Tuesday, January 10, 2012

Hedge Funds Had One of Worst Years Ever in 2011

This should not be a surprise as a lot of what they do is take
a bet in a zero sum game.Winner or Loser are the two
alternatives. Also the pension funds have over allocated
to this class of investment so the hedge funds are betting
against each other very difficult to pick a winner, may as
well go to the casino.  Aivars Lode

By Reuters

Monday, January 09, 2012

NEW YORK (Reuters)—The final result for 2011 is in: hedge funds posted one of their worst annual performances ever, according to data released on Monday [Jan. 9]. The average hedge fund sank 4.8 percent in 2011, data compiled by Hedge Fund Research showed. The Standard & Poor's 500 stock index, by comparison, ended the year roughly flat. In 2010, the average hedge fund rose by more than 10 percent.
2011 marks only the third calendar year since HFR began measuring industry-wide performance in 1990 that hedge funds have finished in the red. It is also the industry's second decline in four years.
Even though the fourth quarter of 2011 saw hedge funds gain 1.3 percent, that small boost barely helped firms whipsawed by record volatility in the third quarter as the European sovereign debt crisis sent markets into freefall, and the U.S. economy stagnated. Hedge funds lost almost 7 percent from the beginning of July through Sept. 30.
"Volatile and unpredictable market dynamics throughout the year created a challenging environment for hedge funds in 2011, with aggregate losses across currency, commodity, Emerging Markets and equity strategies related to the European currency and sovereign debt crisis," said Kenneth J. Heinz, president of HFR.
The final month of 2011 brought little relief for bruised investors. In December, the HFRI Fund Weighted Composite index lost 0.18 percent.
Industry watchers were surprised by some of the big-name stock pickers who stumbled in the latter half of last year, and December offered no respite for traditional long/short funds, which make bets on some stocks rising and others falling.
The HFRI Equity Hedge (Total) Index, which measures performance of those managers who specialize in going long and short stocks, lost 0.66 percent in December, sending losses for the strategy to about 8 percent for the year.
By Katya Wachtel

Monday, January 9, 2012

M.I.T. Game-Changer: Free Online Education For All

12/21/2011 @ 1:57PM |600,547 views

If we think about this for a couple of minutes and realize  that this will enable some of the best teachings to be available to a huge number of future students, you can imagine that there will be amazing advances made in any number of industries over the coming two decades!  Aivars Lode

M.I.T.'s Simmons Hall
For Wall Street Occupiers or other decriers of the “social injustice” of college tuition, here’s a curveball bound to scramble your worldview: a totally free college education regardless of your academic performance or background.  The Massachusetts Institute of Technology (M.I.T.) will announce on Monday that they intend to launch an online learning initiative called M.I.T.x,which will offer the online teaching of M.I.T. courses free of charge to anyone in the world.
The program will not allow students to earn an M.I.T. degree. Instead, those who are able to exhibit a mastery of the subjects taught on the platform will receive an official certificate of completion. The certificate will obviously not carry the weight of a traditional M.I.T. diploma, but it will provide an incentive to finish the online material. According to the New York Times, in order to prevent confusion, the certificate will be a credential bearing the distinct name of a new not-for-profit body that will be created within M.I.T.
The new online platform will look to build upon the decade-long success of the university’s original free online platform, OpenCourseWare (OCW), which has been used by over 100 million students and contains course material for roughly 2,100 classes. The new M.I.T.x online program will not compete with OCW in the number of courses that it offers. However, the program will offer students a greater interactive experience.
Students using the program will be able to communicate with their peers through student-to-student discussions, allowing them an opportunity to ask questions or simply brainstorm with others, while also being able to access online laboratories and self-assessments. In the future, students and faculty will be able to control which classes will be available on the system based on their interests, creating a personalized education setting.
M.I.T.x represents the next logical evolution in the mushrooming business of free online education by giving students an interactive experience as opposed to a simple videotaped lecture. Academic Earth (picked by Time Magazine as one of the 50 best websites of 2009) has cornered the market on free online education by making a smorgasbord of online course content – from prestigious universities such as Stanford and Princeton – accessible and free to anyone in the world. Users on Academic Earth can watch lectures from some of the brightest minds our universities have to offer from the comfort of their own computer screen. However, that is all they can do: watch. Khan Academy, another notable online education site, offers a largely free interactive experience to its users through assessments and exercises, but it limits itself to K-12 education. By contrast, M.I.T.x will combine the interactivity of the Khan Academy with the collegiate focus of Academic Earth, while drawing primarily from M.I.T.’s advanced course material.
“M.I.T. has long believed that anyone in the world with the motivation and ability to engage M.I.T. coursework should have the opportunity to attain the best M.I.T.-based educational experience that Internet technology enables,” said M.I.T. President Susan Hockfield in the university’s press release.
According to the university, residential M.I.T. students can expect to use M.I.T.x in a different way than online-only students. For instance, the program will be used to augment on-campus course work by expanding upon what students learn in class (faculty and students will determine how to incorporate the program into their courses). The university intends to run the two programs simultaneously with no reduction in OCW offerings.
According to the New York Times, access to the software will be free. However, there will most likely be an “affordable” charge, not yet determined, for a credential. The program will also save individuals from the rigors of the cutthroat M.I.T. admissions process, as online-only students will not have to be enrolled in the prestigious, yet expensive, university to access its online teaching resources.
Those champing at the bit to dive into M.I.T.x will have to wait, as the university doesn’t plan to launch a prototype of the platform until the spring of 2012. According to M.I.T. Provost L. Rafael Reif and Anant Agarwal, director of the Computer Science and Artificial Intelligence Lab, the prototype might include only one course, but it would quickly expand to include many more courses.
Once launched, M.I.T. officials expect the M.I.T.x platform to be a giant hit amongst other universities looking to create or expand upon their online course materials.  “Creating an open learning infrastructure will enable other communities of developers to contribute to it, thereby making it self-sustaining,” said Agarwal in the M.I.T. press release.
Whether M.I.T.x will directly threaten the margins at for-profit online universities, such as the University of Phoenix, APUS, or DeVry remains to be seen. But as M.I.T.x starts to provide many of the salient virtues of for-profit online colleges, such as a robust learning management systems and real-time virtual interaction, these publicly traded education companies might have to lower fees in order to compete with M.I.T.x’s compelling free price. In addition, the success of M.I.T.x, OCW, and Academic Earth may push dramatic technological innovation at for-profits, so that they can maintain a unique selling proposition versus their free competitors. Moreover, as the rapidly growing number of what are termed “self educators” choose free college education, a cottage industry of social media support services might evolve to bring them together for free in-person study and help sessions.

