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Archive for June, 2016

30 June
Comments Off on Investing Action Plan: Post-Brexit Central Bank, EU Meetings; Nike Earnings

Investing Action Plan: Post-Brexit Central Bank, EU Meetings; Nike Earnings

Heres your Investing Action Plan: what you need to know as an investor for the coming week.

Fallout from the UKs vote to leave the European Union will consume markets, with attention turning to a meeting of top central bankers. Departing British Prime Minister David Cameron will also face EU counterparts. Nike (NKE) and Micron (MU) lead a trickle of earnings reports, while Lockheed Martin (LMT), Northrop Grumman (NOC) and Verizon Communications (VZ) could offer shelter from the storm.

Janet Yellen, Peers To Gather

On Wednesday, the European Central Bank will hold a conference in Sintra, Portugal, featuring Federal Reserve Chair Janet Yellen, European Central Bank President Mario Draghi, Bank of England Governor Mark Carney and their Brazilian counterpart Alexandre Tombini.

The event will provide an opportunity for the worlds monetary policy leaders to comment on the turmoil following the Brexit vote and try to soothe fears over the global economy. On Friday, Carney pledged $345 billion in additional liquidity for the financial system to address a period of uncertainty and adjustment.

Also Friday, the Federal Reserve said it is prepared to provide dollar liquidity through its existing swap lines to ease pressure in global markets, and the Group of 7 of industrialized countries said its central banks also stand ready to use established liquidity instruments.

The conference in Portugal comes amid concerns that central bankers have nearly exhausted their options to stimulate growth via extraordinary measures like near-zero or negative interest rates, as well as massive bond buying.

EU Tries To Regroup

Leaders from the 28 EU member countries will hold a previously scheduled European Council meeting in Brussels on Tuesday and Wednesday, with the UKs Cameron expected to attend.

The heads of state will also meet without Cameron on the sidelines of the gathering. Seeking to discourage any other EU members from leaving, they are expected to be tough on the UK as separation terms are negotiated over the next few years. Members of far-right parties in France and the Netherlands have already called for votes similar to the Brexit referendum.

Some EU officials are calling on the UK to invoke the exit clause in the EU pact as soon as possible to minimize further uncertainty, though British officials have signaled they need more time to prepare.

Nike Earnings May Drop

When the athletic apparel giant reports Tuesday after the close, analysts expect Q4 EPS to dip a penny, or 2%, to 48 cents. That would be the first earnings decline in more than two years. Revenue is seen growing 6% to $8.27 billion, marking the sixth consecutive quarter of single-digit growth.

The report comes amid signs of tougher competition from rivals like Under Armour (UA) and Adidas, which has seen a resurgence recently.

Expect analyst chatter to focus on futures orders, growth in China and emerging markets, the possible inventory impact of Sports Authoritys bankruptcy, and sluggishness in the broader basketball shoe market. Nike management may discuss marketing strategy and expenses ahead of the 2016 Summer Olympics in Brazil.

Stocks To Watch

Google owner Alphabet (GOOGL) is facing a bad omen while Lockheed Martin, Northrop Grumman and Verizon are near buy points.

Alphabets 50-day and 200-day moving averages have crossed, a bearish signal that indicates the stocks short-term price action is lagging its long-term performance. Shares, which recently breached support at their 200-day line, are trading 15% below their early February high.

Defense giants Lockheed and Northrop may be defensive stock plays during the post-Brexit volatility, as global security needs prop up demand for weapons. Shares of Lockheed, which makes the F-35 stealth fighter, dipped 0.1% Friday to 239.70, still near a 245.47 buy point from a flat base. Northrop, which makes the Global Hawk drone and is a top F-35 supplier, fell 0.9% to 212.71, within striking range of a 218.94 buy point.

Verizon is trading just under a 54.59 buy point from a cup base, with the stock having steadily risen 11% from its low reached about a month ago. The stock touched a record high Friday before closing down 0.4% at 54.43.

Key Economic Indicators

The Institute for Supply Management will release its June manufacturing activity index on Friday at 10 am ET. Economists expect it to show little change from Mays 51.3 reading, with a slight dip to 51. But that would mark the fourth straight month the ISM gauge has indicated expansion, signaling factories have stabilized since a drop in the dollar eased export woes and a rally in oil lifted the energy sector. But the outlook may darken as the dollar jumps and and oil retreats on Brexit fears.

