Lief Nielsen Portfolio

By Dan Jamieson

State by state, lawmakers are chippingaway at securities firms’ ability to monitoremployee communications on social-mediasites, a development that could cause compli-ance headaches for both firms and regulators.

California could become the latest state toban employer access to private social-mediasites used by employees. A law passed by the

state Legislature last month still must get theapproval of Gov. Jerry Brown, who has untilthe end of the month to sign it.

Similar laws are scheduled to take effect inMaryland next month and Illinois next year.Other states considering social-media privacybills include New York, New Jersey, Delaware,Massachusetts, Minnesota, Michigan, Missouriand South Carolina.

The California bill, which faced no opposi-

tion in the Legislature, would prohibit anemployer from requiring that an employee orjob applicant disclose passwords for personalsocial-media sites.

The Securities Industry and Financial Mar-kets Association has called on Mr. Brown toveto the legislation.

“The bill, while well-intended, conflicts withthe duty of securities firms to supervise, record

Privacy laws threaten compliance

NEWSPAPER | VOL. 16, NO. 37 | COPYRIGHT CRAIN COMMUNICATIONS INC. | ALL RIGHTS RESERVED

September 24-28, 2012

$3.00 / $56 Year The Leading Information Source for Financial Advisers InvestmentNews.com

Inside

By Mark Schoeff Jr.

Sparks could fly over the capital gains taxwhen Congress tackles broad reform, lawmak-ers indicated last Thursday at a hearing beforegoing on recess until after the elections.

A twin goal for many lawmakers is toexpand the tax base and lower rates across theboard.Tension will center on whether raisingtaxes on capital gains is necessary to pay fortax cuts elsewhere.

For the sake of their clients, most invest-ment advisers want the capital gains rate tostay at 15%.

But a veteran of the last major tax reform in1986 argued that the tax rate on investmentgains must rise to a rate at or near the top indi-vidual rate if that level is lowered to 30% or less.

David Brockway, a partner at BinghamMcCutchen LLP, said that boosting the capitalgains rate was the linchpin of the ’86 tax over-haul, when he was chief of staff of the JointCommittee on Taxation and in the middle of thenegotiations.

“I tend to view capital gains as a gatewayissue,”he told a joint hearing of the House Waysand Means and Senate Finance committees

Capital gainsseen as crux of tax imbroglio

Continued on Page 34

6 Focus on Retirement8 Editorial8 Just Thinking

10 Other Voices11 Letters/Online Chatter26 Tax-Conscious Adviser

27 PracticeManagement

30 People32 Classifieds36 Tech Update

By Jason Kephart

Spooked by the challenging economic picture and with memoriesof the financial crash still fresh, U.S. investors appear almost oblivi-ous to the fact that the stock market is on a tear.

Even though the S&P 500 is up more than 115% since it bottomedout in March 2009 — and its Friday closing price of 1,460.15 is wellwithin striking distance of its all-time high of 1,565.15 — investorscontinue to run from U.S. stock mutual funds.

Altogether, investors yanked $300billion more from actively managedU.S. equity stock funds than theyput in over the three-year periodthrough July 31, according toMorningstar Inc. Whilethe net $140 billion that

Too chicken for stockS&P 500 near all-time high, but investors aren’t biting

SpotlightSuccessionPlanning

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mapped out exit plans for partners. Page 12

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Battle royaleSchwab became the latest ETF provider

to cut fees last week, joining the price warbetween Vanguard and BlackRock.

Page 3

20120924-News--0001-NAT-CCI-AA_-- 9/21/2012 7:14 PM Page 1

By Trevor Hunnicutt

After a mostly frigid 2013 forrecruiting from wirehouses, thoseresponsible for selling brokerson the benefits of free agencyare cautiously optimistic that athaw has finally set in.

Brokers responsible for $2.9billion in assets left wirehouses in Jan-uary to join non-wirehouse firms, updramatically from January 2013 whenadvisers overseeing just $70 million in

assets made the same move, accord-ing to InvestmentNews’ Advisers onthe Move database, which tracksdetails about announced moves.

The dramatic pickup in break-away brokers marks the continuationof a trend that began late last year.

In 2013, advisers managing $17.4

billion in assets broke away fromwirehouses, compared with $31.2 bil-lion in 2012.

Even though recruiting fromwirehouses was down sig-nificantly in 2013, nearlyhalf of advisers who leftwirehouses that year didso in the fourth quarter —

pointing to a strong end-of-the-yearpickup in activity.

“We’re seeing more excitementfrom wirehouses than ever before,

particularly the wirehouse adviserwho is midway through their career,”said Nicholas Gudz, whose firm,StarPoint Consulting Group, wasfounded in 2008 to recruit advisersfrom wirehouses.“They’re less inter-ested in the larger check; they’remore interested in the idea ofindependence.”

The InvestmentNews databaseon adviser movement is not exhaus-tive, as not all firms report newadvisers they recruit

and none disclose advisers who leavethe firm. However, the data clearlyindicate a continuing pickup inrecruitment from wirehouses.

Consider the story of Timothy B.Kneen and Clayton E. Hartman.Until last month, the partners were

Wirehouse breakaway market seen thawing

By Mason Braswell

Like many Americans, financialadvisers are tuning in to the WinterOlympics, but some are payingcloser attention than others.

That is because some advisershave skin in the game, so to speak:clients who are com-peting in this year’sOlympiad.

For RBC WealthManagement adviserGeoffrey Aunger, thejourney to Sochi, Rus-sia, began two yearsago at the 2012 NHLdraft in Pittsburgh. Itwas there that he meta future client, Zemgus Girgensons,an 18-year-old professional hockeyprospect from Latvia.

