When we began building our Security Exposures Analysis functionality, the focus was on understanding an exposure to particular criteria—what I call “thematic exposures.” For example, our clients could understand their total firm or group exposure, across every portfolio, to Japanese companies, or big oil. Since then, users have branched out into entirely new analysis methods. They have used exposures analysis to fit a variety of different settings. In all of our conversations with clients, the way people used the product suggested another approach to the analysis being performed: One that focused not on thematic exposures only but also on threshold exposures.
Continue reading "Pushing the Threshold: New Uses for Exposures Analysis" »
The global ﬁnancial crisis of 2007–2009 was associated with an unprecedented degree of ﬁnancial and economic damage. For investors and ﬁnancial intermediaries, the estimates seem to have risen to over $4 trillion or so worldwide by the time things began to stabilize, according to the International Monetary Fund (2009). Along with the ﬁnancial damage has come substantial reputational damage for the ﬁnancial services industry, for ﬁnancial intermediaries and asset managers, and for individuals.
Continue reading "Reputational Risk" »
With all the Wall Street types who are looking for jobs, and those eager to jump ship, Aram Fuchs, a partner at Fertilemind Capital, figured it’d be no problem filling a senior and junior analyst position at his hedge fund. But when his networking, interviews and other efforts didn’t yield the kind of candidates he was looking for, he decided to take another tack: hold a contest à la Donald Trump’s the Apprentice and award the gigs to the winners.
Continue reading "Hedge Fund Hiring, Apprentice-Style" »
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The goal of reforming housing finance should be to ensure economic efficiency, both in the primary mortgage market (origination) as well as in the secondary mortgage market (securitization). By economic efficiency, we have in mind a housing finance system that
- corrects any market failures if they exist; notably in this case is the externality from originators and securitizers undertaking too much credit and interest rate risk as this risk is inherently systemic in nature;
- maintains a level-playing field between the different financial players in the mortgage market to limit a concentrated build-up of systemic risk; and
- does not engender moral hazard issues in mortgage origination and securitization.
Motivated from economic theory, we argue that such a mortgage finance system should be primarily private in nature. It should involve origination and securitization of mortgages that are standardized and conform to reasonable credit quality. The credit risk underlying the mortgages should be borne by market investors, perhaps with some support from private guarantors. There should be few guarantees, if any, from the government.
Continue reading "A Blueprint for Mortgage Finance Reform" »
Over the last two months, I’ve visited many of our portfolio analytics clients in the U.S. to gather feedback on FactSet’s new Single Name Security Exposures tool. Single Name Security Exposures lets you look across all portfolios or a subset of portfolios to quantify your exposure to a security, an issuer, an industry, a country, or a specific set of securities. Simply put, it tells you how much you own and where you own it.
Continue reading "What’s Your Risk? Single Name Security Exposure Analysis" »
Despite the recent slump in the real estate economy, publicly traded REITs (real estate investment trusts) have been outperforming dramatically. REITs are also significantly ahead of the stock market, beating year to date returns of 2.3% for the S&P 500 and 5.2% for the Russell 2000 (see Table 1). That’s not much of a surprise, since REITs have surpassed the stock market over nearly any historical period since inception of the FTSE NAREIT U.S. Real Estate Indexes in January 1972.
Continue reading "Why Have REITs Been So Strong?" »
Especially in today’s fast-changing market, it doesn’t matter whether you are a value investor, momentum investor, research analyst or manager of a long/short portfolio. Having the ability to objectively validate, contextualize and compare the expectations and risk that drive a stock’s price are crucial for maintaining consistently strong investment performance. Click here to try the Market TopographerTM web-based stock analysis platform and see for yourself.
What do you think would happen if tomorrow, Google’s management announced that its days of exceptional growth were coming to an end? That looking out beyond the next couple of years, it no longer saw opportunities to sustain 17%+ growth due to the competitive environment and its sheer size. Instead it was looking at a long term sustainable growth rate of 10% going forward.
Continue reading "Google as an Income Play? Huh? " »
Although currency is often referred to as an asset class, the arguments to treat it as such have not been compelling enough to draw serious attention from the global institutional investor community. One possible reason for this is the absence of a universal view on the “beta” or market return available from currency investment.