On Wednesday, the Commerce Department is expected to report a 0.4% increase in May consumer spending, cooling from Aprils 1% monthly surge. Personal income is seen up 0.3%, down from 0.4% in the prior month. The forecast for the Feds preferred inflation gauge is for a 0.2% uptick — steady vs. Aprils pace. Wage and price growth are key indicators, as central bankers weigh another rate hike.

Auto Sales Cooling Off

Automakers will report June US sales throughout the day on Friday. The annualized pace is expected to slow to 17.2 million units from 17.45 million in May. Some auto industry executives and analysts earlier this year said they see signs the industry is plateauing after several years of robust growth.

A month ago, General Motors (GM) said May sales plunged 18%, as the auto giant withdrew from lower-margin rental fleet sales. Ford (F) sales fell 6%, Fiat Chrysler (FCAU) reported a 1% increase, Toyota (TM) sales skidded 9.6% lower, and those of Nissan (NSANY) dipped 1%.

Micron Earnings

Micron Technology reports fiscal Q3 results Thursday, and sales are expected to drop for the fifth consecutive quarter, as the largest US dynamic random-access memory chipmaker notches a second straight loss amid a PC sales drought.

For Q3, Micron is expected to report $2.96 billion in sales, down 23% year over year, and a 9 cent per-share loss minus items, swinging from a 54 cent profit in the year-earlier period. For Q4, analysts see a return to profitability — 3 cents a share — but thats still far from the 37 cents a share it posted last year.

Highly Rated Companies

IBD 50 stock Acuity Brands (AYI) will announce Q3 results on Wednesday. Analysts expect the LED lighting firm to report a 48.2% jump in earnings to $2.03 per share and a 24% increase in revenue to $847.8 million.

Paychex (PAYX), which has a 94 Composite Rating, is slated to announce Q4 results early Thursday. The payroll processing and HR services company is seen reporting an 11.4% jump in earnings to 49 cents per share and an 8.6% rise in revenue to $751.5 million. Paychex shares remain in buy range despite Fridays sell-off.

Constellation Brands (STZ) reports Thursday, and Q1 per-share profit is expected to rise 21% to $1.52 on 12% revenue growth to $1.83 billion. The beverage makers brands include Corona and Modelo Especial beer, Robert Mondavi wine and Svedka Vodka.

Packaged Food Giants

General Mills (GIS) will report fiscal Q4 results Wednesday before the market opens. Consensus is for the maker of Cheerios cereal, Progresso soups and other shelf-stable foods and snacks to report a 20% decline in EPS to 60 cents and a 10.2% drop in revenue to $3.86 billion. Last year, it completed the sale of its Green Giant frozen vegetables line to Bamp;G Foods for $765 million.

ConAgra (CAG), which makes shelf-stable and prepared frozen foods under Marie Callenders, Chef Boyardee and other brands, is slated to report fiscal Q4 earnings early Thursday. Wall Street projects a 12% dip in EPS to 52 cents on a 30% decline in sales to $2.89 billion. On Feb. 1, ConAgra completed the sale of its private label operations to TreeHouse Foods for $2.7 billion cash.

ConAgra is in the process of splitting itself into two independent companies, one comprised of its consumer-branded products and the other focused mainly on its frozen potato products. ConAgra expects to complete the split by this fall.

Seasonings, spices and sauces maker McCormick (MKC) and Olive Garden parent Darden Restaurants (DRI) are also on tap to report results Thursday.

30 June
Comments Off on ‘Investing for Good’ Gains Appeal Amid Rocky Tech Startup Market

‘Investing for Good’ Gains Appeal Amid Rocky Tech Startup Market

As valuations flounder for Silicon Valley startups once worth billions of dollars, investor interest is on the rise in startups with both financial and social benefits, such as healthcare software for poor communities or low cost solar panels for homes.

So-called impact investing rose to $15.2 billion globally last year from $10.6 billion in 2014, according to a recent report by the Global Impact Investing Network. The figure includes several types of investment, from funds to foundations, which intend to generate social and financial returns.

The group expects a 16% rise in 2016. The change reflects investor concern with current valuations of more mainstream technology startups, a desire to help by some investors and a broadening definition of social-good startups. There is also growing sentiment that the rise of mobile technology will allow for profitable upstarts in parts of the world relatively untouched by Silicon Valley.

