tag:blogger.com,1999:blog-48733320689426911342024-03-08T08:11:06.560+00:00AssetAllocation PlusWelcome to my blog. What's happening in the markets and what you can do to be ahead of them.AssetAllocation Plushttp://www.blogger.com/profile/17932450503934666213noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-4873332068942691134.post-44503828054709623372011-08-23T11:48:00.000+01:002011-08-23T11:48:25.805+01:00Timberland: A True Growth Asset <span style="font-size: x-small;"><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;">Timberland, also referred to as forestry, provides a sound long-term investment in both low and high-inflationary environments.<span style="mso-spacerun: yes;"> </span></span><span lang="EN" style="color: black; font-family: "Tahoma","sans-serif"; mso-ansi-language: EN;">A major attraction of investing in timberland is the competitive returns it offers in comparison with other asset classes on a risk-to-return basis.</span></span><span lang="EN" style="color: black; font-family: "Lucida Sans Unicode","sans-serif"; font-size: 8.5pt; mso-ansi-language: EN;"> </span><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;"><span style="font-size: x-small;">Timberland income can be used as a tool to balance returns from other asset classes such as stocks, bonds, real estate, private equity and hedge funds.<o:p></o:p></span></span><br />
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<div class="MsoNormal" style="margin: 0cm 0cm 0pt;"><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;"><span style="font-size: x-small;">Forests are historically linked to long cycles and economic growth. Timberland prices have historically appreciated above the rate of inflation.<span style="mso-spacerun: yes;"> </span>It is a tangible, cash-generative real asset.<span style="mso-spacerun: yes;"> </span>It can form an effective diversification tool as part of any institutional investor’s long term portfolio.<o:p></o:p></span></span></div><br />
<div class="MsoNormal" style="margin: 0cm 0cm 0pt;"><span lang="EN" style="color: black; font-family: "Tahoma","sans-serif"; mso-ansi-language: EN;"><span style="font-size: x-small;">Returns from timberland investments exceeded the S&P 500 Index for 11 of the past 20 years from 1990 through 2009. During that period, timberland compounded at an annual return of 11.75% versus 8.20% for the S&P500.<span style="mso-spacerun: yes;"> </span>In addition, the returns from timberland offered lower volatility in comparison with the equity market.<o:p></o:p></span></span></div><br />
<div class="MsoNormal" style="margin: 0cm 0cm 0pt;"><span style="font-size: x-small;"><span lang="EN" style="color: black; font-family: "Tahoma","sans-serif"; mso-ansi-language: EN;">Timberland investments can be local, regional, national or global in nature.<span style="mso-spacerun: yes;"> </span>For example, there are opportunities to invest in timberland in Europe, North America, South America, Africa, Russia, Asia and Oceania.<span style="mso-spacerun: yes;"> </span>Global wood consumption is expected to increase by 60% over the next 25 years.</span><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;"><o:p></o:p></span></span></div><br />
<div class="MsoNormal" style="margin: 0cm 0cm 0pt;"><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;"><span style="font-size: x-small;">The asset value of growing timber accumulates over time (assuming no adverse events) and apart from thinning and normal forest management will occur without any significant human or technological involvement.<span style="mso-spacerun: yes;"> </span>The revenue stream is also flexible as the timing of harvesting and profile of the timber can to some extent be matched to market conditions and investor’s needs.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></span></div><br />
<div class="MsoNormal" style="margin: 0cm 0cm 0pt;"><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;"><span style="font-size: x-small;">A key feature about timberland is that biological growth accounts for more than 60% of historical returns.<span style="mso-spacerun: yes;"> </span>Timber and land prices constitute the balance with about 15% each.<o:p></o:p></span></span></div><br />
<div class="MsoNormal" style="margin: 0cm 0cm 0pt;"><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;"><span style="font-size: x-small;">While some pension funds in the US and Europe have been substantial players in timberland for some time, it is still little understood and under-represented in most institutional investment portfolios.<o:p></o:p></span></span></div><br />
<div class="MsoNormal" style="margin: 0cm 0cm 0pt;"><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;"><span style="font-size: x-small;">Timberland can also provide environmental benefits as trees absorb carbon during their life and may therefore help counter global warming.<span style="mso-spacerun: yes;"> </span>The carbon can remain locked into timber used for construction and other products being one of the few renewable raw materials used in construction.<span style="mso-spacerun: yes;"> </span>When used as a fuel in place of coal, oil or gas, the use of timber can be effectively carbon negative.<o:p></o:p></span></span></div><br />
