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A Monthly Newsletter Source of Financial Sources • Wall Street is Ignoring the Difference Between
Infrastructure Development and Infrastructure Operations • The Markman Global Build-Out 30 Index • Real Estate Scares You? Consider Charlotte’s Web • A Focus of Winning by Not Losing Works in a Down Market and Particularly for Withdrawals Over the Long Term • Seven Ways to Make Sure Your Investments Are As Secure as Possible • Use Rebalancing to Review Risk Tolerance • Changing the Remainder of a Charitable Remainder Trust (CRT) to a Family Foundation at an Appropriate Time has Significant Benefits • Travel Packaging is Key to Building Traffic During an Economic Downturn • U.S. Investment Professionals Are Educating Chinese Financial Advisors ---------------------------------------------------------------------------------------------------------------------------- Wall Street is Ignoring the Difference Between Infrastructure Development and Infrastructure Operations. Surprisingly, Wall Street has yet to develop a packaged product that allows investors and wealth managers to gain a substantial foothold in infrastructure development. Instead, the investor seeking to gain broad, intelligently-structured exposure to the trend of infrastructure development has very few practical options. A number of infrastructure funds have been launched recently, but all of them have chosen to focus on operations. Typically these are investments in companies that operate existing long-life assets like bridges, toll roads, utilities and airports. These companies’ predictable, inflation-linked cash flow make them attractive, lower risk investments. The funds that specialize in this space provide investors and wealth managers with instant, broad-based diversification in a global industry. They certainly have a place to play in many investors’ portfolios. However, the particular subset of companies in infrastructure development – project engineering and construction services, construction equipment, industrial equipment, and building materials are all closer to the front end of the development chain. They are plugged into the design and construction of structures and entities that are crucially involved in the great global build out now underway. Even more important, the constituencies for these projects are demanding infrastructure and their governments are committed to providing it. It is not a matter of whether, but when and how. So it seems peculiar that Wall Street has a blind spot when it comes to infrastructure development. Certainly, the returns over the past one, three, five and ten-year periods merit serious attention, (see below Markman Global Build-Out 30 Index) and no one would accuse the marketers on Wall Street of being shy when it comes to new products in hot sectors. But infrastructure is nerdy and boring, with squibb valves, pipes and electrical grids offering no competition against the media’s interest in iPods. Wall street views and defines infrastructure operations only as an investment theme. Still, you might expect companies in the infrastructure development space to be well represented in those diversified mutual funds that need not adhere to a third-party index. This again, is not the case. The reality is that most diversified funds are underinvested in global infrastructure development. In fact, the fifteen largest stock funds in America, representing over $1 trillIon in assets, have on average less than 2% of their portfolio in project engineering and construction services, construction equipment, and industrial equipment stocks. Individual investors and wealth managers seeking participation in the global build out that is happening under Wall Street’s nose might take note -- the Markman Global Build-Out Fund (MGBOX) has been expressly designed to meet the needs of investors and wealth managers looking to gain this exposure. The Markman Global Build-Out 30 Index The Markman Global Build-Out 30 Index is the only index that enables investors to track activity and investment returns in the broad infrastructure development sector. It has been rigorously designed with focused affiliation in mind, in order to realistically represent the most important elements in the global build-out dynamic. Its components and sector weightings are reflective of the sponsor’s opinion of how an investor would most productively and prudently make allocations. To be included in the index, a company must meet certain parameters, among them a market capitalization of at least $1 billion and revenues from operations outside the United States of at least 25% of total revenues. All companies must have their stock or ADR listed in the U.S. to qualify. The composition and weighting of the Index are:
The fund is available no-load through most platforms, including Charles Schwab, Fidelity and TD Ameritrade, and has a low expense ratio (.95%). The public and members of the media may go to www.markman.com to download a prospectus for MGBOX and a copy of Markman's landmark White Paper: "The Age of the Great Global Build-Out." The media may request a hard copy of this important 16-page White Paper. Robert Markman, Managing Director, Markman Capital Management, Edina, MN, is the portfolio manager of the Markman Core Growth Fund (MTRPX) and the Markman Global Build Out Fund (MGBOX) bob@markman.com, 952-920-4848.Real Estate Scares You? Consider Charlotte’s Web Imagine the plight of Lehman Brothers’ London landlord. He leased millions of square feet to the great investment bank. Recognizing that the space was single-purpose and would be hard to re-lease to another tenant he had required a guarantee. Lehman provided one – from AIG. In this complex, international financial world there is one real estate market of only about 1.7 million in population which has absorbed over $70 Billion