Earlier this year Union Square Ventures Partner Fred Wilson called the developing world the next whitespace for venture capital, pointing to 2.5 billion people poised to adopt smartphones.

Altruism and Profits for Kickstarter the Public Benefit Corporation

Big financial institutions such as Bank of America


and JPMorgan Chase


are investing, seeing rural communities and emerging markets as potential customers for financial services.

The drop in valuations for tech industry darlings that do things my mom used to do for me was a pivotal wake up for investors, said Doug Galen, chief executive of RippleWorks, which provides advisers for entrepreneurs in the developing world.

Speaking on the sidelines of the Global Entrepreneurship Summit, put on by the US State Department this week at Stanford University for entrepreneurs from around the world, he and others poked fun at businesses made by and for well-off Americans.

Uber for pets or overnight underwear delivery–those things definitely arent getting the same traction they were six months ago, Andrew Beebe, managing director at Obvious Ventures, a venture firm for world-positive investing, said in an interview with Reuters. But take water (shortages) –on the other side of that solution is a massive pot of gold, he said.

How Companies Can Enrich Shareholders–and the Planet

The case for investing in social impact startups is the sheer size of the market; millions of people lack access to clean water, for instance. But, with companies serving customers living on $2 a day, profits can at times be slim.

Maybe 2% is a fabulous return in some cases, said Matthew Bannick, managing partner at Omidyar Network.

By comparison, traditional venture capitalists might seek a return 10 times their investment.

Some impact investors such as DBL Partners have had strong returns by using a broader definition of social impact. DBL considers its investments in electric car company Tesla Motors and Juicero, a juice company that raised $70 million in March, as having both financial gain and social impact.

For more on tech, watch:

30 June
Comments Off on Free Dental Care for Vets on June 25

Free Dental Care for Vets on June 25

One of the ways to thank the military and veterans for their service is to offer them freebies. In the past few years Ive written about free Christmas trees for the troops, free wedding gowns for military bridesand how the military can get freebies on Memorial Day weekend and on Veterans Day. Now Ive come across another freebie for veterans but on a serious health topicdental care.

On Saturday, June 25, dentists and team members from nearly 400 Aspen Dental practices in 33 states will open their doors to provide a day of free dental care for thousands of veterans across the country. Appointments are available on a first-come, first-serve basis.

During appointments volunteer dentists and their staff will focus on treating the most urgent need of each veteran by providing free servicesincluding fillings, extractions and basic denture repairto help get them out of dental pain.

30 June
Comments Off on Tips for men’s health at high altitude (sponsored)

Tips for men’s health at high altitude (sponsored)

By Jessica Smith, sponsored by Kaiser Permanente

While June is well known for Father’s Day, it is also national men’s health month. Across the nation, this month is celebrated with health fairs, screenings and a variety of pro-health activities. And even though those of us — both men and women — who live in the Rocky Mountains may consider ourselves healthier and more active than people in other areas, it’s important to pay attention to our health and what our bodies are telling us.

Finding your baseline

Patricia Dietzgen is a family medicine doctor for Kaiser Permanente in Frisco. She recommends that young men, in their 20s and 30s, come in to get baseline screenings for things like blood pressure and cholesterol. By checking the basics and going over family and medical history, doctors like Dietzgen can help men establish a health plan to prevent further issues down the road.

“That’s a good time to catch up on your immunizations,” she added, as most people generally receive them during high school.

Once men reach their early 40s, she suggests coming in to re-check those baselines, as well as screening for chronic diseases like diabetes, and to assess the healthiness of their lifestyle. Once you hit your 50s, the discussion may also include colon cancer and other screenings. Definitely by their 60s, she says, men should be receiving yearly check-ups.

“Prevention is really key,” she says.

Common ailments

Dietzgen says one of the most common ailments she sees among men is fatigue and a lack of energy. There are also complaints of joint and back pain, while high blood pressure is often an issue.

She emphasizes the usefulness of consistent exercise and a healthy diet in combating most of these issues. That goes double for cardiovascular issues and diseases such as diabetes, which can often be prevented by a healthy lifestyle.

“I think prevention is absolutely number one here, and I think a lot of those complaints — fatigue, joint pain, arthritis, hypertension — could all be remedied or best, prevented, by starting out at a young age and developing healthy habits at a young age,” Dietzgen says.

She also encourages men of any age to make lifestyle changes, denying the mindset that someone is “too old” to exercise or have an active lifestyle.