<div class="MsoNormal" style="margin: 0cm 0cm 0pt;"><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;"><span style="font-size: x-small;">Timberland investing sets out to achieve long term capital appreciation through the identification, acquisition and effective and effective and sustainable management of forestry.<span style="mso-spacerun: yes;"> </span>It offers institutional investors:<o:p></o:p></span></span></div><br />
<div class="MsoListParagraphCxSpFirst" style="margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-indent: -18pt;"><span style="font-family: Symbol; mso-ansi-language: EN-GB; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;"><span style="font-size: x-small;">·</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;"><span style="font-size: x-small;">The potential for long term capital appreciation;<o:p></o:p></span></span></div><br />
<div class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-indent: -18pt;"><span style="font-family: Symbol; mso-ansi-language: EN-GB; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;"><span style="font-size: x-small;">·</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;"><span style="font-size: x-small;">A reduction in portfolio volatility by having a low correlation with equities;<o:p></o:p></span></span></div><br />
<div class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-indent: -18pt;"><span style="font-family: Symbol; mso-ansi-language: EN-GB; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;"><span style="font-size: x-small;">·</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;"><span style="font-size: x-small;">Low correlations with other asset classes;<o:p></o:p></span></span></div><br />
<div class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-indent: -18pt;"><span style="font-family: Symbol; mso-ansi-language: EN-GB; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;"><span style="font-size: x-small;">·</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;"><span style="font-size: x-small;">Effective inflation hedging;<o:p></o:p></span></span></div><br />
<div class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-indent: -18pt;"><span style="font-family: Symbol; mso-ansi-language: EN-GB; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;"><span style="font-size: x-small;">·</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;"><span style="font-size: x-small;">Socially and environmentally responsible investment;<o:p></o:p></span></span></div><br />
<div class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-indent: -18pt;"><span style="font-family: Symbol; mso-ansi-language: EN-GB; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;"><span style="font-size: x-small;">·</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;"><span style="font-size: x-small;">Tangible real assets; and<o:p></o:p></span></span></div><br />
<div class="MsoListParagraphCxSpLast" style="margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-indent: -18pt;"><span style="font-family: Symbol; mso-ansi-language: EN-GB; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;"><span style="font-size: x-small;">·</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;"><span style="font-size: x-small;">Secure land title<o:p></o:p></span></span></div><br />
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</div><div class="MsoNormal" style="margin: 0cm 0cm 0pt;"><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;"><span style="font-size: x-small;">In addition to pure financial returns, significant quality of life benefits can accrue from timberland investing including:<o:p></o:p></span></span></div><br />
<div class="MsoListParagraphCxSpFirst" style="margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo2; text-indent: -18pt;"><span style="font-family: Symbol; mso-ansi-language: EN-GB; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;"><span style="font-size: x-small;">·</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;"><span style="font-size: x-small;">The protection of the natural environment and timberland heritage by ensuring the role of forests and forestry in soil protection, erosion control, water regulation, carbon capture, improvement of air quality, mitigation of climate change effects, and conservation of biodiversity.<o:p></o:p></span></span></div><br />
<div class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo2; text-indent: -18pt;"><span style="font-family: Symbol; mso-ansi-language: EN-GB; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;"><span style="font-size: x-small;">·</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;"><span style="font-size: x-small;">The promotion of the sustainable development of the forestry sector as a contribution to rural development and, in particular, to the creation and preservation of jobs in rural areas.<o:p></o:p></span></span></div><br />