in investment in the last decade, 90% of it private investment, and this city sports a downtown office vacancy rate of only 1.7%. In the top twenty U.S. markets, housing prices dropped 9.4% between December and June. In this city, real estate markets they were up 1.4%. This market is larger than the central city’s 1.6 million, a lot larger in fact. Seven million people live within a 100-mile radius, healthily exceeding Miami’s radius population of 5.9 million. While many cities are facing population decline or little growth, this city is growing at a sizzling 4.1 % per year. Eighty thousand people are moving into this city or being born annually. This city is Charlotte North Carolina. Why has Charlotte been bucking the trend? For decades the state government has supported the state university system and made it a model. In turn, the universities and a good 12-month climate have helped attract high tech industries. But the really big driver has been the state’s banking industry. A few local banks became regional powerhouses and now control the formerly California-based Bank of America, once the venerated Bank of Boston as well as all the other great banking names you can recall. Over the last two decades, the huge, more highly regulated, FDIC-insured US banks have been increasingly based in Charlotte. That attracted other financial institutions that needed to deal with these banks. Even Boston-based Fidelity has located thousands of jobs in the market. Look for other niche real estate markets where demand is not too dependent on upper income people doing very well, or on the depressed single family home market. The senior rental housing market is one such niche and the demographics support companies making investments in real estate development serving this market. Baby Boomers •18 Million Strong Within three years the leading edge of that population cohort will be hitting age 70. The market for single-family homes will have stabilized and a significant number of home owners will be seeking retirement housing. Most will need market-rate rental apartments. Meanwhile only the strongest developers will be able to get financing for new construction. The demand is inevitable and the supply is limited. Echo Boomers •70,000,000 Strong Harvard, and Princeton and Williams will continue to be full but expect more parents to be putting their kids into the less expensive colleges and universities. Their money will be tight and their college fund investments may not be doing too well. The smaller, less wealthy institutions have not built much or any student dorms for decades, in most cases, and don’t have the money to do so now. Private investors providing such housing frequently find demand so great that they open the first semester 100% leased. Because of diminished financial net worth, some parents may have to ask their children to put off school, commute from home or go part time. But many parents will make the sacrifice to put their children in school on time. And remember, one young person turns college age every five seconds. There are other niche markets to consider, but senior rental housing and private student housing are driven by demographic need. Charlotte carefully built their web and, as a result, have attracted strong companies. Strong private real estate developers have attracted the lending needed to build highly sought after facilities. Good private real estate equity still exists. You just have to know where to find it. Contact: Michael Dowd, Senior Vice President, 781 264 2678, mdowdmcm@aol.com, www.ugoc.com Millennium Credit Markets, LLC, headquartered in Rockefeller Center, New York is an affiliate of United Group of Companies. A Focus of Winning by Not Losing Works in a Down Market and Particularly for Withdrawals Over the Long Term It’s an interesting exercise to look at the five top fund performers of 1999. A CNN Money article featured five funds, two of which are no longer in existence. The other three have not made a good go of it for their retiree shareholders over the past ten years of retirement withdrawals. Let’s not kid anyone, the real issue for both pre-retirees and retirees is whether a money manager can continue to make money as the retiree withdraws assets needed for expenses. The following chart shows what happened to the three still existing funds highlighted by CNN Money and the PMFM Managed Strategy Fund when each of the funds were subject to a 5% withdrawal starting in the first quarter of 2000. That quarter was widely regarded as the worst time to invest since World War II. That may change given this week’s market downturn, but the point is the same. After only eight years, of the three funds that CNN touted for top performance, one had a zero balance and was out of money for its retirees, one had only $227.000 left and one had only $406,000 left. By comparison, PMFM Managed Strategy Fund had nearly as much as it had started with eight years ago, $1,001,300. The money managers at PMFM manage money to protect hard earned assets first. They stay defensive when they need to stay defensive, capturing most of the good times and working to miss most of the bad times. It really does make a difference. 5% Withdrawal
In June of 1999 CNN Money published an article suggesting 5 top fund performers to invest with who were projected to do well in the future. Two of the funds no longer exist, so we compared the three that do exist to PMFM’s own performance. The chart above and the graph below show what would have happened If an investor would have retired at the end of 1999 and started taking withdrawals in the first quarter of 2000. A “winning by not losing” strategy, like PMFM’s, doesn’t have to mean boring returns and money market-like risk. It just means that investors can rest easy, knowing that if the market does poorly, PMFM will work to protect their hard-earned assets.
