounce, losing momentum from earlier gains.
Bonds: The price on the benchmark 10-year U.S. Treasury fell, pushing the yield up to 1.98% from 1.90% late Wednesday. 
First Published: January 19, 2012: 9:39 AM ET
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Taking Charge of Money and Investments in the New Year
Biltmore Capital offers wealth management and financial solutions for life.
- By Euna Kwon Brossman 5:30 am
Taking charge of one’s financial situation ranks right up there with getting in shape as one of the top new year’s resolutions.
Tyler Vernon’s goal is to give his clients the best financial advice he can and give them the peace of mind that comes with knowing they have the time and money to enjoy their families and the good things in life.
Vernon is the founder and chief investment officer at Biltmore Capital Advisors, located on Witherspoon Street in Princeton. Previously, he was a financial advisor at Merrill Lynch for almost a decade and was a vice-president in the private client group.
Just a little over 10 years ago, on 9/11, he was sitting in his office at Merrill Lynch on the 40th floor of the World Financial Center, when he saw the first plane go into the World Trade Center. Because he saw the impact firsthand, he knew immediately just how bad it was. He grabbed his cell phone and wallet, yelled at people to get away from the window, and then ran outside. He made it onto the last ferry from the World Financial Center to Hoboken before the second plane hit.
Merrill Lynch relocated Vernon to the office in Livingston in Morris County, but about a year later, reopened its financial district location. It was hard returning after 9/11, but there was more to Vernon’s dissatisfaction with working in the Wall Street milieu.
“I was starting to see some of the things now evident in hindsight and many of the large firms imploded for various reasons,” he said. “I saw the conflicts of interest and how sometimes what was right for the client wasn’t what was right for the firm. I decided that if you always put client interest first, it would be a much better platform and revenues would follow.”
In 2007 after years of thinking about it, he and his wife, Molly, decided to move out of New York City. Compounding their desire to leave the city was the birth of their first child.
“Molly and I both grew up on farms and we both knew we did not want to raise our own children in a big city,” Vernon said. “Having grown up in Princeton, Molly still had a lot of connections here and we decided it was the perfect place to raise our family.”
It was also the perfect place for them both to pursue their entrepreneurial dreams. His wife owns Luxaby Baby and Child, a clothing store in Palmer Square, and he set up shop with his own independent financial services firm.
“Because we are independent, we can shop around and find the best products from all different firms and decide what best suits our clients needs,” Vernon said. “We saw the value of what we were building with an independent structure and environment.”
Besides financial advice, Vernon thinks outside the box and offer services not ordinarily offered by traditional firms.
“We understand that money is valuable but time with family is also precious and limited, which is why we try to make our clients’ lives more simple with something we call the Biltmore concierge,” Vernon said. “For example, you can call and have a gift wrapped and mailed out or let us know that your car needs to be serviced and we can do that.”
Vernon believes in having a close relationship with his clients and to have meaningful conversations to understand their real goals.
“What are you trying to achieve? What do you really need in retirement? What is going to let you sleep at night? These are the kinds of questions that help us understand what our clients’ needs are,” Vernon said. “Maybe our client is awake at 2 a.m. because of worries about an elderly mother. For some people, it’s the ability to help other family members; for others it’s the ability to live a certain type of lifestyle. Ninety percent of clients will tell me that family time is one of the best investments you can make.”
Vernon’s own life reflects that same sense of priority, and one of the things he loves about his job is that it’s close enough to home that he can take his two daughters to school every day at Stuart Country Day School of the Sacred Heart.
“We love to sing and we love the Beatles, so we blast Yellow Submarine on the way to school,” he said. “I know how long it takes to get to school by how many times we play Yellow Submarine and that’s three and half times.”
His wife, who also went to Stuart, is on the school’s board and Vernon serves on the board of Trinity Counseling Service in Princeton.
Although Biltmore Capital serves a national clientele and also has offices in Atlanta and Dallas, Vernon loves the idea of being the hometown financial advisor for Princeton and he’s thrilled that Biltmore Capital is growing locally.
“Clients who know we are here stop by and we have people who have been
referring some of their friends,” he said. “The best reputations spread by word of mouth and we want people to know we are here and looking out for them.”
It helps that Vernon has been a spokesman in the financial services industry and his firm has received media coverage on CNBC, the Wall Street Journal and the Fox Business Report, among others. He is often tapped to serve as a guest analyst on the business news broadcasts, especially when there is breaking news in the financial sector.
