The Finance Professionals' Post

Outlook for Healthcare Reform and Healthcare Stocks

U.S. Healthcare Spending Appears Unsustainable 

The U.S. spends twice the average of most other developed nations on health care for only comparable care, which has led many to question the efficiency of the U.S. health-care system. Further, the high health-care spending represents approximately 17% of U.S. GDP and has grown faster than GDP over several decades. These high costs--along with the desire for universal health-care coverage and the U.S. government's dwindling resources for funding health-care programs--are driving the calls for major health-care reform. 

Impact Investing—The Next Big Wave in Socially Responsible Investing

Impact investing, an emerging subset of socially responsible investing, offers a channel outside of formal public equity markets for investors seeking not only financial returns but social and environmental value. Impact investors are not necessarily targeting companies that engage in the best sustainable business practices in any given sector. Instead they seek out ventures in developing countries or inner city neighborhoods that provide solutions to urgent environmental and social challenges ranging from water and food scarcity to education, clean energy, affordable housing, resource depletion, and health care. IGNIA Partners, a new impact investment venture capital firm co-founded by Michael Chu, a former Kohlberg Kravis Roberts and Pegasus Capital partner, calls it “investing in the base of the pyramid.”

Letter from the President

As we begin NYSSA’s 2010 fiscal year, the staff and volunteers who bring all of our programs and events to life are continuing their work to provide you with the high caliber offerings you have come to expect from NYSSA. In fiscal year 2009, NYSSA hosted nearly 280 programs and events, 127 of which were member-only or free to members. Of these, an increasing number (41 in total) were career development programs designed to address the growing interest in this topic.

SEMI Program Celebrates with Reception Dinner

On Thursday, July 30, the SEMI Program held its year-ending reception dinner at the Westin New York at Times Square. Students, mentors, and past participants all took part in the festivities celebrating the end of another successful SEMI season.

At the event, NYSSA Student Committee Chair Virginia Donner announced the winning team of the SteepleChase Competition and thanked all students and mentors for coming.

Entrepreneurial Tip Corner: Make the Most of Your Summer Vacation

During this time of the year many of us take vacations to “recharge our batteries.” I wonder if that catch phrase was coined by an executive from Duracell or Union Carbide. In any case, I think you can do more on your vacation than simply renewing your strength for a week or two.

How to Get Recruiters to Call You

Inducing recruiters to pay attention to you is a lot like borrowing money. If you don't ask until you desperately need it, then you're sure to be rejected. So if your current job isn't on the chopping block yet but might get axed next year, now is the time to reach out to people who can open a door to new opportunities.

S&P SmallCap 600 versus the Russell 2000: A Tale of Two Benchmarks

It is well documented that the returns of two leading small-cap benchmarks, the S&P SmallCap 600 and the Russell 2000, have diverged over the last 15 years. Since its launch in 1994, the S&P SmallCap 600 has outperformed the Russell 2000 in 11 out of the 15 years. Standard & Poor’s research report determines that approximately half of the excess returns are attributable to the impact of the July effect, which is caused by the annual Russell reconstitution in June. The remaining excess return can be explained by fundamental differences in construction of the indices. 

Click here to access the full report.

Book Review: The Partnership

We have recently seen the demise of some of the great Wall Street names: Lehman, Merrill, Bear Stearns. This has brought home the need to study what makes a financial firm a survivor and a success, with the strength to forge ahead in troubled times. There is no better source than Charles Ellis’ book on Goldman Sachs. Ellis was the founder and managing partner of Greenwich Associates, which has decades of experience as a strategic consultant to the financial community. 

Entrepreneurial Tip Corner: Hey, What’s The Big Idea?

It may sound corny, but ideas are part of what made this country great. Good ideas sometimes come from the most unlikely sources. The company owner or manager does not necessarily have the best ideas or all the right answers. Here are some ways in which you can build a team of employees who provide you with good ideas on a regular basis. 

Standard & Poor's Tracks Carbon Footprints

The new S&P U.S. Carbon Efficient Index is the first broad market U.S. index that can be used to create financial products that provide investors with reduced Carbon Footprint exposure. This index also seeks to avoid a trade-off in performance by frequently optimizing the index to closely track the return of the S&P 500, its parent index.

Click here to watch a video.

