gallery STORM OF LINKS – Dividends, Commodities & Safe Havens

DIVIDENDS

Looking for the right strategy to build your long term wealth and consistently grow your income over time? Well, the quest is over, according to Columbia Threadneedle Investments. The answer is pretty straightforward: a disciplined dividend strategy.

Digging further, you will realise that, contrary to the majority dividend stocks and strategies out there, this process tends to focus on companies with rising dividends over time (typically, a sign of growth, especially operating free cash flow), coupled with an element of quality.

Both these features are intended to mitigate risk while offering some downside protection.

[Note that despite some of the losses related to a stock market crash are inevitable, by limiting your potential losses in the first place, there will a lot less to recoup when markets finally rebound]

Be aware however that, while portfolio management can be simple … it is never easy.

COMMODITIES

If you (like the majority of market participants as a matter of fact) fall within the “average investor” category, you probability are relatively less acquainted with “Commodities” as an asset class in general, let alone invest in them.

Be it for the differences involved in the process (in terms of computation of risk or taxes), or be it for the fact that they have been quietly falling out of favour in recent years, investors tend to avoid them all together.

[I admit that “iron ore” can seem less “sexy” than the latest Biotech stocks].

Wesley Gray’s article at Alpha Architect is an excellent way to ease some of those fears and finally demystify the “obscure commodity investing world”. After highlighting the current limits of the Robo-Advisers’ current offers, he lays out a list that represents the “starting kit” every investor should read before getting started, with a focus on focusing on term structures, momentum and influential papers in the field.

Key take-aways:

1) Commodity futures should NOT be considered an asset class, but a trading strategy

2) Investing in commodity futures is NOT the same as investing in equities tied to commodities

SAFE HAVENS

The main point defended by this article is the following: investing in Volatility should work as a shield against intimidating stock market downturns. Notice that this piece is extremely relevant as, while not a major source of concern for investors in the first part year, volatility has since spiked. Add to that historical correlations between asset classes not behaving themselves and what were considered “safe haven” are increasingly mimicking equity-like instruments.

How would this work? An example quoted is a pair trading strategy, executed in which ever asset class presents an opportunity, in terms of the relative risk implied by markets. [Remember: regardless, any trade should still be accompanied and supported by specific macro-economic themes and fundamentals].

If investors are ready to start treating volatility as an asset class, and embrace a truly unconstrained approach to asset allocation, this exposure can give a significant boost to current diversification benefits.

As always however, a warning is due:

“While volatility may provide an additional diversification resource to investors, it is by no means a panacea — investors shouldn’t expect volatility instruments to completely replace other diversifying assets. Rather, they may be viewed as a complement due to their distinct qualities in a significant market selloff.”

MARKET RECAP

TOP cLICK

October 11th 2015 – Most popular articles last week (abnormalreturns.com)

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Stay tuned dear Storm-Troopers !

(Yes, this is indeed the term we coined for our loyal readers… Oh and yes, we are Star Wars fans).

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