But Vernon’s main priority is his firm’s clients and managing and growing their assets even in these tough economic times.
“Our big value-add is to take dependence on the stock market out of the equation, given the high level of volatility there over the last few years,” he explained.
Vernon believes that with the roller coaster economy, many people are in positions where they need to take a good look at their money and put their financial house in order no matter how painful that may be.
“A lot of people have been nervous about opening their statements because they are so worried about what has been going on with the wildly fluctuating markets,” he said.
“People who were laid off may have their 401ks floating around, without a proper strategy for rolling them over and maximizing their opportunities,” he said. “So our job is to say ‘let’s get eyes on this’ and ask is there anything you should be doing differently. And January is a great month to do that. Our goal is for our clients to leave here saying, ‘their service was impeccable, they really do have a different approach to handling assets; nobody else is like that.’”
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Stocks End Mixed; Fed Urges Action on Housing
By Kaitlyn Kiernan 
01/04/12 – 04:20 PM EST
NEW YORK (TheStreet) — The Dow Jones Industrial Average shot into positive territory Wednesday as commentary from the Federal Reserve on plans to shore up the U.S. housing market overshadowed European debt crisis concerns.
The Dow rose 21 points, or 0.2%, to close at 12,418, after falling 0.5% earlier in the day. The S&P 500 climbed less than a point to 1,277, while the Nasdaq slid less than a point to 2,648.
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The turn higher came after the central bank sent a white paper to Congress calling for the federal government to take more action to stabilize the still-floundering U.S. housing market. The paper suggests “redeploying foreclosed homes as rental properties” as a possibility for combating an expected flood of foreclosures hitting the market and prompting another pricing swoon.
“Continued weakness in the housing market poses a significant barrier to a more vigorous economic recovery,” the paper said. In a letter to lawmakers on the Senate Banking and House Financial Services committees, Fed chairman Ben Bernanke wrote, “Restoring the health of the housing market is a necessary part of a broader strategy for economic recovery.”
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2012 Stock Predictions and Outlook
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| Your one-stop shop for 2012 stock recommendations and market predictions. |
Concerns about Europe’s sovereign debt crisis resurfaced Wednesday with early declines underlined by fresh worries that the situation in Spain is worsening. The Iberian country is considering applying for loans from the eurozone bailout fund and the International Monetary Fund to help the restructuring of its banking industry, the Spanish newspaper Expansion reported, citing anonymous sources.
Also, overnight deposits of commercial lenders hit a record high at the European Central Bank, suggesting that Europe’s banks remain incredibly cautious about lending to each other. Shares of UniCredit, Italy’s largest bank, sank 14.5% after the lender said it will sell $9.8 billion worth of new shares to boost capital.
Investors are also sensitive to rising borrowing costs in the eurozone with a France holding a bond auction on Thursday, and Italy and Spain about to sell debt next week.
Germany’s DAX lost 0.89% while London’s FTSE was down 0.55%. Overnight, Japan’s Nikkei Average settled 1.24% higher, and Hong Kong’s Hang Seng was down 0.8%.
“We are holding very neutral until we get some better volume trading and a better sense of what investors are going to do,” said David Ader, rates strategist at CRT Capital Group. “On the surface we have mixed to bearish technicals, better data and some degree of calm in Europe.”
The U.S., however, received another piece of positive economic data. The Commerce Department reported that U.S. factory orders rose 1.8% in November after a 0.4% fall in October, slightly beating the 1.7% forecast of economists polled by Thomson Reuters. Meanwhile, General Motors(GM_), Ford Motor(F_) and Chrysler Group beat analysts’ estimates for December car sales, with sales getting a boost from increasing consumer confidence and ads around the holiday season.
GM said that its December sales rose 5%, led by a 9% gain at Chevrolet. For the full year, GM sales rose 14%, to more than 2.5 million vehicles, and GM gained market share. Ford said that its car sales rose 10% last month and 11% for the year. Meanwhile, Chrysler’s sales jumped 37% in December. GM traded 0.5% higher while shares of Ford rose 1.5% on Wednesday.
In other corporate news, Yahoo!(YHOO_) tapped PayPal President Scott Thompson, who runs eBay’s (EBAY_) online payments unit. Yahoo! had been without a permanent CEO since firing Carol Bartz in September. Shares fell 3.1% to $15.78.