AN HONORMr. Girgensons plays for the Buf-

falo Sabres but is skating for hisnative Latvia in the Olympics.

“From our perspective, it’s obvi-ously a really nice honor that roundsout his career,”Mr. Aunger said.“It’sgreat to see where they started,and as

they rise up and buildon their career, andbegin to dominate andto build their identity.”

Just as athletes investblood, sweat and tears intheir sport,advisers who wantto represent top athletes also

must competeand make sacri-fices.The worldof advising ath-letes is so compet-itive that advisers’time, money andresources often arespent building thoserelationships wellbefore the athlete’s

first contract or sponsorship deal,even if it means that the relationshipdoesn’t pan out.

“Some guys make it,but you don’tknow that when you’re getting intoit,”said Frank Zecca,managing direc-tor of Octagon Financial ServicesInc., an independent advisory firmfocused on professional athletes.

Individual success in Olympicevents such as snowboarding or

February 10-14, 2014

NEWSPAPER | VOL. 18, NO. 6 | COPYRIGHT CRAIN COMMUNICATIONS INC. | ALL RIGHTS RESERVED

2 Editor’s Note3 On Advice6 IN Voices8 Editorials

10 Best Practices

18 On Social Media26 Generational

Selling Tactics27 Practice

Management30 Classifieds

Inside

Social mediaAdvisers struggle with how much timeand energy to put into feeding the content-hungry web beast with freshposts to attract a following. Page 12

Spotlight

BROKER-DEALERS

■ Midland National is jettisoningits broker-dealer, selling itsinterest in Sammons Securi-ties; it is the latest insurer tomake such a move. Page 3

REGULATION

■ Finra will consider requiringbrokers to provide a link fromtheir websites to BrokerCheck.Page 2

■ Advisers greeted a Finra pro-posal to make nonlisted REITsmore transparent with skepti-cism. Page 3

■ The SEC has set an aggressiveenforcement agenda for 2014,prompting some to questionwhether it is biting off morethan it can chew. Page 11

RETIREMENT

■ Schwab’s all-ETF 401(k) offeringwill inspire competitors to fol-low suit, but plan sponsors maynot be on board. Page 4

PRACTICE MANAGEMENT

■ Playing to employees’strengths pays off and fostersretention at Balasa DinvernoFoltz. Page 10

■ Wooing younger clients is vitalto the longevity of a business,but most advisers aren’t makingany efforts to do so. Page 20

INDUSTRY

■ The CFP Board is aiming for81,000 certificants by 2017, upfrom 69,000 now. Page 3


Zemgus Girgensons: BuffaloSabres forward will representLatvia at the games.


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Advising Olympiansis a test of mettleDifficult to predict who will succeed

Link to BrokerCheckFinra is set to issue a proposal that would requirebrokers to put a link to their BrokerCheck profileon their websites and other online communica-tions.

Page 2Page 2

Video to the rescueAn extreme makeover show foradvisers? InvestmentNews debuts“Practice Makeover,” a new videoseries of real-world solutions.

NEWSNEWSNEWS

Up anddownAdvisers turnto defensemode afterstocks take aride and thejobs reportdisappoints.Page 2

$3.00 / $56 Year The Leading Information Source for Financial Advisers InvestmentNews.com

20140210-News--0001-NAT-CCI-IN_-- 2/7/2014 9:26 PM Page 1

InvestmentNews ALTERNATIVE INVESTMENTS CONFERENCESept. 23-24, Westin Chicago River North

14 InvestmentNews | September 30, 2013 InvestmentNews.com

Afroz Qadeer and Brian Ziv: A trio of financial head winds is weakening.

By Bruce Kelly and Jeff Benjamin

To make sure that alternatives aremaking a difference in a client’sportfolio, financial advisers shouldallocate between 10% and 20% oftheir entire investments to alts,according to Nadia Papagiannis,director of alternatives fund researchat Morningstar Inc.

Any move into alts should startwith an allocation of at least 5%, butin order to have any kind of realimpact, that allocation should grow

to at least 20%, she said as part ofher presentation last Monday at theInvestmentNews Alternative Invest-ments Conference in Chicago.

“Five percent is really not goingto make a difference, but 20% willstart to make a difference,”she said.Steve Medina, head of global assetallocation and senior portfolio man-ager for John Hancock Financial Ser-vices Inc., said that if an investor isnot at least 10% invested in alterna-tives,“you’re not moving the dial. Itshould be upwards to 20%.”

“Different alternatives have differ-ent risk and return profiles. Differentalternatives behave differently,”Mr.Medina said.

“Know what you own,”he said.“But how much is right for my

portfolio? Own enough to make adifference.”

As part of a pre-conference pres-entation designed to provide a lay ofthe land with regard to alternativeinvestments, Ms. Papagiannis toldthe audience of financial profession-als to be diligent and to diversify

into alt strategies.“If I were doing it, I would pick

an equity long-short strategy, a man-aged-futures strategy and a market-neutral strategy as a kind of bondsubstitute, and I would equal-weightthem into the portfolio,” she said.“Prior to 2008, a lot of investors weretoo heavy into equities, and now alot of advisers are telling me theirclients are too heavy into bonds.”

Mr. Medina’s panel also dis-cussed how advisers should fund theallocation.

In the past, advisers would haveconsidered reducing their exposureto equities because of the correlationbetween some hedge funds andstocks.