NYSSA Annual Dinner

Over 250 members of the financial community attended NYSSA’s Annual Dinner on June 17, 2009 at The Westin New York at Times Square to hear featured speaker Leon Cooperman, CFA. The event also honored NYSSA’s Volunteers of the Year, SEMI student scholarship recipients, Investment Research Challenge winners and departing board members.

Book Review: The Money Makers

Author and NYSSA member, Anne-Marie Fink was formerly an analyst and portfolio manager at J.P. Morgan Asset and Wealth Management. Her new book is the result of her years of experience evaluating companies and their CEOs. What makes this book so noteworthy and is that she challenges many of the business myths that both management and investors cling to.

Benchmarking Target Date Funds, 2009

In the target date world, one challenge has been benchmarking. Since these funds hold multiple asset classes and vary cross-sectionally by asset class inclusion and weight, traditional single-asset class benchmarks are not appropriate. In this research paper, Standard & Poor’s discusses several benchmarking approaches for target date funds.

Click here to read the research paper.

Book Review: Bear Trap and House of Cards

The collapse of Bear Stearns came as a huge shock to Wall Street. Now in retrospect, it looks like a story of self destruction. William Cohan’s House Of Cards (Doubleday, 2009) chronicles how decades of a definite corporate culture pushed Bear Stearns into oblivion. Its past determined its future as it ran into the financial crisis. The history is one of dominant personalities—Cy Lewis, Ace Greenberg, Jimmy Cayne—rather than a systematic approach. The picture that emerges is a collection of bright, motivated, opportunistic entrepreneurs without professional top executives in charge, especially during the final period. 

Majority of Active Fund Managers Underperform Benchmarks Across All Categories Over Past Five Years

Standard & Poor’s Index Versus Active Fund Scorecard (SPIVA) year-end 2008 report shows that over the five year market cycle from 2004 to 2008, the S&P 500 outperformed 71.9% of actively managed large-cap funds, the S&P MidCap 400 outperformed 75.9% of mid-cap funds, and the S&P SmallCap 600 outperformed 85.5% of small-cap funds. 

To view the complete SPIVA report click here.

Sustainable Investing: An Interview with Heather Langsner of Riskmetrics Group

Heather Langsner is the new director of Sustainability Research at risk management provider Riskmetrics Group. She talks here about the potentially “disruptive” power of sustainable investment analysis and her passionate belief that this kind of research is poised to transform the practice of equity valuation.

Entrepreneurial Tip Corner: Managing Personal Debt

Personal debt is simply a fact of life in today’s society. How we manage that debt can be the difference between fiscal freedom and hardship. Most of us have to borrow to finance essential expenditures on education, vehicles and housing. It’s a daunting reality that most of our monthly income is spent paying off our loans, however, there are ways to manage personal debt more effectively without resorting to drastic measures, such as declaring bankruptcy.

NYSSA Board Member Speaks with Beijing CFA Charterholders

Barry Sine, CFA, CMT, a member of NYSSA's Board of Directors, recently spoke to CFA charterholders in Beijing, and came away with some interesting insights into what is one of the most dynamic and fastest-growing capital markets in the world.

NYSSA Members Selected as Master Stock Pickers by the "Wall Street Journal"

Each year the Wall Street Journal ranks the top five stock pickers in each industry based on their recommendation-performance scores. Many of these master stock pickers are NYSSA members and we’d like to recognize their accomplishment, they are:

Entrepreneurial Tip Corner: Selling Your Service

Rocket scientists and brain surgeons have it easy. They seldom hear their customers or patients tell them, “I can do this job myself. Why should I pay you?” But for those of us who sell services that could be deemed easy enough to do by yourself or within your company, it’s a constant struggle to find customers and clients who understand the value of hiring an outside professional. Regardless of your service—accounting, design, money management, personal financial planning or even house painting—the challenge is still the same: to sell your service to the prospective customer.

Directional Exposure to Volatility Via Listed Futures

Volatility has emerged as an important asset class in the last decade. It is actively traded through over-the-counter (OTC) variance and volatility swaps, and through exchange listed VIX futures and options. While VIX® has achieved widespread recognition, it remains very challenging to replicate spot VIX. The S&P 500 VIX Short-Term Futures Index is the first index to offer directional exposure to volatility through publicly traded futures markets. This paper provides a background on the construction, replicability, and characteristics of this index. 