“Our bodies are resilient no matter what age,” she says. Simply by eating well and doing even mild exercise, a person can become healthier. “You shouldn’t feel defeated if you’re 50, 60 or even in your 40s,” she adds. “A lot of this is still in our control; it just might take some change.”

Warning signs

While everyone has aches and pains here and there from time to time, there are certain symptoms that men should be aware of, and seek help for if they become persistent.

Dietzgen emphasizes being in tune with your body and your habits, so that you can notice when something isn’t right. Symptoms such as constant fatigue, night sweats, persistent coughing, bowel movement changes, and unexplained chest or abdominal pain are signs that something more serious could be happening.

In the mountains, in particular, Dietzgen says that some people deal with sleep apnea — shallow breathing and pauses in breathing during sleep. This may be a cause of someone’s fatigue or high blood pressure.

Practice prevention

Overall, Dietzgen emphasizes the importance of prevention, of taking steps in the present to avoid larger complications in the future. One of the best ways to do that is through exercise. She suggests getting around two-and-a-half hours of exercise a week, though “that doesn’t mean going out and joining a gym.”

For those averse to the gym or long, hard workouts, Dietzgen suggests finding ways throughout the day to exercise, such as taking the stairs, marching in place or doing activities like sit-ups and stair climbs in short intervals, just a few minutes each.

Living in the mountains, activities like taking a walk or going on a hike are also accessible and enjoyable, she says. Doing that on top of avoiding unhealthy activities such as smoking, becoming a “couch potato” and drinking alcohol excessively, will help build a healthy lifestyle, Dietzgen says.

“I also stress ‘be happy,'” she adds, and encourages finding time to do enjoyable activities and spend time with friends and family.

30 June
Comments Off on Omar Mateen drifted through marriages, jobs, life

Omar Mateen drifted through marriages, jobs, life

Omar Mateen was a loner who went from job to job, had few friends, a failed marriage, a demanding father and a history of bragging about ties to radical Islamic militant groups.

As a teenager in high school, he cheered the 9/11 terrorists and claimed that his uncle was Osama bin Laden, according to classmates. He told friends bin Laden had taught him how to shoot an AK-47 and that, on the day of the attacks, he pretended he was an airplane striking a wall, as if mimicking the World Trade Center strikes.

But as a young adult, Mateen finally seemed headed in a positive direction, earning a college degree in criminal justice technology. He was hired by the Florida Department of Corrections, where he hoped he would receive training to become a certified police officer.

30 June
Comments Off on Free dental care this weekend for local veterans

Free dental care this weekend for local veterans

On Saturday, June 25, dentists and team members from nearly 400 Aspen Dental practices across the country will open their doors to provide a day of free dental care for thousands of veterans across the country.

Starting today, local veterans can call 1-844-AspenHMM to schedule an appointment in advance at a participating office in the Waco and College Station area.

Appointments are available on a first-come, first-serve basis.

Of the more than 21 million veterans across the US today, fewer than 10 million are enrolled for US Department of Veterans Affairs (VA) health benefits, which for many does not include dental care benefits, and more than 1.2 million lack health insurance altogether.

The June 25 day of free service will be Aspen Dental’s second annual, and is expected to be the largest single-day oral health initiative targeted at veterans.

It’s all a part of Aspen Dental’s Healthy Mouth Movement, a community-giving initiative launched in 2014 to deliver free dental care and oral health education to people in need.

29 June
Comments Off on ‘Dental implants catching on’

‘Dental implants catching on’

Thanks to the awareness among the people about dental implants, a dentist has become a want-based dentist from the earlier need-based dentist, said honorary secretary of Indian Society of Oral Implantologists Uday Shetty.

His statement explains how well the dental implants have become popular and the patients want them to be fixed. Dental implant is made of titanium is like the root under the gum which is capped by a ceramic cap (tooth). Fixing an implant in an Indian needs better skill since Indians’ bones are thinner.

The dental implant is there for the last 50 years but has gained popularity during the last 10 or 15 years in India. This is the latest and most accepted method while fixing an artificial tooth. The dentures, which are removable and not liked by patients much because of this discomfiture or embarrassment, and making a bride to accommodate an artificial tooth in the process of which healthy teeth on both sides have to be grinded, are not of great favour with the patients.