Continue reading "Currency Indexing: The Forward Rate Bias as an Alternative Beta " »
Traditional measures of cash flow are typically based on GAAP-defined calculations of operating cash flow. However, as documented extensively in Financial Warnings (Mulford and Comiskey, 1996), The Financial Numbers Game: Detecting Creative Accounting Practices (Mulford and Comiskey, 2002), and especially, Creative Cash Flow Reporting: Uncovering Sustainable Financial Performance (Mulford and Comiskey, 2005), cash flow measures based on GAAP are easily open to manipulation and, because they exclude the implied cash effects of non-cash transactions, are often misleading.
Continue reading "A Comparison of the Returns Performance for Reported and Revised Measures of Cash Flow" »
As markets globally struggle with recession, a core part of the message from many political leaders to their citizens is that economic growth can be stimulated in part by investment in the technologies, infrastructure and services that will enable the transition to a low carbon economy.
Continue reading "Investment Opportunities for a Low Carbon World " »
Especially in today’s fast-changing market, it doesn’t matter whether you are a value investor, momentum investor, research analyst or manager of a long/short portfolio. Having the ability to objectively validate, contextualize and compare the expectations and risk that drive a stock’s price are crucial for maintaining consistently strong investment performance. Click here for a free trial of the Market TopographerTM web-based stock analysis platform and see for yourself.
Continue reading "Are Growth Stocks Experiencing Déjà Vu All Over Again? Don’t be Fooled This Time!" »
Relatively early in the financial crisis and before the most severe market dislocations were to occur, Federal Reserve Chairman Ben Bernanke was asked while speaking at a luncheon at the Economic Club of New York, what information he would find most useful in developing a strategy to navigate the financial crisis? He said “I’d like to know what those damn things are worth”, referring to the toxic assets and complex derivatives which were valued based on black box algorithms. Given the uncertainty and rapid change that have enveloped the equity markets over the past two years, the same could be safely said about the valuation of common stocks as well.
Continue reading "Anchoring Valuation of U.S. Stocks in a Fast-Changing Marketplace" »
For more information on healthcare information technology, please go to www.morningstar.com/goto/NYSSA for a subscription to the Healthcare Observer, where our lead healthcare information technology analyst, Patrick Dunn, provides a detailed overview of the industry.
Over the past couple of decades, medical groups have increasingly looked to healthcare information technology as a way to improve efficiency and profitability. The growing interest in new healthcare software combined with the Obama administration’s budget of $19 billion for healthcare information technology should spark industry growth. However, the healthcare technology industry remains highly fragmented and in a relatively early phase of its development, which increases the challenge of investing in the favorable secular trends.
Continue reading "Investing in Healthcare Information Technology" »
After a rocky end to 2008 and a tumultuous market environment through first quarter 2009, individual and institutional investors worldwide are closely examining their portfolios—assessing losses, identifying opportunities, and looking for signals from the marketplace as to what may be next. Despite the looming credit crisis, equity markets have improved, and there have been optimistic whispers that the worst may be behind us. But what is going on in the real estate market?
Continue reading "Real Estate Portfolio Allocation and Today’s Marketplace: While Private Real Estate Struggles, Listed Real Estate Begins to Rebound " »
For more information on the drug supply chain and related companies, please go to http://healthcare.morningstar.com/ for a subscription to the Healthcare Observer, where our health-care team presents a detailed analysis of which industries in the drug supply chain hold the strongest position.
What is the Drug Supply Chain?
Surprisingly, drugs change hands several times from the original manufacturers to the patients. Along this path, several industries serve as middlemen offering both physical distribution and financing for the drugs. The major players include drug companies, distributors, retail pharmacies, pharmacy benefit managers (PBMs), payors and patients. Each of these players strives to negotiate deals from suppliers and customers in order to maximize their profits.
Continue reading "The Competitive Dynamics along the Drug Supply Chain " »
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.
Continue reading "Outlook for Healthcare Reform and Healthcare Stocks" »
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.
Continue reading "Moody’s Updated Modeling Parameters for Rating Corporate Synthetic CDOs and Cash Flow CLOs" »