<div class="MsoListParagraphCxSpLast" style="margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo2; text-indent: -18pt;"><span style="font-family: Symbol; mso-ansi-language: EN-GB; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;"><span style="font-size: x-small;">·</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;"><span style="font-size: x-small;">To enhance renewable forest management, such as increasing the use of sustainably produced wood and other forest products, as environment-friendly and climate-neutral sources of materials and energy.<o:p></o:p></span></span></div><br />
<div class="MsoNormal" style="margin: 0cm 0cm 0pt;"><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;"><span style="font-size: x-small;">Pension plans and other institutional investors have been putting timberland into real asset or inflation-hedging asset allocations, alongside infrastructure, commodities and inflation-protected bonds.<span style="mso-spacerun: yes;"> </span>It could also be categorized as a sustainable or renewable investment allocation.<o:p></o:p></span></span></div><br />
<div class="MsoNormal" style="margin: 0cm 0cm 0pt;"><span style="font-size: x-small;"><span lang="EN" style="color: black; font-family: "Tahoma","sans-serif"; mso-ansi-language: EN;">Building on significant scientific advances in silviculture, forest management practices depend on experienced professionals to integrate the biology of growing forests with financial management to achieve attractive economic returns for clients. Importantly, this must be done while managing the timberlands with a dedication to the stewardship of the land, water, and wildlife resources that have been entrusted to us all.</span><span style="font-family: "Tahoma","sans-serif"; mso-ansi-language: EN-GB;"><o:p></o:p></span></span></div>AssetAllocation Plushttp://www.blogger.com/profile/17932450503934666213noreply@blogger.com3tag:blogger.com,1999:blog-4873332068942691134.post-75131455029157059092011-02-13T18:05:00.004+00:002011-08-23T11:15:01.383+01:00"Own-Self Do It"When my wife was a little girl, her parents and siblings would often offer to help her to do things. Her response was usually, "own-self do it!" This sense of independence, self-competence and self-confidence has served her well in her life.<br />
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As we look at single family offices and family controlled businesses and how they have faired in the financial crisis, the rather limited and selected group that I interact with have generally done better than the private banks, wealth managers and funds of funds. Why? I believe it is down to an "own-self do it" attitude on the part of these families.<br />
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Having built significant businesses in a range of industries such as agriculture, oil & gas, media, mining, real estate, retail, shipping, software, technology and transportation, it should not be surprising that these families have the confidence to make investment selection and allocation decisions that are in tune with their specific needs and outlooks.<br />
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They have seen and heard enough inflated promises from financial service providers over the years, that a healthy scepticism is alive and well among family offices. This has helped them to preserve their own capital, when the private and investment banks, and funds of funds have been found lacking in performance and exposed to frauds such as Madoff, Bayou and Stanford.<br />
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In fact, from my informal observations, the higher the proportion of in-house investment decision making by a family office, the better and the more consistent their returns.<br />
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This healthy scepticism has also helped family offices to avoid the financial engineering gadgets and leverage that benefitted the investment banks at the expense of their client's capital.<br />
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Hats off to the single family offices that have stayed with the control and transparency they need, so that "own-self do it" has been a winning strategy.<br />
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<div class="MsoNormal" style="margin: 0cm 0cm 0pt; mso-layout-grid-align: none; mso-pagination: none;"><span class="status2"><span lang="EN-US" style="color: #222222; font-family: "Helvetica", "sans-serif"; font-size: 9pt;">J54UENPPS6CM</span></span></div>AssetAllocation Plushttp://www.blogger.com/profile/17932450503934666213noreply@blogger.com0tag:blogger.com,1999:blog-4873332068942691134.post-75876840270833369432011-02-12T16:25:00.000+00:002011-02-12T16:25:15.474+00:00Notice: New Blog ComingThis is to alert you that a new post will soon be coming to the AssetAllocation Plus blog. J54UENPPS6CMAssetAllocation Plushttp://www.blogger.com/profile/17932450503934666213noreply@blogger.com0tag:blogger.com,1999:blog-4873332068942691134.post-85387364603071279662010-11-15T00:25:00.001+00:002010-11-15T14:27:18.345+00:00Global Economic Outlook: 101The monthly OECD composite leading indicators (CLIs) give a good warning of the upswings and downswings of industrial cycles, both regionally and globally. The most recent CLIs point to diverging patterns of economic growth across major economies.<br />