Click here to read this paper.

Disparities Seen in Federal Securities Fraud Sentences

In every criminal case, the defendant must make a critical decision: go to trial or plead guilty. A slew of factors go into that decision. Three questions loom largest: how likely will the defense prevail at trial, what sentence do we anticipate if the defendant pleads guilty, and what is the likely sentence if the defendant is found guilty after trial? Here, we will concentrate on the latter two questions, which touch on the vagaries of sentences in securities fraud cases in the post-guidelines world.

Tips on Finding Government Jobs

NYSSA held a Federal Career Day for members. For those who did not get a chance to attend, we have put together this note to help you apply for those jobs that interest you. Some general comments heard from many HR professionals at the fair are below, followed by more details about each of the 13 agencies in attendance.

Moody’s Updated Modeling Parameters for Rating Corporate Synthetic CDOs and Cash Flow CLOs

In recent months, as the credit crisis that started in the summer of 2007 has spread across various sectors, and economies around the world are confronted with a deep and long recession, synthetic CDOs and cash flow CLOs—whose ratings have been relatively stable—have started seeing substantial downgrades.

During the past few months, Moody’s has revised and updated the key modeling parameter assumptions that it uses to rate and monitor CDOs and CLOs backed by corporate debt. These changes alone have led Moody’s to downgrade—in many cases by several notches—a large number of CDO and CLO tranches, and many remain on review for possible further downgrade.

Value Investor Insight's Words of Investing Wisdom

Value Investor Insight has compiled excerpts from each of the 46 issues of Value Investor Insight which celebrate both the similarities and differences in how the best investors apply their craft. Topics include: Finding an Edge, Field of Play, Uncovering Value, Research and Analysis, Portfolio Management, Learning Curve, Of Sound Mind, and the Craft of Investing. 

Click here for your electronic copy.

Rent-Price Index in U.S. Housing Market

Standard & Poor’s Index Services examines the relationship between house prices and rents across eight major metropolitan areas in the United States. The analysis indicates that low rent-price ratios are associated with periods of low or negative house price changes. 

To access the full report and the complete findings, click here.

Entrepreneurial Tip Corner: Managing Stress on the Job

Stress-related disorders are fast becoming the most prevalent reason for employee disability. Job stress and related problems cost U.S. companies an estimated $200 billion annually through absenteeism, turnover, accidents, etc. The World Health Organization calls job stress a “worldwide epidemic.” In today’s uncertain economic environment—with announcements of downsizing, layoffs and bankruptcies occurring daily, directly affecting millions of employees—everyone feels the stress involved.

Build Your "A" Player Status Even Though You Are Not Employed

You might be out of a job but don’t think you’re necessarily out of work. You can even be making money during this downtime. As a knowledge worker, your toolkit remains in your head—it’s not like you had to turn it back into the company at your last punch-out. And, because almost all of us have some sort of computer access, you have everything you need to continue building your visibility and even prestige while you’re waiting for the employment side of things to turn around for you. In fact, ironically enough, now that you’re a free agent, this is your chance to hit major professional goals for yourself. Your time is your own, and you don’t need anyone’s permission to step right up and reach up a little higher than you could when you were embedded inside a team that was bound by politics, egos, and layers of authority that you had to kowtow to.

Benchmarking Target Date Funds, 2008

The target date fund market is growing strongly because of adoption within defined contribution plans and investors’ desire for one-stop shopping for retirement investment solutions. There are, however, significant differences in glide paths and asset class exposure across the target date fund universe which creates difficulties for benchmarking and defining passive exposure to the available universe.

Click here to read a concept paper on benchmarking target date funds.

Fordham University Wins NYSSA Investment Research Challenge

A team of students from Fordham University edged out the competition from Rutgers Business School, Cornell University, and Stony Brook University to take top honors at the 8th Annual Investment Research Challenge. The students from Fordham—Thomas Messineo, Alex Ng, Jonathan Ball, and Ravi Misra—will now move on to the 4th Annual Global Investment Research Challenge in Hong Kong, where they will once again present their analysis of the subject company, Bitstream (NASDAQ: BITS). Messineo, the team captain, and Ball took some time out of their preparations to answer a few questions.

Toastmasters Corner: "Can I give speeches for CE Credit?"