But with the end of a 30-year bullmarket in bonds, advisers shouldthink about funding alternative invest-ments by reducing clients’allocationto fixed income, one panelist said.

“We’re taking money away fromfixed income to fund hedge fund allo-cations,”said David Reichart, head ofbusiness development for the Princi-pal Funds.“Historically, you wouldhave taken it away from equities.”

USING ‘WORST IDEA’Mr. Medina noted that funding for

alternative investments can also comefrom the adviser’s “worst idea,”or areaof the market he or she dislikes themost during that time period.

At the beginning of the year, thatarea was Treasury inflation-protectedsecurities.

“Ask yourself, ‘What is my worstidea?’”he said.

“This year, we hated TIPS.Youcan allocate the client’s exposure toalternatives investments from theworst idea,”Mr. Medina said.

Regarding funding clients’ expo-sure to such investments, he saidthat advisers should consider fund-ing half from equities and half frombonds to balance the portfolio better.

“If you fund alternatives 100%from bonds, you’ll get better returnsbut get an increase in risk,”Mr. Med-ina said.

“If you fund 100% from equities,you will reduce the overall risk, butthere’s a cost to that, and you willhold back a little bit of total returnover time,”he said.“Therefore, startwith the concept of funding half fromequities and half from fixed income.”

[email protected]: @[email protected]: @jeff_benjamin

Alt gestalt: Greater allocation key

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Independence

By Jason Kephart

The unprecedented correlationbetween asset classes that stemmedfrom the financial crisis appears tobe over, strategists said last Tuesdayat the Alternative Investments Con-ference.

Financial advisers need to keepthat in mind as they build portfolios,even though it may not seem like agood idea, given the stock market’s20% rally this year.

“In this market, being told youneed more correlation is like beingtold you need more fiber in yourdiet,” said Brian Ziv, head of theWilliam Blair Hedge Fund StrategiesInvestment Committee.“I’m going togo out on a limb and predict thestock market’s not going to return20% a year.”

The head winds that caused cor-relations to all go to one, whichmeans everything was moving in thesame direction, were uncertainty, aflurry of economic surprises and lowinterest rates.

Those factors are much weakerthan they have been in the previous

five years, Mr. Ziv said.Even though correlations are

starting to normalize, investors seemto be forgetting the benefits of diver-sification, particularly with managed-futures funds, said Afroz Qadeer,chief investment officer at EquinoxInstitutional Asset Management.

Managed-futures funds took off in2009, 2010 and 2011 because of theiruncorrelated returns in 2008, he said.

With the equity markets on a tearand managed futures struggling,investors are fleeing managed-futures funds this year even thoughthey are getting exactly what waspromised.

The average money market fundhas a three-year annualized returnof -4.48%, way below the S&P 500’s17% annualized return over thesame time period.

“If you bought managed futuresfor negative correlation, you’re get-ting it,”Mr. Qadeer said.“If you justwant things that move like the equitymarket, you should buy all stocks.”

[email protected]: @jasonkephart

The great correlation:Is it finally over?

Nadia Papagiannis: Anallocation to alternativesshould grow to at least 20%.

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InvestmentNews.com April 8, 2013 | InvestmentNews 19

By Jeff Benjamin

With all the recent attention onthe record-setting performance ofthe broad market indexes, it’s easyto forget that small-capitalizationstocks are also doing well.

Although some quantitative ana-lysts are forecasting a rotation out ofsmall-caps and into larger-companystocks as indexes such as the S&P500 gain steam, not everyone sub-scribes to the separation theory.

“In periods of subpar economicgrowth like now, small-caps outper-form large-caps by close to a 2-to-1margin,”said Dan Veru, chief invest-ment officer at Palisade CapitalManagement, which managesnearly $5 billion, half of which is insmall-cap portfolios.

There is no denying the signifi-cance of the record high set lastmonth by the S&P 500, giving thebenchmark a 10.1% gain from thestart of the year.

‘MORE NIMBLE’But the smaller-cap-focused Rus-

sell 2000 Index, which set its ownall-time high in January, is still chug-ging along with an 11.1% gain so farthis year.

The small-cap-growth category,as tracked by Morningstar Inc., hasgained 10.6% over the same period.

“The reality is, those large-capsare not growing their top-line [rev-enue],” Mr.Veru said.“Small-capstend to be more nimble.”

To Mr.Veru, that adds up to moreconsolidation, which is usually goodfor small-cap investors.

“If you’re a big company tryingto put that cash to work, you mightas well put it into an acquisition,”hesaid.“In this economy, combinedwith all the new regulations, youneed critical mass more than ever.”

Over the past nine quarters, 35 ofMr.Veru’s small-cap holdings havebeen acquired, at an average pre-mium of 38%.

The Highland Small-Cap EquityFund (HSZAX), subadvised by Pal-isade, has gained 10.7% this yearand was up 13.7% last year.

SMALLEST OF THE SMALLMarc Roberts, co-manager of the

FAM Small Cap Investor Fund(FAMFX), also is committed to find-ing small-cap opportunities, regard-less of the market cycle.

His fund, launched a year ago,concentrates on the smallest end ofthe small-cap space.

The portfolio of just 23 stocks isdesigned to take advantage of mar-ket inefficiencies among companieswith market caps of between $50million and $1 billion.

With a highly concentrated port-folio and an annual turnover rate ofless than 10%, Mr. Roberts considersthe fund a value strategy, eventhough Morningstar categorizes itas small blend.

The fund has gained 9.3% so farthis year, compared with an 11%gain by the small-blend category.