PMFM offers separate account management services, proprietary mutual funds, and is the advisor to 401k Toolbox, one of the leading 401(k) managed account and investment advisory services in the nation. As of 12/31/07, PMFM manages more than $1 billion. The firm has increased its assets under management by nearly 25 percent in the last year. The management team at PMFM includes experienced investment advisors with offices in Watkinsville, Georgia. PMFM offers 401k Toolbox, it’s investment advice and managed account service, via vendor partnerships with 401k providers and direct to large plan sponsors. You can reach Founder, Tim Chapman, at 800-222-7636 or tim.chapman@pmfm.com Seven Ways to Make Sure Your Investments Are As Secure as Possible 1. The best situation for an investor under current market conditions is to be holding a broadly diversified portfolio. While nothing can completely insulate against a market downturn such as experienced on September 15, you can certainly be insulated from it if you have other types of investments that are not affected by the gyrations of one market. You should be diversified by asset class and also within asset class. You should have foreign stocks, natural resources, REIT’s, international bonds, and others in your portfolio. 2. Make sure you are not over-weighted in just one stock. Those who held large percentages of their portfolio in a single stock like AIG are surely regretting that decision now. Only a few weeks ago many thought that AIG was a safe and secure investment, as even investment professionals do not always see these problems before they occur. Also, make sure you do not hold excessive amounts of your company’s stock within your 401K. 3. More than $100,000 in a bank will not be insured by the Federal Insurance Deposit Corporation (FDIC). If a bank fails and you have $500,000 in the bank, only $100,000 is insured if it is in a checking account (cash). It is crucial to put assets over $100,000 somewhere more secure. You may want to spread the assets out among several banks and also put some in your name and some in your spouses name since the $100,000 insurance is per named account. 4. Only CD's are insured. 401K's have the risk inherent in the stocks or bonds that make up the sub accounts investors may choose from their company’s plan. Money Market funds have no insurance, but are typically widely diversified and are principally made up of short term paper that matures in 30-60 days or less. 5. Avoid investing in bonds issued by corporations and stick to government agency bonds that are fully backed by the federal government. Also avoid so called “revenue” bonds that are issued by agencies created by states to fund a single project such as a bridge or stadium. If the revenue from the project drops, the bond could eventually go into non-payment status meaning that the agency stops making coupon payments. Stick to so-called General Obligation bonds issued by government bodies that have the right to raise taxes, if necessary, to meet their obligations. 6. Look under the hood of that mutual fund that has a very high yield. The fund’s managers might be investing in very risky securities to “kick the yield up a notch.” In the long run credit downgrades and or defaults will reduce your total return by adversely affecting the fund’s net asset value. 7. A simple rule of thumb: If you can’t understand what you are investing in don’t do it! This is a rule many professional and successful investors consistently follow including such luminaries as Warren Buffett, and the great Peter Lynch. Investments that are too complex usually have multiple layers of risk that are hard to quantify and even harder to identify. Those investments are usually the first to get badly hit when things go south. Stonegate Wealth Management’s highly experienced professionals, including partners Thomas J. Geraghty, Jr., CPA, CFP, Steve Craffen, MBA, CFA, and Craig Marson, JD, CPA, solve complex financial challenges and provide counsel for the pressing financial issues confronting their high net worth clients. They have deep knowledge and experience in taxes, estate planning, investment management and divorce settlement counseling. The firm manages $175 million in assets under management. stevec@stonegatewealth.com, office, 201-791-0085 Use Rebalancing to Review Risk Tolerance The markets have been turbulent for the last twelve months. Each time it appears that the market may have bottomed out, something else occurs to further depress the market. Now is not the time to panic and sell out. It is a very good time to evaluate what you own and see if adjustments should be made to your investments. Many investors look at being diversified as meaning that they should own two or three US equity mutual funds. That approach does afford some diversification. When the stock market