A lot of advances have been made in implants and the ISOI has a tie-up with the American Academy of Implant Dentistry while the manufacturers of implants, all of them foreign companies, are also organising courses in the implant technology, Dr. Shetty, who is in the city to launch the ISOI study club, told
The Hindu
on Saturday.

Implant technique is not taught in the dental colleges at the under-graduate level and the dentists get trained by the senior dentists who gained expertise in the field at the study clubs of ISOI and the other programmes it organises, Dr Shetty said.

Clinical skills of our Indian implantologists are very good and are on par with their counter parts in the advanced countries. Since the treatment here is cheaper than in the West, ‘dental tourism’ has increased very much. For example, patients from Western countries and Middle East visit Goa, Mumbai and other places to get treated for dental problems along with getting implants fixed, apart from enjoying the holidays, he said.

Another expert in implantology Sachin Deep Singh said the future of dentistry is in implants. Now every clinician has to learn implant technology, he said.

The cost of a quality implant (which is the foundation for artificial teeth and four to six implants are needed to fix 12 teeth, the maximum in a jaw) is between Rs. 30,000 and Rs. 40,000 and the cost would come down if it is manufactured in India.

29 June
Comments Off on Facing a Scary-Sounding Dental Disease

Facing a Scary-Sounding Dental Disease

Q. My veterinarian pointed out inflammation along my 13-year-old geldings front teeth, as well as some small red spots (she called it stippling) on his gums and under his lips. She said it could be an early sign of a dental disease with a very long (and scary-sounding!) name. She explained that we would keep an eye on any dental changes during future wellness exams and that he might need radiographs of his mouth. Is there anything Ive done wrong thats led to my horse having this problem, and is there anything I can do to prevent it from becoming worse?

Jacquelyn, Washington

A. Equine odontoclastic tooth resorption and hypercementosis is probably the tongue twister of a disease that your veterinarian was referring to, which we often abbreviate as EOTRH. This is a fairly recently recognized disease that can cause severe changes to the tooth roots and surrounding gingiva (gums) in older horses, most often in the incisors and canines, although some very new research indicates it can affect their premolars and molars, as well. In moderate and severe cases it results in chronic infection of the tissues and is very painful to the horse; it can also cause loss of affected teeth or enough pain that they must be extracted to allow the horse to eat comfortably.

The cause of EOTRH is not known for certain, though it appears to be correlated with equine pituitary pars intermedia dysfunction (PPID, or equine Cushings disease), a history of overly aggressive dental procedures by improperly trained individuals, horses that are not allowed to graze (ie, kept on a drylot), and the presence of certain types of bacteria or other microorganisms in the mouth. Geldings seem to be predisposed. Its theorized that saliva constantly bathing the teeth, as occurs in the head-down grazing position when horses are at pasture for many hours per day, may be protective, so incorporating this into your horses management program might be helpful.

The earliest externally visible signs of EOTRH are gingivitis (inflammation of the gums around the teeth) or small draining tracts from the roots of the tooth that look like pimples in the gingivathese appear as tiny red dots initially. These might occur years before the more obvious loosening of teeth or tooth root enlargements, and your veterinarian should take note of this during routine dental examinations. Dental radiographs taken at that time might show the start of small resorptive (bone breakdown) lesions in the tooth root or the laying down of cementum around the roots, which is the bodys attempt to stabilize the teeth.

Unfortunately, there is currently no known specific treatment to prevent or slow down disease progression, although early identification allows more proactive care and can prevent your horse from experiencing chronic pain and complications such as chronic infections. When the affected teeth become painful or loose, veterinarians recommend extraction. Often, if all or most of the incisors are affected, the veterinarian removes them completely. While it seems like a drastic measure, owners find that their horses recover quickly, are much more comfortable afterward (with previous hard keepers often gaining weight more easily), and can still graze grass effectively!

29 June
Comments Off on Jordan Investing Heavily In Renewables

Jordan Investing Heavily In Renewables

The expansion of Jordans renewable energy segment has seen a marked acceleration in recent years, with nearly 1000 MW of solar and wind projects currently being implemented.

These developments dovetail with a national strategy aimed at raising the share of renewables in the energy mix to 10 percent by 2020, equivalent to a generating capacity of some 1500 MW.

Giving the green light

Development of renewable energy sources has become increasingly critical for Jordan in recent years, as fuel oil imports and electricity subsidies have led to financial losses for the state-owned National Electric Power Company (NEPCO).

