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Archive for July, 2014


Posted On 30  Jul  2014  

Why low rates are likely to remain low for a long time?

The yield on Germany’s 10-year Bunds dropped to 1.12% yesterday the lowest rate since the early 1800s. Where Germany goes the rest of the continent follows. French, Italian, Spanish and Dutch yields are at the lowest levels for decades. Inflation linked bonds are trading at negative real yields. It is not just because the economic growth in Europe is anemic or because central banks are keeping rates at very low levels in some deliberate way. As the QE stimulus is reduced, dangers are that economic recovery may not be self sustaining. There is huge amount of spare capacity in Europe not only because the population is aging, but because unemployment remains very high and personal tax rates on earning population is also very high and personal debt levels are high. We are all locked in a trap, which has arisen because also of asymmetric income distribution. To top it all


Posted On 14  Jul  2014  

What does global macro investing mean?

Macroeconomics is the study of big developments in the economy of a particular country, markets as a whole or the global economy as a whole. Macro investing is usually based on views that conditions are going to become worse or improve for the better. Big developments can take time to unfold. Macro investing thus involves taking long or short positions in the currency, bonds, equity markets implemented with views on the overall economic or political developments of a given market. The types of measures macroeconomics involve are those that affect the whole economy. Examples of these measures are economic reports such as the GDP growth numbers, monthly employment report, consumer spending, purchasing mangers reports, level of inventories, inflation rates, long term interest rates, monetary (action on Fed funds rates) and fiscal policy (taxes, QE) and some sentiment indicators such as consumer confidence. The idea is that one can discern the


Posted On 10  Jul  2014  

The attraction of managed volatility strategies

John Authers writes on low volatility funds in the FT today. He says that investors want to reduce average drawdowns and not repeat the disaster of 2008. John points out that, “Academics have shown that a portfolio of stocks whose prices are not volatile will in the long run outperform portfolios of more volatile stocks” and that “This flies in the face of financial theory and common sense. Stocks beat other asset classes in the long run, theory holds, because they involve more risk, and in the long run investors are compensated for that risk. Low-volatility stocks have less risk of a big sell-off than other stocks, meaning that they should be a solid bet to underperform in the long run. And yet they aim to beat the market.” This finding has led the likes of BlackRock to offer “minimum volatility” ETFs which hold portfolios of low volatility stocks. Of


Posted On 09  Jul  2014  

India is on the move

The first move by Narendra Modi’s government to open up Indian railways for foreign investment is a good sign of improving India’s infrastructure with the same sort of boldness that has made China an economic giant. Indian railways only carry 23m passengers and 2.6m tonnes of freight daily and employs 1.3m people. In a country of near 1.2bn that is definition of inefficiency, even when the trains arrive on time. After the railway budget was presented the SENSEX fell by 600 points, the biggest one day fall in 10 months. This drives home the point that Indian projects have to be often taken with a pinch of salt because like foreign investments in the retail sector, the modernization  of Indian railways may be a long time in taking shape. A transparent, commercially driven process is almost impossible in a country where politicians take bribes. Despite the hurdles, India is on


Posted On 05  Jul  2014  

What is volatility control?

Algoam employs systematic methods which can target a predefined level of volatility in the investment process. In this method exposure to the volatile instrument is reduced as realized measure of volatility rises above the target level. The reduction on exposure can be accomplished according to preset volatility buckets or dynamically adjusted to target the preset level. The dynamic targeting looks at both the prevailing level of volatility as well as its current rate of change. Have a look at the Algoam Volatility Control Strategies. You can see that such dynamic risk management reduces draw downs and accomplishes more steady returns. Please view here a short write-up on volatility.