“It’s hard for large [researchfirms] to focus on the kinds of smallcompanies we own,”Mr. Roberts said.

One of the fund’s largest hold-ings, Amerisafe Inc. (AMSF), is aninsurance holding company thatunderwrites workers’ compensationinsurance in high-risk industries.

The company has a market capof $640 million, and the stock is upnearly 30% this year.

Another example off the beatenpath is Fabrinet (FN), a manufac-turer of optical components.

The $480 million company hashad an across-the-board “sell”ratingfrom Wall Street analysts for the pastyear, but Mr. Roberts is focused onthe company’s cash stockpile and anearly 30% gain on invested capital.

The stock is up almost 7% thisyear.

“The Street is always focused ona short period,”he said.“But we lovethese niche companies.”

Mr.Veru agrees that small-capmanagers thrive off the beaten path,which is rarely what you get with thebeta exposure in large-cap stocks.

For example, one of Mr. Veru’sfavorite stocks, short-line railroadoperator Genesee & Wyoming Inc.(GWR) was a microcap stock justa few years ago but now has amarket cap of nearly $5 billion.

The stock, which is ridingthe wave of growing energy trans-

portation demands, has gained morethan 20% this year and is up more

than 67% over the past 12 months.“There’s a perception that

you’re taking a risk with small-caps, but when you look backat 80 years of data, it’s rarewhen large-caps outperformsmall-caps,” Mr. Veru said.“It’s human nature for peo-ple to sometimes want

what’s big and comfortable,but we get hired to make money

for people.”

[email protected]: @jeff_benjamin

The Russell 2000 set its own record at the start of the year

Play small! Large-caps ain’t the only game in town


Don’t be that guy on FacebookAdvisers who spend all their time on social media selling or talking shop do themselves a disservice

Over the past severalyears, financial advis-ers and their firmshave worked hard toharness the power of

social media to build their businesses.Although some advisers are

starting to master the use of thistool, most are still committing someserious social-media blunders.

Here are a few:Selling, selling, selling. Although

a little shameless self-promotion isn’ta bad thing, financial services firms

have a tendency to go overboard. Isee this more from firms rather thanindividual advisers, with larger com-panies providing their advisers withpreapproved status updates andposts that all look like blatantattempts to sell something.

Advisers can avoid this by fol-lowing the “one-third, one-third,one-third rule.”

This rule, which I tell my clientsis a must with their social-mediaengagement, suggests that just one-third of all posts or social-media

updates should be about the adviser,the company or the products andservices provided.

Another one-third should includeinformative, educational or motiva-tional information on topics impor-tant to the adviser’s target market, forexample, an article on “The top 10things college freshmen need in theirdorm room”for an adviser whose pri-mary focus is education planning, or“How to blend family and career”foran adviser whose clientele consists ofworking moms or dads.

Some companies also have startedto incorporate “quotes of the week”into their posts. Anythingan adviser thinks would beof value to the firm’s targetmarket is great.

The final one-thirdshould be used to promoteothers. Congratulate a client, centerof influence or colleague on anaccomplishment, or mention a char-ity or restaurant that a friend justopened in town.

This is an excellent way to help

others and for an adviser to showcare and concern for something out-

side managed portfolios.Too many restrictions.

For some advisers, therestrictions placed onthem by their firms makefollowing the “one-third”

rule difficult, which leads to the nextmajor mistake that firms and advis-ers are making.

In the financial services industry,we all know the importance and thefrustration of compliance constraints.Although the Financial Industry Reg-ulatory Authority Inc. has issued guid-ance on communication with thepublic via social media, most firmshave developed internal social-mediapolicies that are even more restrictive.

For larger firms, it can be tediousand costly to monitor the social-media activities of thousands ofadvisers. However, firms need to putsystems in place that allow advisersa bit of autonomy and creativity.

The social-media policies I havereviewed for some larger firms areso limiting that their advisers can dolittle more than create bland profilesthat read like a legal brief, and canpost only sales-oriented, preap-proved status updates.

Firms are missing the mark here.

PERSONALIZE POSTSIf a firm doesn’t want to be seen as

stodgy, out-of-date and out of touch,they should follow the lead of smallerregistered investment advisers anddetermine how to, compliantly, allowadvisers to customize their profiles,personalize their status updates andget involved in online conversations.The firms that take the lead on this,and can do so without a focus on sell-ing, will be the ones to come outahead in the social-media game.

Failure to connect and engageonline. Another mistake that advis-ers make is to assume that justbeing on social media is enough.

Once an adviser has built social-media sites, it is imperative to letothers know that they are active onthose sites and to connect with thosethey meet. Include links to the firm’ssocial-media sites on the website, ine-mail auto-signatures and on busi-ness cards.

Dedicate time each week toengage online: Send connectionrequests to new people met through-out the course of the week, and signup for LinkedIn updates and Googlealerts in order to congratulate andreach out to connections regardingmajor milestones or accomplish-ments.

Spend time crafting engagingstatus updates and take part inthoughtful dialogue with connec-tions. It isn’t simply being onlinethat counts but what is done there.

Although there are many moresocial-media blunders of which advis-ers are guilty — not updating the siteor using video, failing to identify a tar-get market, going #hashtag crazy, etc.— tackling these three basics willstart advisers on the path to leverag-ing the power of social media to builda practice and develop connections.

Kristin Andree ([email protected]) is president of AndreeMedia & Consulting.