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The CLIs show signs of continuing expansion in the United States, Germany, Japan and Russia, while pointing to a moderate downturn in the United Kingdom, France, Italy, Canada, Brazil, China and India.<br />
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To understand what is going on with global economic activity, it is also important to monitor the behavior of commodity prices. Commodity prices contain "real time" information and at present their behaviour confirms the expansion of industrial momentum world-wide.<br />
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World trade growth is intensely cyclical and has seen substantial fluctuations during the past 20 years. Reflecting globalization, exports and imports account for an ever-increasing share of GDP on a world-wide basis. This process is likely to continue as a more closely inter-linked global economy raises world income by improving competition and encouraging specialization. It also magnifies the economies' exposure to overseas demand fluctuations. Indeed, foreign trade multipliers are a lot more powerful than they were in the past.<br />
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The upward move in oil prices and the quantitative easing by developed nation central banks have worsened the inflation outlook. This has led to the upward price spiral in other commodities (including precious metals such as gold, silver and platinum) and increased the volatility in the currency markets.AssetAllocation Plushttp://www.blogger.com/profile/17932450503934666213noreply@blogger.com0tag:blogger.com,1999:blog-4873332068942691134.post-89626790502500527952010-10-18T15:26:00.001+01:002010-10-18T15:32:49.647+01:00Futures, Forwards, Options and Exchange-Traded FundsInvestors are using futures, forwards, options and Exchange-Traded Funds (ETFs) in a wide variety of contexts. For example, borrowers are using futures contracts to lock in borrowing costs for anticipated needs. Lenders are using such instruments to lock in lending spreads in anticipation of receiving cash to invest in the future. Fixed income portfolio managers are using financial futures to hedge portfolio holdings and expected cash flows, and/or to facilitate the orderly sale of securities during asset mix changes. Equity portfolio managers are using index futures and ETFs to shift asset allocations in anticipation of buying and/or selling of the physical securities associated with an asset class, an industrial sector or a geographic region. <br />
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In addition, for portfolios of large agricultural real estate investments, agricultural commodity futures contracts for corn, cotton, soybeans and wheat are used to sell short the commodity futures contract to protect against a price decline in an agricultural commodity in which the investor has or expects to have an inventory of those particular crops.<br />
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In these particular examples, we are talking about 'hedging', and not speculation, because there are risks associated with the underlying investment securities and/physical products. These instruments, when used for hedging, can be used to offset potential declines in the value of portfolio securities. They can also help facilitate large securities transactions and reduce the risks associated with security-specific and market-specific risks as well as exogenous variables such as political, monetary, weather and currency uncertainties.AssetAllocation Plushttp://www.blogger.com/profile/17932450503934666213noreply@blogger.com0tag:blogger.com,1999:blog-4873332068942691134.post-53769924353091045952010-10-02T23:25:00.001+01:002010-10-03T09:21:01.735+01:00Risk, But Not as Many Know ItA basic and undeniable fact: <i><b>Risks exist in many forms.</b></i><br />
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One of the basic fallacies of modern portfolio theory is the belief that risk can be defined and measured by variability in the price of securities. However, this is only a partial measure of total risk.<br />
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I would define risk as the exposure to the possibility of loss.<br />
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A taxonomy of risk was outlined by former US Defence Secretary, Donald Rumsfeld, in a press conference in 2002: ‘Reports that say that something hasn’t happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know.’<br />
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To some, this may seem an unlikely source for insights about market risk as well as general risks. We still do not have precise quantitative knowledge of the feedback between financial and real variables.<br />
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Known risks are those that are defined by current knowledge. They can be modelled, estimated and the parameters calibrated. Unknown risks are subject to statistical determination based upon what is already known, but the parameters cannot be calibrated. The unknowable risks cannot be known and cannot be modelled.<br />