Jordan has historically imported around 97 percent of its energy needs at a cost of close to 18 percent of GDP, according to figures from the Ministry of Energy and Mineral Resources (MEMR).

Central to the kingdoms efforts is the Green Corridor project, which is aimed at reducing dependence on hydrocarbons by increasing Jordans ability to absorb the loads generated by new renewable energy capacity stemming from wind and solar.

The upgrades involve the construction of two new transmission lines a 400-KV, 150-km line and a 132-KV, 51-km line as well as upgrades to three existing 132-KV lines stretching 100 km each.

Additionally, a new 1200-MVA electricity substation will be constructed in northern Maan, while the stations at Qatraneh and Queen Alia International Airport will also be expanded, according to local media reports.

Last year saw the $159.7m multi-component project awarded key funding.

Development is being co-financed by the French Development Agency, which has issued a $54.9m soft loan; the European Investment Bank, which is providing $72m worth of project finance; NEPCO, which has contributed $12.6m in funding; and the EU Neighbourhood Investment Facility, which has offered a grant of $20.2m.

Related:EIA Reports Another 900,000 Barrel Draw On US Crude Stockpiles

While tendering for the construction was delayed at the beginning of the year, the project is slated for completion in 2018.

PV potential

The Green Corridor investments are specifically designed to reinforce the nations electricity network in the deserts in the center of the country, which are ideal for the use of solar generators.

Solar power is seen as a sustainable option for Jordans long-term energy security, as the country boasts about 330 sunny days per year.

According to Samer Zawaydeh, a Jordan-based engineering consultant, the bulk of the solar photovoltaic (PV) farms currently under construction, totaling around 200 MW, are located in and around Maan, whereas the majority of consumption stems from the capital Amman, he told industry press.

Maan is close to the 52.5-MW solar PV Shams Maan power plant, which will be the largest solar PV facility in the country when it opens later this year.

In April a $148m wind power project was also inaugurated in Maan and is expected to generate 200GWh annually, according to local press reports.

Solar project pipeline

To unlock the countrys renewable energy potential, the government signed a number of solar and wind agreements in June 2015, which are expected to be operational by 2018.

By 2018, electricity generated by renewable energy projects will reach about 1000 MW, Haidar Gammaz, spokesperson for the MEMR, told local media last year.

Importantly, these initiatives have provided an opening for foreign investment in the renewables segment.

In January Masdar, an Abu Dhabi-based renewables developer wholly owned by Mubadala Development Company, announced it had signed an agreement to invest $300m in a 200-MW solar project, marking the companys second renewables project in the kingdom.

According to Ahmad Belhoul, Masdars CEO, changing price dynamics have made renewable energy projects more promising.

Prices of solar PV are down by 60-70 percent in the last six years, [while] prices of wind power projects have also dropped. And with changing government policies, the economic case for renewables is clear, he told media earlier this year.

Related:Devastating News For OPEC As Oil Revenues Hit A 10-Year Low

Another Abu Dhabi-based player, Enviromena Power Systems, won a $128m joint deal with Spanish engineering firm TSK Group in December to build a 103-MW solar PV power plant in Al Quweira in Jordans southern region, according to press reports.

Development of the Al Quweira plant, which is being funded by Jordans MEMR through a grant from the Abu Dhabi Fund for Development, is intended to help the country achieve its target of 600 MW of solar and wind power by the end of this year.

According to Sami Khoreivi, CEO of Enviromena, lower energy prices are spurring on regional investment in renewables.

There is a massive increase in solar power installations in the MENA region, he told international press in January. This year we will see 10 times more contracts than last year.

By Oxford Business Group

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29 June
Comments Off on Investing by Accident

Investing by Accident

Simple examples would be praising funds that always invest in small-company stocks for outgaining the Samp;P when secondary stocks lead the way, or crediting funds that favor lower-quality bonds for beating high-grade funds during an economic expansion. Clearly, those funds managers did nothing to warrant such praise. They held what they were going to hold, no matter what the market conditions, and were buoyed by favorable winds.

Investment analysts quickly learned to avoid that sort of miscalculation. They found specialized indexes–or combinations of such indexes–to use as benchmarks for funds that invested outside the mainstream. If a small-value fund outperformed a small-value index, then that represented true achievement. The comparison became apples to apples, as opposed to the apple of a small-value fund, the orange of a broad small-company index, and the kumquat of the Samp;P 500.