A big mover in afternoon trades was Eastman Kodak(EK_) following a report that the 132-year old company is preparing to file for bankruptcy in the “coming weeks if it fails to sell its patents. The report from The Wall Street Journal, which cited anonymous sources, comes after months of speculation that the company was preparing to take this step. Kodak shares tumbled 28% to 47 cents.
Jefferies Group’s(JEF_) executives and other employees at the company’s prime-brokerage unit threatened to leave the firm in a dispute over issues including a recent restructuring and year-end compensation, The Wall Street Journal reported, citing people familiar with the matter.
Jefferies executives and its global head of prime brokerage, Glen Dailey, reportedly held meetings Tuesday to discuss the issues but Dailey said that no one was leaving, adding that the “family affairs are now in order.” Jefferies in recent weeks has seen its stock under attack over its European exposure. Shares slipped 2.6% to $13.64.
Acme Packet(APKT_), a networking-equipment maker, lowered its outlook for the fourth quarter. The company, whose products include both hardware and software, now sees non-GAAP earnings of 26 cents to 28 cents a share for the three months ended Dec. 31 on revenue ranging from $84 million to $86 million. The current average estimate of analysts polled by Thomson Reuters is for a profit of 37 cents a share in the quarter on revenue of $93.4 million. Shares plunged 19% to $25.70.
With most of the day’s trading in negative territory stocks barely hung on to Tuesday’s strong New Year’s rally, which saw the S&P 500 index finish at its highest level since late October. The Dow, up 1.5%, closed at its highest since July 2011.
Analysts think that the S&P 500 will gain 6.6% by the year’s end, compared with a flat finish for 2011, according to polls by Reuters. Investors are now looking carefully at how stocks perform the first days into the new year, as track records show that positive momentum in January often translates into a bullish year overall.
“Transports and technology stocks could help the market in the beginning of the year,” noted Tim Ralph, portfolio manager at Biltmore Capital Advisors. Both sectors benefited from online shopping in the holiday, explained Ralph. “We could see strength here later this month and in early February.”
February oil futures settled up 26 cents to $103.25 a barrel, while February gold futures gained $12.20 at $1611.90.
The dollar index was up 0.5%. The benchmark 10-year Treasury was down 12/32, pushing the yield to 1.991%.
– Written by Kaitlyn Kiernan in New York.
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Stocks trim gains on euro jitters
By Hibah Yousuf @CNNMoneyMarketsDecember 13, 2011: 11:55 AM ET
NEW YORK (CNNMoney) — U.S. stocks pared earlier gains Tuesday following reports that German Chancellor Angela Merkel rejected the idea of increasing Europe’s bailout fund.
At midday, the Dow Jones industrial average (INDU) was up just 59 points, or 0.5%, and the S&P 500 (SPX) gained 5 points, or 0.4%. The Nasdaq briefly drifted into the red, but recovered to rise 2 points, or 0.1%. All the major indexes started the day about 1% higher.
The pullback came after a Dow Jones report said that Merkel has rejected suggestions to raise the funding limit for the European Stability Mechanism, or ESM, which currently stands at €500 billion. The fund goes into effect next year and may run alongside the €440 billion European Financial Stability Facility.
U.S. stocks started the day with solid gains thanks to an initial void of bad news out of Europe. Though political leaders have been taking steps toward a resolution for the region’s debt problems, the details have yet to be worked out.
“All eyes are still on Europe,” said Tim Ralph, portfolio manager at Biltmore Capital. Official meetings and statements will be minimal as the year come’s to a close, but Ralph said that the market remains vulnerable to headline risks.
Investors are on watch for possible downgrades on European country credit ratings from Standard and Poor’s, which warned last week that it may strip some of Europe’s biggest economies, like Germany and France, of their AAA-rating.
Investors are also waiting to hear what the Federal Reserve will say at the end of its policy-making meeting.
U.S. stocks tumbled in a broad sell-off Monday, amid growing investor doubt that Europe’s debt crisis will be resolved, and a sales warning from chipmaker Intel.
Europe debt saga far from over
World markets: European stocks finished mixed. Britain’s FTSE 100 (UKX) ticked up 1%, while the DAX (DAX) in Germany fell 0.3% and France’s CAC 40 (CAC40) edged down 0.8%.
Asian markets ended lower. The Shanghai Composite (SHCOMP) lost 1.9%, the Hang Seng (HSI) in Hong Kong shed 0.7% and Japan’s Nikkei (N225) declined 1.2%.