enters a bear market, however, most stocks suffer along with one another. True asset class diversification means allocating money to traditional areas like foreign stocks, bonds and cash as well as to areas such as natural resources, global real estate, commodities and international bonds. These asset classes don't necessarily move up and down in synch with each other. When one area is sinking, others may be going up or holding their own. This diversification can help avoid the big losses that can be such a killer to investment portfolios. Each investor will have to determine how much risk and volatility they wish to carry. There isn't a cookie cutter approach that works all the time. Some asset classes are much more volatile than the others and investors must think carefully about how much of that volatility they want to include in their portfolio. Once the allocation has been established, it is important to rebalance the portfolio back to the original allocations regularly. Again, the timing of the rebalancing is a personal choice. More than once a quarter may increase transaction costs while limiting the ability of the stronger asset classes to add value to your portfolio. Less frequently than every 18 months increases the risk that a portion of the portfolio will suffer a boom and bust and inflict unnecessary damage to your portfolio. The rebalancing should also be used as an opportunity to review risk tolerance and whether the allocations themselves should be adjusted to reflect a desire for less risk. Donald L. McCoy, J.D., CMFC -- Planners Financial Services, Inc., 952-835-9000. Minneapolis, Minnesota. Registered investment adviser and subsidiary company Montgomery Investment Management, specialize in the management of no-load mutual fund portfolios for individuals and retirement plans designed to protect capital by reducing risk. 952-835-9000 - pfshim@usinternet.com.Trends from Ink&Air --Editor: Lisbeth Wiley Chapman, beth_chapman@inkair.com, 508-479-1033 Changing the Remainder of a Charitable Remainder Trust (CRT) to a Family Foundation at an Appropriate Time has Significant Benefits Charitable Remainder Trusts (CRT_ are a good income stream for the families who set them up. Close to the time when the assets (remainder) in a CRT would go to the original charity, it is important to look at three significant benefits that can occur when a family instructs the CRT to turn into a Family Foundation rather than having the assets flow directly to the charity. This strategy can result in a far larger gift over time from the family to its original charity as well as to others, while still allowing the family to control and invest money, normally lost to taxes Most CRTs have provisions that allow the owners to change the charity in their lifetimes, should the charity go out of business, or experience bad management. The family can exercise that provision and create a family foundation. Here is an example of how it could work. Elsie and Fred Richards have a Charitable Remainder Trust with a $2 million remainder. That remainder, transferred to the Family Foundation, can ultimately make far more of a charitable impact than if it had been left to the original charity. If the assets earn 9% and pay out 5% annually (as required by the foundation) to the family’s favorite non-profits, including the original CRT charity, great things can happen. The children who are likely to survive for 30 more years at the time of their parents death, and their grandchildren who are likely to survive for 60 years after their grandparents death, can experience a growth of the foundation’s assets to $21 million over a sixty-year span. During that 60 years, the family foundation will have paid out over $30 million to non-profits. Even more important to the donors, the Family Foundation can require participation of the children and grandchildren in the work of making grants to appropriate non-profits, teaching current and future generations about giving back and about family finances. Such stewardship can instill a sense of responsibility in family who might otherwise be cavalier about inherited wealth. A Family Foundation, by its specific gifts, can pass on the family’s core values and principles. For one or several children, the Foundation can offer a modest salary for managing the Foundation. Pearson Financial Services, Dennis, MA, is the author of "The Million Dollar Gift: Dynasty Trusts. Why Leave Your Assets Any Other Way", written for his clients, his clients' families, and his own family. He offers a fully integrated wealth management process, incorporating investment, retirement, financial and estate planning specialists under one roof, serving clients as their family's office, designing and implementing strategies to protect and distribute their wealth and highly appreciated property. Seth