It is imperative that, as investment professionals, CFA charterholders must engage in lifelong learning and continuously “sharpen the saw.” A recent question posed by NYSSA Toastmasters members is “Can I give speeches for CE Credit?” The answer is yes! The CFA Institute has a self-directed CE program that allows for flexible options that can be congruent with other areas of professional development and career enhancement.

Commentary: 9/11 Caused the U.S. Financial Crisis, Not a "Saving Glut" in China

The “saving glut” discussion was nurtured by U.S. Federal Reserve chairman Ben Bernanke when he addressed the Virginia Association of Economists for the Sandridge Lecture on March 10, 2005. The “saving glut” story acquired a new proponent and advanced to a higher level as then U.S. Secretary of Treasury Henry Paulson recently confided in an interview interpreted by the Financial Times of London. No finger pointing to China existed in Bernanke’s lecture. However, in Paulson’s “valedictory interview” with the Financial Times in Washington published on January 1, 2009, Krishna Guha positioned Paulson into a corner. The “saving glut” story rose to a higher plane—namely, to a hypothesis that it “helped to foster the credit crisis by pushing down global interest rates and driving investors towards riskier assets.” This appears a way for Guha to infer without direct quotes that Paulson believed the “saving glut” caused the financial crisis. This though is a hypothesis, subject to confirmation by evidence. Do not forget the principle that every transaction has a supply side and, as well, a demand side. 

Book Review: The Ascent of Money

In The Ascent of Money: A Financial History of the World (Penguin, 2008), Ferguson discusses the evolution of finance and its effects on the people of that time. Ferguson traces the beginnings of finance from Mesopotamia to the current day turmoil of “Planet Finance.”

UK Poll Shows Despised Business Jargon

The Daily Telegraph’s online article called “‘Thinking Outside the box’ is most despised business jargon” discusses results from a survey of 2,035 adults in the UK on what business language they found to be pointless. This is called “buffling”—using language that “does not say anything important or useful.” 

Making Customers your Sales Force

What is the least expensive and often most effective form of advertising? Word-of-Mouth referrals. These are referrals from clients and customers who are very familiar with your product or service, because they have had recent experience with your organization. How can you maximize these opportunities to have your clients and customers refer new business to you? 

The Shrinking Index Effect—A Global Perspective

Is the “index effect” shrinking? To answer this question, S&P does a 10-year review of constituent changes in headline indices of five of the biggest equity markets in the world: S&P 500, Nikkei 225, FTSE 100, S&P/TSX 60 and DAX 30. The conclusions include that excess returns for index additions have diminished over the past five years. The median excess return of S&P 500 additions was 3.8% for the past five years, compared to 6.0% for the five years prior. The declining pattern is also observed in Nikkei 225, S&P/TSX 60 and DAX 30. 

To learn why the index effect is shrinking, click here for the full report.

Capturing the Index Effect via Options

In this concept paper, Srikant Dash and Berlinda Liu analyze a less-known but profound impact of additions to the S&P 500—the impact on publicly traded options of the added company. Their analysis sheds new light into the enormous magnitude of index change related price movements in the options market, and provides insights on replicable trading strategies.

Volatility Arbitrage Indices—A Primer

Volatility arbitrage strategies are morphing from niche institutional strategies to mass-market, index-linked products that provide diversified alpha to a traditional portfolio of stocks and bonds. Standard & Poor’s concept paper, “Volatility Arbitrage Indices—A Primer,” provides a background on the volatility arbitrage strategy, indexation of such strategies, and the payoff of the indexes. Click here to read the entire concept paper.

The Bonus Dilemma

This white paper focuses on public relations aspects of the dilemma confronting U.S. investment banks over reformulating compensation—both near-term and long-term, from the C-suite to the operations staff.

–Jon Jacobs, eFinancialCareers.com

Linkages Between Housing and Municipal Bond Markets

The housing recession has multiple flow-through effects, among them a potential for negatively impacting the financial condition of municipalities, and therefore, the municipal bond market. In this paper Keith Loggie and Philip Murphy explore links between the housing and municipal bond markets at the county level. The data suggests an asymmetric relationship between home prices and municipal bond spreads, whereby the effect of home prices on municipal bond spreads is only prevalent in falling housing markets. 

Click here to read the concept paper.