Companies: Former MF Global (MFGLQ) CEO Jon Corzine is back to testify before Congress Tuesday, this time flanked by two former colleagues from the brokerage’s parent company, MF Global Holdings: Chief operating officer Bradley Abelow and chief financial officer Henri Steenkamp.
Seeking shelter in FDIC banks
Shares of electronics retailer Best Buy (BBY, Fortune 500) got slammed after the company reported earnings that fell far short of forecasts.
Intel warned that it will badly miss its sales forecast for the current quarter on Monday, because of the worldwide hard drive shortage caused by massive floods in Thailand. Shares of Intel (INTC, Fortune 500) dropped nearly 4% in trading Monday, and continued to slip on Tuesday.
Will Verizon Buy Netlix?
Netflix’s (NFLX) continued to rise, on chatter that the company could be acquired by Verizon (VZ, Fortune 500). On Monday, a spokesman for Netflix said the company doesn’t comment on speculation.
Economy: Retail sales for the month of November rose 0.2%, which was lower than expected, according to the U.S. Commerce Department. But the disappointing report had little impact.
Sales were expected to have increased by 0.6%, after a 0.5% increase the month prior.
Investors are also awaiting news from the Federal Reserve, which is expected to hold interest rates at 0.25% for the month of December.
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Stocks slide on Europe, China worries
By Blake Ellis and Hibah Yousuf @CNNMoneyMarkets
November 23, 2011: 12:37 PM ET
NEW YORK (CNNMoney) –
U.S. stocks slid deep in the red Wednesday, as eurozone fears rumbled on and a preliminary report showed that Chinese manufacturing slowed sharply.
An lackluster report on the U.S. job market added to the gloomy mood on Wall Street.
“You have a trifecta here — people may or may not be overreacting, but these are the things they are worrying about” said Tim Ralph, vice president at Biltmore Capital Advisors. “When you look at the U.S. you can see some signs of strength, but we’re going to continue to be shocked by the headlines from overseas.”
The Dow Jones industrial average (INDU) dropped 180 points, or 1.6%. The selling was broad, with all 30 components of the blue chip index losing ground. The S&P 500 (SPX) dropped 20 points, or 1.7%, and the Nasdaq (COMP) lost 47 points, or 1.9%.
Investors were rattled by a disappointing auction of German bonds. The debt of Europe’s largest and most healthy economy is often considered the gold standard of eurozone sovereign debt, and yields have managed to hold near record lows. But the dismal auction results raise concerns.
“The poor German auction plays to the grain that foreign investors are shying away from [eurozone] denominated bonds all together,” BNP Paribas said in a research note. “There are growing signs that the contagion from peripheral bond markets is moving to the core.”
Europe ups ante on eurobonds
The European Commission published a green paper on stability bonds Wednesday to help allay those worries, outlining proposals to fix the eurozone’s debt crisis. However, skepticism remains about how effective these plans will be.
Meanwhile, Chinese manufacturing activity fell to a 32-month low, heightening fears that the eurozone’s problems are spreading beyond Europe and added to worries about a global economic slowdown.
In the U.S., unemployment insurance claims ticked higher during the latest week, and the savings rate rose, meaning that consumers might be putting a break on spending.
Stocks have taken a downward turn in recent sessions, as rising bond yields in Italy and Spain continue to shake investor confidence.
IMF broadens lending power
Stocks ended in the red Tuesday amid worries about U.S. economic growth, though losses were trimmed after the International Monetary Fund unveiled a beefed-up lending program to help otherwise healthy countries with short-term financing problems.
World markets: European stocks closed sharply lower. Britain’s FTSE 100 (UKX) slipped 1.3%, the DAX (DAX) in Germany ticked down 1.4% and France’s CAC 40 (CAC40) slid 1.7%.
Asian markets ended in the red, after the report that showed Chinese manufacturing output fell to the lowest level since March 2009.
The Shanghai Composite (SHCOMP) ended the session 0.7% lower and the Hang Seng (HSI) in Hong Kong tumbled 2.1%. Japanese markets were closed Wednesday for holiday.
Economy: The government released several economic reports Wednesday including jobless claims, personal spending and income, and durable goods.
The number of people filing for initial unemployment benefits rose 2,000 in the latest week to 393,000. Analysts surveyed by Briefing.com expected 391,000 jobless claims for the week ending November 19.