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We humans seem to attach greater significance to specific events that have already occurred when we try to anticipate the future. That type of mental gymnastic is the reason that something that has never occurred gets a low probability when trying to predict or model risk.<br />
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Managing risks really means reducing the cost and likelihood of potential perils for a price. Our own approach incorporates behavioural, liquidity and non-linear dynamic factors.AssetAllocation Plushttp://www.blogger.com/profile/17932450503934666213noreply@blogger.com0tag:blogger.com,1999:blog-4873332068942691134.post-16529588083520845582010-09-19T20:06:00.000+01:002010-09-19T20:06:38.678+01:00Lifecycle Pension Funds - The QuestionWhen it comes to retirement, I do not believe that most people want to invest in some type of lifecycle pension fund if that fund is worth an <em>uncertain future value</em> at age 65 or 70. <br />
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Would savers have peace of mind that they have the financial wherewithal to live their retirement years in financial security and comfort if, for example, they have been primarily invested in bonds and cash instruments? Well, it depends on their particular circumstances and the timing of these particular portfolio allocations. <br />
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Stocks, bonds, real estate, private equity, commodities, cash and hedge funds have all generated attractive returns in different time periods. However, which asset classes will generate attractive returns in which years is a key issue to deal with. The years and the returns (or losses) can vary considerably. For example, in 2001, real estate and hedge fund returns were a helpful offset to a dismal year for stocks and commodities. In 2003, stocks and private equity had strong gains in comparison with those of bonds. However, in 2008, government bonds and cash were the only places to be for positive returns as the financial crisis hit with full force against all the other major asset classes. <br />
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Questions regarding what the future may bring in terms of inflation, market performances, currency movements, personal health circumstances, etc., all have an important impacts on the size of the pension nest egg that will be needed for savers to feel assured that their financial needs will be met in retirement as a result of their decades of personal savings and investments.<br />
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We will examine this in more detail in future blogs.AssetAllocation Plushttp://www.blogger.com/profile/17932450503934666213noreply@blogger.com1tag:blogger.com,1999:blog-4873332068942691134.post-52852030099756320062010-09-09T15:23:00.000+01:002010-09-09T20:56:07.424+01:00Introduction to AssetAllocation Plus - The Blog BeginsAsset allocation is the first step in any investment process. It is a vital element as it sets the stage for any portfolio's return and risk profile.<br />
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Academic studies have shown that more than 90% of variability in investment performance can be attributed to asset allocation. Decisions concerning asset mix have a greater impact on a portfolio's overall investment results that individual security selection or market timing.<br />
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Multi-asset, multi-market and multi-style can be combined to produce portfolios that can be constructed to be strategically actively managed within client-determined risk ranges.<br />
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In this blog I will explore a wide range of traditional (stocks, bond and cash instruments) and alternative (hedge funds, private equity, real estate, commodities, currencies, timberland, etc) asset classes, markets, styles and strategies.<br />
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I am open and flexible regarding the mix of components that can be used as it depends on client investment objectives, risk tolerances, income requirements and liquidity needs. I believe that getting market exposure through cheap and efficient building blocks such as ETFs, index funds and futures are valuable tools in the portfolio construction and risk management process, especially when combined with active alpha generators.<br />
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Keeping up with economic, market and political factors are important in trying to anticipate what could happen and by developing strategies that reflect those views. We certainly do have our opinions, views and strategies.<br />
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I hope you enjoy reading and interacting with this blog and welcome your feedback.AssetAllocation Plushttp://www.blogger.com/profile/17932450503934666213noreply@blogger.com0