In the wake of some hedge funds pulling back risk, participants at a recent Investing Summit in Asia feel that private equity, boutique firms, institutions, and sovereign wealth funds will begin buying distressed debt (see FinanceAsia.com article). Many of these firms are expected to enter the secondary market for distressed assets given the opportunity to buy them at large discounts. Nonetheless, participants at the conference worried that all the "distress" was not currently in these assets, and that there was no reason to rush into buying them. Ed Altman, Professor of Finance with the NYU Stern School of Business, agrees, and predicts that the assets and the bargains will be available for another 6-12 months.
As we move into May, we are once again hearing the common refrain of "Sell in May and go away." Robert Maltbie, managing director of Singular Research, feels that while the refrain may hold, he expects that investors will need to be more selective (see WSJ video below). In particular, Maltbie feels that the rule of thumb works best after a nice run-up in stocks. Without that run-up, there is less downside to not selling. Of course, we have had a nice rally recently, but are still quite a bit off the highs, so even this rule of thumb has a layer of subjectivity to it this year. As for stocks and industries that have probably run-up, Maltbie highlights the consumer stocks, some banks, and some casinos. On the other hand, investors may want hold positions in infrastructure and green investment, due to the stimulus spending, and micro-small caps, due to their prices having been driven down too far.
The Grail American Beacon Large Cap ETF is now being offered to the public. While this would normally not be a big deal, this ETF is unique in that it is being billed as the first actively managed ETF (see WSJ article). There have been other active ETFs that diverged from a specific index, but the stocks choices for the fund were generated by computer models, as opposed to having a manager pick the stocks. In the tradition of lower fees for ETF, fees will be 0.79%, lower than a mutual fund, but still higher than a typical straight index fund ETF. Like other ETFs, the funds holdings will be made public daily, similar to mutual funds. Whether the ETF will be successful will depend on whether the company can avoid front-running of large public positions, and whether or not investors, who are already skittish and getting conservative, will be willing to invest with a product and a manager with an unknown track record. If history is any indication, the outlook is not good, especially given the timing.