Pearson, CFP, 800-385-7925, seth.pearson@verizon.net.Trends from Ink&Air --Editor: Lisbeth Wiley Chapman, beth_chapman@inkair.com, 508-479-1033 Travel Packaging is Key to Building Traffic During an Economic Downturn Travel came to a standstill in the economic downturn of 2000 and 2001. Hopefully, the tourism industry learned from that and can focus on travel packaging during this current economic downturn. Travel packaging -- the combining of multiple travel products, services and experiences sold as a complete package -- is a hot trend in tourism, with the fastest growth happening in packages that include experiential opportunities. Rather than "just look" the vast market of Boomer consumers want to "look and touch". Example: A seasonal lodge property is looking for ways to increase fall season business despite what is going on in the financial markets this September. The weekends are strong, but the owner needs help midweek. A group of partners (lodge, fishing guide, pottery school, or cooking school) could work together to create an experience. The cooking school could prepare fish caught by the guests of the guide. Rates could be offered that are not available during weekends. The packaged week, together with other valuable features -- 20 % discount at nearby gift stores or free coffee and dessert at a restaurant -- could create a tangible price benefit for the consumers while fulfilling the revenue goals of all of the partners. Even more important, the creative package increases travel to this town and region. Sitting on hands, or keeping a head in the sand will not increase revenue for the tourism industry during these difficult times. Price points are important as well as a belief by the consumer that the sum of the parts is less expensive than taking the time to put the various parts of the package together themselves. But packages have another appeal -- the need for the consumer to make one easy decision in the midst of their busy, nonstop, fast-forward lives. Convenience that targets need will propel consumers to look and buy packaged travel. Joe Veneto, Opportunities Unlimited, is a tourism consultant on tourism strategies that build business. He is a highly sought-after speaker by convention and visitor's bureaus and chambers of commerce, speaking on travel packaging. He is the author of "The Power of Travel Packaging System: the essential toolkit for packaging travel products, services and experiences." He can be reached at joe@opportunityguy.com or cell: 617-470-9662 -- www.travelpackaging.com U.S. Investment Professionals Are Educating Chinese Financial Advisors. Upcoming Master Investor Forums in three Chinese cities in November are an interesting trend to watch as U.S. investment professionals lecture in the Far East to very large audiences of Chinese hungry for sophisticated information. One featured lecturer is Greg Morris, noted financial author and chief investment officer of PMFM, Inc., Watkinsville, GA. who has accepted invitations to speak on technical analysis to large audiences of financial professionals in Beijing, Shanghai, and Shenzhen. The host organization, Weekly On Stocks, has asked Morris to discuss the use of technical analysis in the successful management of investor assets. His presentation will cover investing myths, why technical analysis works, various technical measures—including those employed in the model he oversees for PMFM—as well as his perspectives on the state of the current market. PMFM’s notable success in tumultuous markets, as well as Mr. Morris best-selling books, have lead him to lecture in recent months at the Italian International Forum in Rimini, Italy, and the Brazilian Trader’s Forum in Rio de Janeiro. In October, he will speak at the Canadian Investor Forum in Montreal. Morris currently oversees the management of $1.2 billion in assets at PMFM using a technical model that incorporates a number of indicators in a “weight of evidence” approach to assessing market opportunities to increase returns and lower volatility. This approach minimizes risk for the firm’s clients. PMFM Managed Portfolio (ETFFX), managed by Morris, has recently been ranked in Morningstar top 1% in its category for 12 month performance. Morris has authored two best selling books with McGraw-Hill, “Candlestick Charting Explained,” and “The Complete Guide to Market Breadth Indicators.” He is a much sought after guest on Bloomberg TV, was featured in a recent BusinessWeek article, and has been a source and by line writer of articles for numerous financial publications. He is a graduate of the University of Texas in aerospace engineering. Prior to PMFM, Morris was a partner in MurphyMorris Money Management, acquired by PMFM in 2004. Greg Morris, PMFM, Inc., Watkinsville, GA 706-579-1392 greg.morris@pmfm.com |
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