Visit www.investmentnews.com/research

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20 InvestmentNews | March 10, 2014 InvestmentNews.com

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InvestmentNews.com/onsocialmedia


y for managed futures

InvestmentNews ALTERNATIVE INVESTMENTS CONFERENCEOct. 22-23, Fairmont Chicago Millennium Park

By Bruce Kelly

To hedge or not to hedge? That was the question in Chicago

last week at the InvestmentNewsAlternative Investments Conference.

Facing off were two noted investors. Arguing the case against hedge

funds was Simon Lack, principal andfounder of SL Advisors LLC.

Defending hedge funds and alter-native investments was Ed Butowsky,managing partner of ChapwoodCapital Investment ManagementLLC.

Size affects hedge fund returnsnegatively, Mr. Lack said.

“Better returns are associatedwith a smaller industry,” he said.

The internal rate of return forhedge funds since 1998 has beenhalf as good as the return of Trea-sury bills, Mr. Lack said.

“In the 1990s, hedge funds didreally well, but as investors havecome into hedge funds, returns havecome down,” he said.

“Smaller is better for hedgefunds,” Mr. Lack said, noting that thehedge fund industry controls $2 tril-lion in client assets.

“Today, the hedge fund industryis overcapitalized. There are somegood hedge funds, but the aggregatereturn has been poor,” Mr. Lack said.

“This has been a fairly majorflawed analysis by the institutionalinvesting industry,” he said.

The standard hedge fund feestructure, in which the managercharges 2% of assets and also cap-

tures 20% of the return, continuesto be controversial.

“Everyone knows that is egre-gious,” said Mr. Lack, who recentlywrote a book on hedge funds.

“Today’s hedge fund investorsmay think 7% [annual] return is areasonable expectation, but thatmeans every year would be a recordyear for the industry,” he said,adding that clients should have avery small allocation — 1% to 2% —to hedge funds in their portfolios.

“I’d have a lot more than that,”Mr. Butowsky countered. He recom-mends a hedge fund allocation inclient portfolios of 25%.

Mr. Butowsky said that Mr.Lack’s “information doesn’t supportreality.

“We’re talking about perform-ance but really need to ask: What isthe purpose or benefits of havinghedge funds in the portfolio?”

“The reason we include hedgefunds in the portfolio is to reducethe risk in clients’ portfolios,” Mr.Butowsky said.

“There are 14,000 hedge funds inthe U.S., but only 250 are institu-tional-quality hedge funds,” he said.“Our goal is to make portfolios effi-cient and get rid of waste.”

Mr. Butowsky said that his hedge

fund portfolio performed “miser-ably” last year, but he isn’t going todump the investments.

“We have to be talking about thebenefits of including this in the port-folio, not as a stand-alone,” he said.

“As advisers, our goal is to helpmanage risk, and we have to addalternatives to the portfolio.”

[email protected]: @bdnewsguy

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LLC, concurred with the time hori-zon issue but also stressed the needfor extensive due diligence.

“From a regulatory perspective,some of the problems we’ve seen inthe managed-futures space willmake the industry stronger, becauseit is a situation where we have toolsin place, and I think the regulatorswant to start using them,” he said.

Ultimately, the extra emphasis ondue diligence is usually worth theeffort when it comes to managedfutures, Mr. Bhaduri said.

“One thing history has taught usis that nobody has a crystal ball, andthe only thing we really know is thatdiversification wins,” he said.

The panelists agreed that an allo-cation to managed futures as a port-folio diversification tool should bebetween 10% and 20%, with alloca-tions across multiple managers.

[email protected]: @jeff_benjamin

Ed Butowsky, left, and Simon Lack: Mr. Butowsky suggests a 25%portfolio allocation to hedge funds, while Mr. Lack recommends 1% to 2%.

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Advisers’ next chore might be to clip the hedges

InvestmentNews.com October 29, 2012 | InvestmentNews 17

20121029-News--0016,0017-NAT-CCI-AA_-- 10/25/2012 5:06 PM Page 2

Paranormal markets: A stocks paradoxConsidering hiring and employment reports, what’s bad for the economy can be good for equities

Dismal hiring statisticsare bad news for theeconomy and for stocks,right? If the valuation ofthe stock market had

anything to do with the real econ-omy, you would be right, and thatwould be normal. But today’s mar-ket is anything but normal. It’s para-normal: Bad news for the economycan be good news for stocks.

Such was the case with Septem-ber’s employment report, one ofnumerous examples in which bad

news for the economy led to risingstock prices (and vice versa). Ofcourse, there are counter-examplesof the “normal”relationship as well.But days when bad economic newsis good news for stocks reflect theimportance of monetary accommo-dation in the performance of finan-cial assets. The Federal Reserve’spolicies benefit stocks and other riskassets, as they create more money inthe financial system and hold inter-est rates at zero, compellinginvestors to seek out higher-than-

zero returns and increasing thedemand for risky assets.

Will such paranormal activitycontinue even as the Fed exits quan-titative easing? The Fed will try toprevent a repeat of theMay-July sell-off by avoid-ing surprises, clearly sepa-rating the notions oftapering from tightening,and reiterating the ideathat even after tapering, tighteningwill not occur until much later.

How can the Fed convince the

market that rates will stay loweven while it is backing away fromQE?

This last point is the most critical.As the Fed shifts from QE as its main

policy tool to “forwardguidance”(i.e., the promiseto maintain a zero-inter-est-rate policy for a signif-icant amount of time), itscredibility becomes key.

Because that policy shift entails effec-tive communication, there follows adegree of uncertainty in the invest-

ment outlook surrounding the transi-tion from QE to forward guidance.

So how can the Fed strengthenthat guidance?