What Congress has done to fix the economy (Hint: Nothing)
Personal income climbed 0.4% in October, while personal spending grew 0.1%. Analysts had expected both measures to rise 0.3%.
Meanwhile, orders of durable goods slipped 0.7% in October — slightly less than the 0.9% drop economists had been expecting.
Companies: Bank of America (BAC, Fortune 500) shares slid 4%, and briefly touched the lowest level since March 2009, after a report in The Wall Street Journal on Tuesday stated the bank was having difficulty meeting U.S. financial regulatory requirements.
Late Tuesday, the Federal Reserve also ordered the top 31 U.S. banks — with assets of $50 billion or more — to participate in stress tests that will simulate another financial crisis.
Tests will simulate a more severe global financial meltdown for six banks with the largest trading operations: Bank of America, Goldman Sachs (GS, Fortune 500), Citigroup (C, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Morgan Stanley (MS, Fortune 500) and Wells Fargo (WFC, Fortune 500).
Shares of many of those financial giants took a hit Wednesday. JPMorgan Chase, Citi and Morgan Stanley shares all dropped more than 2%.
Shares of Groupon (GRPN) tumbled 14%, to $17.20 a share — well below its initial public offering price of $20. The Internet deal site’s stock has been pummeled this week — along with other newly public startups like LinkedIn — on renewed dot-com bubble concerns and worries of overvaluation.
John Deere (DE, Fortune 500) reported full-year earnings that hit a record $2.8 billion, and posted fourth-quarter net income that blew past expectations. Shares of the equipment maker climbed more than 3%, making it one of the strongest performers in the S&P 500.
Currencies and commodities: The dollar gained against the euro, the British pound and the Japanese yen.
Oil for January delivery slipped $1.53 to $96.48 a barrel.
Gold futures for December delivery fell $13.20 to $1,689.20 an ounce.
Bonds: The price on the benchmark 10-year U.S. Treasury edged slightly lower, pushing the yield up to 1.95% from 1.94% late Tuesday
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Investing in Volatility, to Cash In or to Hedge Bets
By PAUL SULLIVAN
Published: August 12, 2011
THE stock market in the last week has been the very definition of volatile, up one day, down the next, then up again the day after.
Laura Pedrick for The New York Times
“They’re having flashbacks to 2008 at this point, so that’s not a bad deal,” said Tyler Vernon, chief investment officer of Biltmore Capital Advisors, about a strategy that limits gains and risk.
But while most investors care about volatility only when markets go down and their portfolio loses value, volatility works both ways. And smart investors are figuring out ways to smooth out the peaks and valleys.
Tony Roth, head of wealth management strategies at UBS Wealth Management, said he considered volatility a fourth asset class, after stocks, bonds and alternative investments like real estate and hedge funds. And he advises the firm’s wealthiest clients to factor it into their portfolio even in good times.
“You’re competing in a market with high-speed and hedge fund traders, and they have volatility strategies as a source of returns,” Mr. Roth said. “If you’re not developing your own strategy for dealing with volatility, you’re at a structural disadvantage on the playing field we call financial markets.”
While thinking of volatility as an investment may seem as odd as buying air rights for development once did (or still does), devising strategies that limit the highs and lows in the global economy are becoming common. They generally fall into two categories: strategies that look to profit from volatile markets and those that try to cushion a portfolio from those wild swings.
What has changed is that many of these strategies are no longer available only to the most sophisticated investors. (Some of them certainly got a lot more expensive this week.) Two of the strategies I discuss below are accessible to investors with even modest portfolios and two are for wealthier investors, but they show just how much control people can now exert on their returns.
Here’s a look at the strategies aimed at giving investors more control over their returns, though, of course, there are some risks.
COLLARS The simplest volatility strategy is combining two types of options to create a range a stock or an index will trade in. This is done by selling a call option, which allows the buyer of that call to purchase shares at a set price, and then buying a put option, which allows the person who owns the shares to force someone else to buy them if they fall to a certain level.
Take United Parcel Service, which was hovering around $63 a share on Monday, the first day of trading after Standard & Poor’s downgraded the United States’ credit rating. Tyler Vernon, chief investment officer of Biltmore Capital Advisors, which manages $600 million for wealthy families, said that an investor could have sold a call option at $65 a share for $2.50 and for the same amount bought a put option at $60. The costs would cancel each other out and the investor would have created what is called a collar around the stock.