Standard & Poor's Indices Versus Active Funds Scorecard, Mid Year 2008

After a 15-month hiatus, Standard & Poor's is pleased to reintroduce SPIVA––the popular and widely respected scorecard of the active versus passive debate. The new SPIVA has broader asset class coverage across domestic and international stock and bonds funds, and draws its underlying data from University of Chicago's CRSP Survivor-Bias-Free U.S. Mutual Fund Database. While the hiatus has been long, the story has remained the same––across longer time horizons a majority of active managers are outperformed by benchmarks, and nearly one in four funds dies in five years.

Click here to read the concept paper. 

The Intelligent Individual Investor

The publication of Warren Buffett’s “Buy American. I Am.” was not surprising. Like the “Panic Birds” of Old Wall Street long before him, financial calamities have always prompted Mr. Buffett to action. Also in keeping with past practice, the investment community gave his arguments mixed reviews and, judging by the market response, paid them scant heed.

Beware of the VWAP Trap

This study, written by the QSG Analyst Team, reveals that significantly higher impact costs and trading velocity are incurred for VWAP algorithms when compared to Arrival Price algorithms, especially when applied to liquid, low price stocks. This is contrary to the popular perception that VWAP strategies reduce trading costs. The results suggest that High Frequency Trading (HFT) strategies are materially contributing to these increased costs. The report also illustrates that the increased order parceling related to VWAP strategies has negative ramifi cations, including increased tick risk, larger statistical footprints and the possibility of costly trading spirals. These insights are particularly relevant given the lack of empirical evidence isolating the impact of HFT strategies on institutions employing non-HFT strategies. The analysis is significantly strengthened by employing a powerful set of tick-based algorithm evaluation measures.

Research Overview: Cornelia Betsch's Preference for Intuition or Deliberation Scale

Recent work by Cornelia Betsch (Center for Empirical Research in Economics and Behavioral Sciences—CEREB, University of Erfurt, Nordhaeuser Strasse 63, D-99089, Erfurt, Germany) suggests some interesting findings regarding strategies used to make a choice. Several key points of this research are as follows.

Job Searches In A Slowing Economy

Has your job search stalled? Review the following tips to see if you're taking advantage of all available resources. 

Results of Survey on Government Financial Market Intervention

On October 9, 2008, NYSSA launched a survey on the Government Financial Market Intervention plan. The survey was designed to gather feedback from our members and some nonmembers on their opinions about the effectiveness of the Intervention and if the bailout was sufficient to meet the need. Other information gathered included the changes in investment habits of respondents firms, reaction to proposed regulation changes and the availability of cash.

Research Overview: Phantastic Objects and the Financial Market’s Sense of Reality

David Tuckett and Richard Taffler have an interesting paper recently published in the International Journal of Psychoanalysis entitled “Phantastic Objects and the Financial Market’s Sense of Reality: A Psychoanalytic Contribution to the Understanding of Stock Market Instability.” The article suggests that in the context of uncertainty and ambiguity, emotions and states of mind determine the way information about reality is processed. Three questions are posed as follows:

Book Review: Wall Street Revalued

Andrew Smithers, a London-based economist who advises institutional and private clients on asset allocation, showed great foresight in his previous book, Valuing Wall Street: Protecting Wealth in Turbulent Markets. Cowritten with Stephen Wright, the book appeared in the spring of 2000 and argued that the market was massively overvalued. Few analysts agreed with Smithers and Wright at the time, but over the next nine years the S&P 500 lost nearly half of its nominal value. 

Most Analysts Miss Data That Affects Their Models—Will You?

Long-term performers continuously innovate in the research process. In recent years, expert networks and channel checking services have added new data to analysts’ models. Today, the web has emerged as a vast, unmatched investment research database, with:

• fundamental data on companies––trapped in text form
• emerging signals of risk in a market or region––before they hit the tape
• global and local insights on every company––not mentioned in standard analysis
• comments from experts––outside of the widely used expert networks

Product Profile: Capital IQ

Capital IQ is a web and Excel-based research platform that combines deep information on companies, markets, and people worldwide with robust tools for fundamental analysis, market analysis, screening, and charting. Capital IQ is deployed at over 2,400 leading institutions including top tier hedge/mutual funds, all the major investment banks, several hundred LBO/VC firms, and many S&P 500 companies. Capital IQ will allow you to draw deep market insights, generate better ideas, and simplify your workflow.