The Fed has already signaledseveral possibilities it is consideringfor strengthening the market’s beliefin a persistent period of zero interestrates.These include:

1) Lowering the unemploymentrate threshold. Recent trends indeclining unemployment rates implythat this threshold, currently at 6.5%,will be hit sometime in late 2014.(Note: That date likely overstates theoutlook for a declining unemploy-ment rate; a more realistic assess-ment puts the date as sometime inthe second quarter of 2015).

2)Adding an inflation “floor”tothe thresholds. Currently, there is too little inflation, with core personal-consumption expendi-tures, for example, running around1%, well below the Fed’s longer-term target of 2%. By adding athreshold for too little inflation (asin,“so long as the inflation rate wasprojected to run below a givenlevel”), the Fed may strengthen itsforward guidance.

3) Clarifying “the range of infor-mation that the Federal Open Mar-ket Committee would consider.” Inrecent speeches, for example, com-mittee members have highlightedbroader measures of the labor mar-ket, such as the employment-to-population ratio, labor forceparticipation, and the rates of hir-ing and separation. The FOMC isthe Fed panel that sets rate policy.

Other approaches also might beconsidered, including lowering theinterest rate paid to banks that keeptheir cash at the Federal Reserve.Such a move might be seen asencouraging greater lending activity,but the main benefit of such a movewould be to signal policy intentions.This action, however, comes withgreat uncertainty as to its effect ondeposits and the short-term mar-kets, so we consider it less likely tobe implemented.

0% COULD PERSISTWhat does this mean for investors?The next phase of monetary pol-

icy appears to move in the directionof promising zero interest rates foran even longer period of time thanpreviously thought. While direct Fedpurchases may be coming to an endsometime in 2014, the prospect of aneven longer zero-interest-rate periodarguably holds even greater signifi-cance for investors and the outlookfor financial markets. As long asrates remain at zero, positive realreturns to savings can be achievedonly by moving out the risk spec-trum. Such a conclusion leads to amuch, much greater degree of QE —this time provided by every investorportfolio — seeking to achieve better-than-zero returns from cash andbonds.That collective response to thisnext phase of monetary-policyaccommodation likely maintains theparanormal market, where financialasset performance greatly exceedsthe performance of the real economy.

Jeff Rosenberg is chief investmentstrategist for fixed income atBlackRock Inc.

*“When Multicultural Is the Culture: Marketing to the New Face of America,” 2011, The Nielsen Company; 2010 Census, Nielsen Analysis. **Ackerman, Ruthie, “Women & Investing: Why Many Advisers Are Missing Out.” Investment News, April 2012.

Life insurance is issued by The Prudential Insurance Company of America, Pruco Life Insurance Company (except in NY and/or NJ) and Pruco Life Insurance Company of New Jersey (in NY and/or NJ). All are Prudential Financial companies located in Newark, NJ. Availability of insurance and rates will vary based on the satisfaction of underwriting criteria. Underwriting rules are subject to change at our discretion.

Prudential, the Prudential logo, the Rock symbol and Bring Your Challenges are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.© 2013 Prudential Financial, Inc. and its related entities.FOR THE EDUCATION OF PRODUCERS/BROKERS ONLY. NOT FOR USE WITH THE PUBLIC.0251837-00001-00

LIFE INSURANCE

HOW WELL DO YOU KNOW THE PEOPLE WHO COULD TRANSFORM YOUR BUSINESS?

African Americans, Hispanic Americans and Asian Americans are not just growing demographic segments. They’re growing economic forces, with buying power on the rise.

More than half of women are the primary earners of their households, and most play a key role in financial decision making.

LGBT Americans often have higher-than-average incomes, but may face complex estate planning challenges.

What do many of the people in these segments have in common? They’re looking to you for help.

Prudential’s new Women & Multicultural Consumers Business Development Kit offers timely research and insights into each of these critical segments, revealingtheir top financial priorities, goals and concerns along with their perspectives about life insurance.

Call 1-800-800-2738 Option 1 for your kit or download at prudential.com/MulticulturalKit