“With volatility kicking up, this is a strategy that more sophisticated investors are taking advantage of,” Mr. Vernon said. “They’re O.K. giving up the upside after seeing markets fall down by hundreds of points every day.”
Of course, the investor may not get the gains if the U.P.S. stock rises above $65 before the collar expires. But Mr. Vernon said this was a risk most clients were willing to take. “They’re having flashbacks to 2008 at this point, so that’s not a bad deal.”
FUTURES CONTRACTS A slightly more complex but relatively inexpensive way to manage losses is to buy futures contracts that bet an index will fall in value.
Mark Coffelt, who manages the Empiric Core Equity Fund, said he hedged the entire $50 million portfolio this week by buying 702 contracts that bet the Russell 2000 index, which tracks small-cap stocks, would fall in value. They cost just $1,400. While the equities in the portfolio still fell in value, the futures contract limited the overall losses.
“Our hedges picked up $2.5 million” the previous week, Mr. Coffelt said. “Hedging has helped us tremendously this year. It has not accounted for all the gains, but it sure has reduced some of the losses.”
A big advantage of this strategy is that the markets for futures, particularly with currencies, are easy to trade in and out of. But they require restraint.
“If everything turns around quickly, we’re going to lose money, unquestionably,” said David Kavanagh, president of Grant Park Funds, which has just under $1 billion in a managed futures strategy. “I can’t emphasize the disciplined nature enough. There is always an exit strategy.”
He said that once he took a view on an index, he would look to buy the futures contract that was the most liquid, whether it lasted one month or six.
STRUCTURED NOTES With structured notes, a bank can pretty much create any trading range that clients want through a combination of financial products, including options and derivatives. But these notes are highly complicated, generally illiquid and carry the risk of the firm that created them.
This was an issue when Lehman Brothers went bankrupt in 2008. The firm had sold billions of dollars of structured notes that lost their value when the firm collapsed.
But investors who are comfortable with the firm creating these notes can virtually determine how much economic risk they are comfortable with by using a simple formula: the more appreciation they give up, the more they can protect themselves from losses.
JPMorgan Private Bank is selling one-year notes that offer what Joe Kenney, United States head of investments at the bank, called “contingent protection.” They have been structured to give a client as much as 20 percent gains and protect losses down to 20 percent.
On the plus side, the notes pay a guaranteed 8 3/4 percent return even if the market does not rise that much. The downside is that if the losses are greater than 20 percent, the protection expires and the investor gets all the losses.
A NEW TWIST A relatively new strategy relies on publicly traded options and exchange-traded funds to create the same effect as a structured note without the credit risk of a bank.
Mitchell Eichen, president of the MDE Group, which pioneered its “planned return strategy” in 2009, said the strategy was meant to protect against the first 12 percent of losses — with any additional losses starting at that point — and to double the market gains up to a cap of 8 to 12 percent. Now, some $275 million of the $1.3 billion the firm manages is in this strategy.
One advantage is its transparency: all the parts that create the band are held in a separate account for each investor, with Fidelity as the custodian. Another is that the firm is putting together new offerings monthly in the hope that this product will become like a laddered bond portfolio for its clients.
Philip M. Gross, a retired engineer who worked at Warner Lambert and General Electric, said he had about 15 percent of his money in MDE’s planned-return strategy and was adding to it. “If I thought the market was going straight up over the next three years, I wouldn’t do this,” he said. “But this is a practical approach.”
The one caveat with this and many of the other strategies is how they are taxed. They are often at the higher short-term capital gains rate or some mix of short- and long-term gains. But taxes are the last thing on Mr. Gross’s mind, after the market crashes in 2000 and 2008.
“I’m not sure if I’m ever going to use all my capital losses,” he said. “I realize intellectually that’s a dumb answer, but it’s a practical answer.”
Given that volatility is a practical problem right now, that may be good enough.
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Tagged alternative investments, asset management, BCA, Biltmore, Biltmore Capital Advisors, collar stock, financial security, financial strategies, fund manager, futures contracts, investment strategies, Market, Money Manager, personal financial services, personal risk analysis, Potfolio Manager, Princeton, Princeton Advisors, princeton financial advisors, private wealth management, registered investment advisor, RIA, SEC-registered, Stock Volatility, structured notes, Tony Roth, Tyler, Tyler Vernon, volatility, wealth management
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