Not so Simple, Simon
That additional step, however, did not suffice. Almost all fund managers have investment habits: perpetual traits, regardless of market conditions. Consider the small-value manager who, year after year, favors beaten-down tech stocks, who holds about 10% of fund assets into foreign securities, and who dislikes banks. That managers relative fortunes will vary with the performances of those three areas. If all three break in his favor, his fund will almost surely beat the index. If they break the other way, the fund will trail.

And that is a simplified example. In reality, managers will have more than three ongoing differences with their benchmarks. In addition, the numbers will not be fixed but instead will fluctuate within a range: That 10% position in foreign stocks might be as high as 15% at some times or as low as 6%. Thus, adjusting the benchmark to make it reflect a managers true universe, so that the resulting comparison gives the managers true alpha, is no simple matter. It requires much more data and, ideally, extended conversations with that manager to understand which preferences might change and which are fixed.

The difficulty of conducting such work, on a mass scale, spurred GMOs Jeremy Grantham to state, 90% of what passes for brilliance or incompetence in investing is the ebb and flow of investment style. That is, most manager selection consists of investing by accident.

Cause and Effect
This leads to tail-chasing, as investors pursue funds that have had strong recent relative performances. The relevant factors blow to a funds advantage. The fund climbs the performance rankings, gains additional stars in its Morningstar Rating, makes the consultants buy lists, and attracts new assets. The marketplace seems to be rational, with the better funds receiving their just rewards.

But then the winds change. Perhaps their effect is neutral, so that the funds returns become average. Observers comment that management has become distracted by the funds newfound success or that it is having difficulty investing the larger asset pool. Or, perhaps, the effect is negative and the funds performance really suffers. In that case, it may be said that the manager suffers from a cover jinx or that he lost his discipline.

Such explanations are personifications. For the most part, the investment weather drives the performance decline, not the investment people.

Of course, even this portrait is a simplification. Investment managers do make decisions that are not fixed–decisions that lead to true contributions. Yes, most funds tend to have stable risk exposures over time, with their asset allocations, geographical mixes, and sector weightings generally being predictable. But not always. When such moves do occur, for time-specific reasons, the results come from investment intentions, as, of course, do security-level selections.

Set Up to Disappoint
Such is the state of todays investment art. Most people realize that the strongest arguments for portfolio-manager efficiency are overstated. (Warren Buffett: Ships will sail around the world, but the Flat Earth Society will flourish.) Every fund manager makes meaningful choices, and some are better at doing so than others; thus, some managers are superior. Identifying those A students, however, has proven trickier than expected.

This, as the Financial Times Stephen Foley noted while attending Morningstars Investment Conference, has severely damaged active managers reputations. The average actively managed fund is decently run. Add its expense ratio back to its reported total returns, and the result roughly matches that of the funds benchmark. Adding trading costs, which are not contained within the official expense ratio, puts the typical active fund slightly ahead of the index. So, there has been no surprise in aggregate with active managements results.

The surprise comes from the particulars–when an apparent star fund, run by an apparent star manager, reverses course. Such behavior does more than tarnish one managers name. It besmirches the entire field of active investment management, by suggesting that that success is a mirage. When this happens once or twice, or even a few times, investors can shrug off the experience and maintain their faith. Eventually, though, they stop believing. In Foleys words, harsh reality intrudes upon active managements warm cocoon.

(Foley takes Morningstars star ratings to task for being part of the problem of misidentifying skilled managers. Setting aside Morningstars disclaimers that the star rating measures past performance and does not incorporate predictions, Foleys argument is fair. The stars, too, have trouble distinguishing between alphas and betas. However, Foley errs in linking star ratings to performance-chasing. Most performance-chasing occurs when investors sell one asset class to purchase another; the star ratings do not address that issue. They carry no information at all about asset classes.)

My intent is not to point fingers. There is more that Morningstar can do to separate alphas from betas so that investors are not surprised by how their new funds perform. There is also more that investment consultants can do, more than financial advisors can do, more that the media can do. If blame is required, there is plenty to be passed around. This article is instead intended to serve notice. The problem with active management is not active management. It is instead managements overly high costs (covered in several previous columns) and the incorrect expectations that are established when people invest by accident.

John Rekenthaler has been researching the fund industry since 1988. He is now a columnist for and a member of Morningstars investment research department. John is quick to point out that while Morningstar typically agrees with the views of the Rekenthaler Report, his views are his own.