U.S. POPULATION GROWTH COMING FROM MULTICULTURALGROUPS, 2000-2010*

U.S. CONSUMER WEALTH THAT WILL BE CONTROLLEDBY WOMEN OVER THE NEXT DECADE**

INVESTMENTSTRATEGIESJeff Rosenberg

46 InvestmentNews | December 9, 2013 InvestmentNews.com

For archivedcolumns, go to

InvestmentNews.com/investmentstrategies


By Lief Nielsen Within24hoursoftheexplosionsattheBostonMarathonlastApril,another,morepowerfulonewentoff:Marathonregistrationssurgedalloverthecountry.Themessagewasclear:Youcan’ttakethisawayfromus. Overthepastfewyears,youmayhavenoticedthatparksandsidewalkshavebeencrowdedwithnewrunners.Anunprecedentednumberofpeople,manyofthemintheir30sand40s,havebeenshellingoutforfancyrunningshoesandjoiningrunninggroups.In2000,about300,000runnerscrossedamarathonfinishlineintheU.S.,comparedwithover500,000adecadelater. Butwhy?Thereareamillionsanerwaystogetintoshapeorcompete.Andinasportwheresecurityallofasuddenisamajorconcern,racersandspectatorsalikearearguablyputtingthemselvesindangerbyparticipating.Therehastobemoreonthesenewlymintedrunners’mindsthananupbeatdesiretorunforareallylongtime. Thisyear’sNewYorkCityMarathonnodoubtwillbeaccompaniedbysomeofthepost-traumasymbol-ismthatwassoprevalentinthemonthsfollowingtheSept.11terroristattacks.Thistime,theheroeswillbetherunnersthemselves,notjustthefirst-responders.That’sappropriate,butnotfortheobviousreasons.Manymarathonrunnerswereinitformorepersonal,emotionalreasonslongbeforeanactofterrorismbecamelinkedwiththeirsport.Sure,we’llenjoythetickertape,butourbraveryanddefianceisoftenaboutfarmorethanjuststandinguptodomesticterrorism. Ifthreeyearsagoyou’dtoldmeIwasanascentmarathoner,I’dhavetoldyoutoleavetown.Atthatpoint,theabsolutelimitofmywillingnesstoexercisewastheoccasionalvanitylaparoundBrooklyn’sProspectPark,alabored3.3-mileslogdoneasquicklyaspossibletogetitoutofthewayuntilmyblossomingbeerbellycompelledmetoreturn.Iwasinaweofmyhandfuloffriendswhohadfinishedmarathons,butenteronemyself?Noway. Butithappened.Lastyearwasadrag.Notthatanythingterriblewentdown,butacompletedearthofgoodnewscanbeworsethanacatastrophe.Iwasdepressed.MybosscalledmeinonedayandtoldmethatwhileItechnicallywasdoingmyjob,my“promotability”scoredaD.I’dnevergottenaDinanything.Iwasjustphoningitin,andweallknewit. Themainreasonforthisfunkwasclear.Foryears,mywifeandIhadbeentryingtohaveakid,and2012wastobethebig,finalpushtosuccess.Forthoseofyouwhohaven’tbeenthroughthewringeroflate-30sin-vitro,it’salotmorethanjustjerkingoffintoacup--althoughthere’splentyofthat.It’stensofthousandsofdollarsinbetsthatarestackedagainstyouandit’scountlessdoctorvisits.It’sinjectingyourspousewithtwo-inchneedlesandit’saroboticsexlife.It’slookinglonginglyataprintoutofablobofcells.Worstofall,it’sawifewhoisheartbroken. Ineededanescape,butmoreimportantly,Ineededtotakeownershipofsomethinginthefaceofthismid-lifestasis.WhetherIwasconsciousofitornot,Ineededsomesortofmeasurablesuccess,andthat,Idecided,wasgoingtotaketheformoffinishingaNewYorkCityMarathon. I’d actually run a half-marathon the year before. My company paid for it in return for rais-

Can You Outrun Your Demons By Signing Up To A Marathon? Posted: 11/12/2013 4:04 pm

ing some money for a charity I knew little about.That one scared me to the extent that I downednine beers the night before during an apocalyptic rainstorm that I thought would last throughthe race. It didn’t, but the run was brutal anyway. The marathon was to be -- well, twice that. SoIstartedrunningeverywhere.I’druntowhatevereventandjustbetheguyinrunningduds.OrI’dchangeafterworkandrunhomefromMidtownacrosstheManhattanBridge,thenmaybefinishoffwithalaparoundmyfamiliartraininggrounds.IpickedthehottestdayoftheyearandranfromBatteryParktotheGeorgeWashingtonBridge.Mywifetooktojokinglyreferringtoherselfasarunningwidow(shewasn’tjoking).ButsheunderstoodthatIneededthis.WhyelsewouldIsneakoutofthebeachhousetotrainbeforeeverybodygotup?Mysightsweresetonthe2012NewYorkCityMarathon.Iwouldfinishthatgoddamnedrace. Thereasonsforlacingupandgettingoutthereareendless.InhisautobiographicalRunningRansomRoad:ConfrontingthePast,OneMarathonataTime,CalebDaniloffchronicles“navigatingsobriety”afteryearsasaself-confesseddrunk.“NolongerdoIrunfrommydemons,butrunwiththem,”hewrites.“Wepaceeachother,thepastandme.Andsomedays,Igofaster.” Mr.DaniloffrelatesthestoryofanacquaintancewhorantheNYCMarathonlessthantwomonthsafter9/11,whodescribedtheraceas“ahugecollectiveactofdefiance.”Thissentimentisnotlostonanyonepin-ninganumbertotheirchestinthepost-Boston-Marathon-bombingworld. Iaskedmycoworker,DeniseSouthwood,whyshestartedrunningmarathons,andsherespondedwithsurprisingimmediacy:“Itwasmydivorce.Iwentfrombeingawifeandafull-timemomtohavingallthistimeonmyhands.MygirlfriendandIranittogether,andifitweren’tforthat,Iwasthisclosetogoingtoashrinkandgettingonmeds.” ThenIaskedmyhalf-marathontrainer,JimPurvis,whyhetooktheplunge.“Idecidedtorunmyfirstmar-athonfortheLeukemiaandLymphomaSocietyinhonorofmyparents’survivingcancer,”saidMr.Purvis,acoachwithTeaminTraining,afundraisingprogramforthatorganization.“Sincethatfirstmarathon,I’vecompletedninemoremarathons--somegreat,someincrediblyawful,butineachone,Idiscoversomethingnewaboutmyselfthatcanonlybefoundona26.2-milerun.” Indeed,there’splentyofdatalinkingexercisewithimprovingmentalwell-being.“We’vedone[...]twostudiesonmajordepression,comparingexercisewithmedication,andwefoundthatexerciseiscompa-rabletomedicationinreducingdepressionsymptomsandbetterthanaplacebo,”saidDr.JamesA.Blumen-thal,apsychiatristatDukeUniversity. Granted,Dr.Blumenthalnoted,itdoesn’ttakerunningamarathonforsomeonetoexperiencetheben-efitsofexercise.Heemphasizedthatthegreatestbenefittopeople’smoodscomesfromthetransitionfrombeingcompletelysedentary tostarting toexercise,and thatanythingmore than30minutesofexercisethreetimesaweekis“gravy.”Painful,ecstatic,nipple-chafinggravy. Alotof“serious”athletesthinkthemarathonhasbecometheEveryman’sEverest,thatlastitemtocheckoffyourbucketlistbeforecheckingoutofphysicalactivityaltogether.Butthesheergrit--nottomentiontimecommitment--ittakestogettothepointwhereyoucancrankoutthatdistancemarksamentaltrans-formation.“Ithinkanymarathonerisanathlete,”saidSteveLastoe,founderofupstartNewYorkCityRunsInc.,whichmanagesandconductsraces.Hisorganizationhashostedseverallocalmarathonssince2011,includingonethisyearinCentralPark,wheretheracehadnotbeenheldofficiallysince1975.Asforthosemarathonerswhotakesixhourstocompletethetask,hesaid,“Whocares?Whatmattersiswhattheathleteinquestionthinks.Youmaythinkmyeffortispedestrian,whileothersmaythinkitisOlympian.” Eitherway,some48,000soulsaresettohitthepavementinNewYorkthisyearinthebiggestmarathoninhistory.Andamongthesupereliteandnewbies,thehedonistsandmourners,thosebarefootandwithmechanicallegs,youwillfind48,000stories. Mystorycametoaturningpointlatelastsummerwhen,uponroundingthetopofthatburlyProspectParkhillbyGrandArmyPlaza,IrealizedI’dleftmycustomary--and,Ithought,requisite--iPodathome.ButIdidn’tneeditanymore.Foronce,Icouldhearmyfootsteps,andtheywerenotstruggling.Escapehadmadewayforarrival. “Screwjustfinishing,”Ithought.“I’mgoingtoturninarespectabletime.”TheNewYorkCityMarathonwascanceledlastyearatthe11thhourinthewakeofHurricaneSandy.Afteramomentofdisbelieffollowingallthathardwork,IgotonthehornandsnaggedaspotintheBrooklynMarathonacoupleofweekslater.Andwouldn’tyouknowit,theentireracewasinProspectPark--andthatbloody,beautifulhill,sixtimesover,mywifehandingmeanenergygelateverypass.Iwasbackhome.