Which is all to say that, against this country’s sizable need for STEM (Science, Technology, Engineering, and Math) graduates, M.I.T.x is nothing short of revolutionary. This is especially true if you aren’t a credential freak and, like me, just want to improve your chops in a marketable subject area.

Sunday, January 8, 2012

Yes, They Pay a Dividend, but Can You Afford Them?

Dividends as part of an investment strategy how novel? Not for the readers of my blog!


Published: January 7, 2012

WHEN gains in the stock market are hard to come by

In fact, the four best-performing categories of equity funds in 2011 — portfolios that specialize in utilities, health care, real estate investment trusts and consumer companies involved in food, beverages and other household products — all dabble in dividend-rich parts of the market. And all of these groups produced average gains of more than 7 percent last year, when the Standard & Poor’s 500-stock index rose a mere 2 percent, according to the fund tracker Morningstar.

But almost as quickly as investors rediscovered dividend payers, they’ve started to learn that this strategy is becoming expensive.

“It does beg a little closer inspection,” said Mark D. Luschini, chief investment strategist at Janney Montgomery Scott. “Investors have plowed into these areas without much regard for what underlying securities are actually producing these yields and what their valuations are.”

Mr. Luschini noted, for instance, that because of their recent popularity, shares of many utilities and consumer-staples companies — businesses that produce basic household necessities like food and toothpaste — are now at or near their recent highs.

Utilities, which have historically traded at a significant discount to the S.& P. 500, owing to the sector’s slower-than-average growth, have an average price-to-earnings ratio of 15, based on the trailing 12 months of earnings. That means the sector trades at a premium to the overall market P/E of about 13.

And as far as real estate investment trusts go, their prices are starting to become uncomfortably high, said Chris Cordaro, chief investment officer at RegentAtlantic Capital. “We’ve been in REITs for clients for more than 20 years, but we’re completely out of them right now because of their valuations,” he said.

Still, prices in income-producing sectors haven’t reached the point where strategists recommend abandoning the search for dividends. Instead, they say, investors just need to be more mindful of how they use the strategy.

Thomas H. Forester, manager of the Forester Value fund, which outperformed 56 percent of its peers last year, noted that his fund sold its shares of a giant utility, Dominion Resources, when they were trading at a P/E of above 15.

But his fund has not given up on the sector entirely. It continues to own shares of utilities with lower-than-average P/E ratios, like American Electric Power, which is trading at just 11 times last year’s earnings.

Mark R. Freeman, co-manager of the Gamco Westwood Balanced fund, which beat 65 percent of its peers in 2011, adds that investors would be wise to focus on high yielders and on companies with the potential to methodically bolster payouts over time. “This is the wrong time to reach for stocks with the absolute highest yields,” he said. “I’m a bigger fan of companies that are yielding 2 to 4 percent now but that promise earnings growth in the future and higher-quality balance sheets.”

FOCUSING on dividend growth should help create a more stable portfolio, market strategists say. After all, companies that can bolster their earnings and payouts consistently are likely to withstand an economic downturn better than their peers.

What’s more, this approach should help investors find dividend-payers in less-expensive sectors of the economy.

Henry B. Smith, chief equity investment officer at the Haverford Trust Company, an asset management firm in Radnor, Pa., said that the firm maintains two separate blue-chip dividend stock strategies. The first focuses on companies in position “to increase their dividends over time based on their above-average earnings growth,” he said, and is used in the Haverford Quality Growth Stock mutual fund. The other, available to clients though not through a retail fund, pays more attention to companies with higher current yields.

While the second approach outperformed the first in 2011, the dividend-growth portfolio has a lower average P/E ratio — around 10 times 2012 estimated earnings, versus about 11 for the high-yielding portfolio.

By focusing on dividend growth, investors will also be drawn to less-traditional income-producing sectors like technology.

Mr. Cordaro of RegentAtlantic says that one of his favorite dividend-paying stocks these days is Intel, the chip maker now paying out a market-beating 3.3 percent dividend yield. The stock is trading at a modest P/E of 10, and its earnings are expected to grow roughly 10 percent annually.

“You’ve got the same exact thing going on at Microsoft,” he said, referring to the software giant whose shares have a 2.9 percent dividend yield. Like Intel, Microsoft has earnings that are expected to grow around 10 percent annually, yet it is trading at less than 10 times last year’s earnings.

“If I told you in 1998 that these companies would turn into dividend leaders,” Mr. Cordaro said, “you’d say I was crazy.”

Paul J. Lim is a senior editor at Money magazine. E-mail: fund@nytimes.com.