Ask Our Expert: The Reality of Rising Interest Rates, Part I

G. David MacEwen

G. David MacEwen,    Co-Chief Investment Officer

Q: What is your view of the current bond market?
A: These are unsettling times for bond markets and bond investors. Since 1981, we’ve witnessed a sustained period of yield declines to record lows and have become accustomed to these conditions. The possibility of a sustained shift toward higher yields raises many questions and concerns about the bond market.

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The Earnings Acceleration Difference

Earnings acceleration—when a company’s earnings per share (EPS) are growing at an upward rate—represents one of the most important tools in the analysis of a stock’s potential to increase in price.

Many traditional growth investors seek companies that produce high, sustained rates of growth. To them, the graph on the left would likely represent an attractive opportunity. By focusing on the level rather than the trend of a company’s growth rate, these managers may be paying for growth that is already reflected in the company’s stock price. They may have missed the opportunity to capitalize on the initial shift in a company’s growth.

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CIO Insights: Higher Correlations – A Boon for Active Corporate Bond Selection?

G. David MacEwen Co-Chief Investment Officer, Fixed Income

G. David MacEwen Co-Chief Investment Officer

In contrast to equity markets, where market correlations have come down (referenced in other CIO Insights posts this quarter), research from our Fixed Income team suggests that sector correlations in the corporate bond market have increased. We discuss what occurred, why, and what it means for us and our clients.

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Chart of the Week: It Pays to Get An Advanced Degree

Chart of the WeekSince 1984, there has been a 13% increase in monthly earnings for young adults (ages 25-43) who hold a bachelor’s degree. If you hit the books for additional schooling, however, your wages increased even more over the years: 23% for a master’s and 34% for a doctorate. The Pew Research study accounted for factors that could have influenced the results, including the fact that Millennials have delayed age of marriage more than previous generations–and that the findings don’t reflect the number of young adults who couldn’t find work.
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Ask Our Expert: The Value Investing Process, Part III

Mike Liss

Mike Liss, CFA, CPA, Vice President, Senior Portfolio Manager

Q: Where are you finding opportunities?
A: We’re finding opportunities in health care and energy stocks. Within health care, we’re finding opportunities across the spectrum because of Obamacare. We find that millions of people will gain insurance on exchanges and through Medicaid, and this will lead to increased utilization of health care services. Therefore, we believe that health care companies will benefit and earnings for companies will rise.

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Everything You Wanted to Know About Convertible Securities but Were Afraid to Ask

Although they are equity securities, convertible preferred shares combine characteristics of bonds and stocks, providing attractive dividend rates and reduced downside risk. As the name implies, convertible securities can be converted at the investor’s choice into other investments, normally into shares of the issuer’s underlying common stock. Convertibles are typically issued as bonds or preferred stock.

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CIO Insights: Asset Allocation vs. Security Selection

Scott Wittman

Scott Wittman, CFA, CAIA, Chief Investment Officer, Asset Allocation & Disciplined Equity

At a high level, there are two sources of active return—asset allocation and security (issue) selection. For example, determining the percentage of your portfolio to allocate to stocks is an asset allocation decision. Choosing stocks is a security selection decision. Both are important at different times in the market cycle. The “big” (top-down, asset allocation) decision can add tremendous value given divergence in asset class returns. But there are also times when the “small” (bottom-up, issue selection) decisions are dominant. We believe it’s likely to be a stock/bond picker’s market going forward.

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Chart of the Week: Parents See Career Capital as Success Driver

Chart of the WeekIn a recent survey of 4,100 business executives in 32 countries by Accenture, almost nine in 10 professionals believe that building “career capital”—differentiated skills that define and advance their careers—is crucial to success in the workplace. Respondents listed having longevity in their careers, higher education or advanced degrees and knowledge/competency in a particular area among the things that contribute most to building career capital. Also, the survey found that if money were not an object, 44% of working dads and 42% moms would rather work than stay home.
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Retire? (Where’s the Fire?)

RetirementThe traditional retirement age, 65, isn’t feasible for many baby boomers. Almost half of baby boomers don’t think they’ll retire until age 66 or older, according to a recent Gallup poll. When asked, “At what age do you expect to retire?” Thirty-nine percent of respondents said age 66 or older. The second most popular answer was 64 or younger, and the third most popular choice was 65. Only 10% said they never expected to retire.

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Ask Our Expert: The Value Investing Process, Part II

Mark Kopinski

Mike Liss, CFA, CPA, Vice President, Senior Portfolio Manager

Q: When do you buy a stock?
A: Our first step is to identify the leading companies. These are companies that have good returns on capital, strong balance sheets, and have leading market shares that are protected by high barriers to entry. We are trying to identify these companies before they become a good risk/reward. A good example of this is the company Schlumberger. In 2007, the stock was trading at over $100 per share. Subsequently, the stock fell into the low $30 range over the next year. Since we had done our work up front, we were ready to take action as the stock fell. And our shareholders, in my opinion, were able to benefit from our efforts.

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