Lief and his running widow, Uma, plan to adopt. He is running the New York City Marathon this year.

Keep your assets safe from direct sun heat and other extreme elements.BY Jeff Merschman

Heat is a killer, and what might be getting burnt is your bottom line. With today’s weather extremes, it’s now more important than ever to protect the lifeblood of your company – your assets and personnel.

An air courier business in the Southwest, for example, faces not only astronomical equipment and fuel costs but the additional expense of fending off the broiling conditions. Workers are in danger of heat stroke or worse. Equipment is at stake. The cost of constructing hangars capable of protecting aircraft and employees properly can be prohibitively expensive and could scuttle a business before it has the chance to take off.

The military in that region is acutely aware of the threat posed by the brutal heat. In Yuma, Arizona, the Marines gauged the temperature in a Harrier Jump Jet’s cockpit at 168ºF without overhead protection. Marine pilots are up against enough as it is. Can you imagine getting into that seat? Not to mention fried avionics – a very expensive proposition indeed.

Imagine your own costs if you had to replace your aircraft or your inventory.A solid line of defense is the only way to guard your assets, move forward and expand your business. And the protection and comfort of your employees is vital to your success.

Many people don’t realize that high-quality fabric structures offer supreme protection from the elements – and at a fraction of the cost of their brick-and-mortar counterparts. They can be assembled quickly and relocated easily. Fabric enclosures offer structural integrity and longevity without great expense.

The military, at the most vital level, clearly understands the value of protecting its equipment and shielding its soldiers, and that is why its branches have trusted Big Top Fabric Structures for decades. Using one of our sun shelters, the Marines at Yuma measured the Jump Jet’s internal temperature at 97º.

The Navy measured a surface temperature of 140º on the flight deck of the USS John F. Kennedy aircraft carrier. Underneath a Big Top structure, the carrier’s deck was a mere 87º.

The Air Force employs our shelters at its Edwards, Moody and Eglin Air Force bases, among many others. The USAF chose Big Top to cover the elite 33rd Fighter Squadron’s F-18 and F-15s, adding a year to their paint cycle.

The military relies on Big Top to shield the most expensive equipment in the world.Your assets are on the line, and we can provide an affordable, customizable way to protect them as well. Our fabric structures are used extensively in commercial aviation, the marine industry, heavy construction, energy, and manufacturing, to name a few. Using Big Top Structures, our clients are able to protect sensitive equipment and provide comfortable working environments for their employees.

Of course, heat is not the only threat your business might face. Our fabric structures are engineered to meet building codes, are reinforced with galvanized steel and can withstand Zone 4 earthquake specifications. They can withstand wind speeds of up to 120 miles per hour and snow accumulation of 40 pounds per square foot. A lightning protection kit can be installed on nearly every one of our enclosures.

Through the decades, Big Top has innovated and adapted to meet the needs of companies in all kinds of environments. Your assets are your livelihood, and your people pave the way to continued success. We provide affordable, customized ways to protect both. We’ve got you covered wherever you do business.

Protecting Equipment from Heat and Elements

Documents

Lief Nielsen Portfolio