Monthly Archives: January 2016

Junk bonds, better known as high-yeild debt have seen much better days and strategists say that investors may be focusing too much on the role energy has played in the decline while underestimating other risks.

According to Matthew Mish, global credit strategist at UBS “Energy, bond valuations are pricing in an uplift in underlying commodities, so there’s more downside risk if prices hold at these levels for a long time or go lower,” And elsewhere, he added, “we do not see a marginal buyer for lower-quality credit.”

David Kotok, chairman and chief executive of Cumberland Advisors, worries more about the currency risk. “Foreign currencies — even those in developed markets such as Canada — have been crushed under a strong United States dollar. Over the past year, the Canadian loonie has fallen 17 percent against the American currency; the Brazilian real has plummeted 34 percent”, says Kotok.

Joseph F. Kalish, chief global macro strategist at Ned Davis Research concern is for the market damage seems to be spreading beyond commodities. Kalish says, “That’s what has gotten me more concerned this time around, compared to the generalized, risk-off sell-off we had in the middle of last year,”.

Released by the Office of Compliance Inspections and Examinations of the Securities and Exchange Commission, Examination Priorities for 2016.

CEO Lloyd Blankfien of Goldman Sachs plans on paying $5.06B to end federal and state investigations of its underwriting and sale of mortgage-backed securities from 2005 to 2007. The investment banking giant will pay $2.3B in civil penalties, $875M in cash payments, and $1.8B in consumer relief to settle all claims. The payout will lop off $1.5B from Goldman Sachs’ after-tax earnings, according to Law 360.

Each year, FINRA publishes its Annual Regulatory and Examination Priorities Letter to highlight issues of importance to FINRA’s regulatory programs, Regulatory and Examination Priorities Letter.

Many of the concerns in last year’s letter remain priority again for 2016. With the recent increase in interest rates, FINRA reiterates the worries mentioned in last year’s letter regarding interest rate-sensitive products. Firms are urged to evaluate their product offerings to determine where heightened concerns about interest rate sensitivity are relevant.

FINRA Chairman & CEO Richard Ketchum says, “Firm culture, ethics and conflicts of interest also remain a top priority for FINRA. A firm’s culture contributes to, and is also a product of, a firm’s supervision and its approaches to identifying and managing conflicts of interest and the ethical treatment of customers. Given the significant role culture plays in how a firm conducts its business, this year the letter addresses how we will formalize our assessment of firm culture to better understand how culture affects a firm’s compliance and risk management practices.”

As noted in a December 31, 2015 article in The Wall Street Journal (“The Year the Hedge-Fund Model Stalled on Main Street”), more “liquid alternative” mutual funds closed in 2015 than in any year on record, according to research firm Morningstar Inc., due, in significant part, to increased market volatility.

In all, according to Morningstar, 31 liquid-alternative funds closed in 2015, up from 22 a year earlier, as inflows dwindled and performance weakened.

The results show that enthusiasm is fading for what had emerged in recent years as one of the hottest products in asset management – funds that combine hedge-fund strategies like shorting stock with the daily liquidity of mutual funds.

Assets in liquid-alternative funds grew to $310.33 billion at the end of 2014 from $124.44 billion at the end of 2010. But the inflows have slowed as performance faltered in 2015 – in fact, it is estimated, according to the WSJ article, that just $85.1 million flowed into liquid-alternative funds in 2015.

The host of funds liquidated this past year included strategies run by J.P. Morgan Asset Management, Guggenheim Partners LLC and Whitebox Advisors LLC. The closed funds were a range of unconstrained bond funds; managed future funds, which bet on futures contracts in a number of markets; and equity funds that bet on stocks rising and falling – are of which tend to have highly concentrated bets that expose investors to riskier assets than typical mutual funds do.

If you are an individual or institutional investor who has any concerns about your investment in any liquid alternative fund, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).