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03 Jan

IRS Tax Help At Taxpayer Assistance Centers

Posted in Personal Finance on 03.01.14

thaThere are several ways to get IRS tax help. One of the easiest and convenient methods is through the IRS government website. Since it can be found online, a person will not have to go to the office to ask for assistance rather, he/she simply has to open the site and follow the instructions or links posted there. There are a lot of helpful guidelines in the IRS website on how to resolve tax issues easily. Apart from that, one can also call their telephone hotline in seeking IRS tax help.

However, tax help can also be availed through the taxpayer assistance centers. If you think that the tax issue cannot be solved or handled through online browsing or telephone call, you can have a personal assistance at the local IRS center. The location, overview of services and the business hours for these assistance centers can be found in the official government site of IRS. You can also drop by at their office to see these schedules but the IRS website would be the most convenient means. Tax issues can be resolved if you make an effort to talk to credible IRS agents. This is why IRS tax help extends their services to the taxpayer assistance centers located at your communities.

Can You Qualify For IRS Tax Relief?

Paying taxes is not taken seriously by many people, but it should be since it can cause serious problems with the law. Paying taxes is obligatory and will continue to be, so it is better to find a way to be on good terms with the IRS. Nonetheless, those who are not able to find enough money and pay taxes still can apply for one of IRS tax relief programs, so it is important to know who can qualify for this. A tax relief expert can help.

The tax relief programs usually apply to individuals and small business areas, and mostly those who have faced some type of natural disaster are the first in the row. These disasters usually mean that a person will be making less money in the future, so he needs a financial help. Older people and disabled ones also can use the relief, mostly because they are physically limited when it comes to work activities, so due to lower salaries, they can hardly manage to pay taxes. Homeowners also can find some uses in IRS tax relief, and that because of many expenses they cannot predict. However, there may be other categories of people who can use the IRS help, and in order to know the rights every taxpayer should contact his agent.

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08 Oct

Lawyers Doing Crooked Things? Say It Ain’t So!

Posted in Law on 08.10.13

crookedRegulators were scheduled to discuss the issue last weekend at a meeting of the North American Securities Administrators Association in Avon, Colo. Also weighing in is a group of 350 lawyers — members of the Public Investors Arbitration Bar Association — whose clients are bilked investors. They’re miffed that their bigger brethren are raking in the bucks as trustees appointed by a government body to dole out settlements in fraud suits.

Along with Massachusetts and Nevada, the lawyers, whose group is based in Norman, Okla., is trying to persuade Congress to investigate whether the Securities Investor Protection Corp., a non-profit created by Congress in the late 1960s to recover investors’ assets after their brokerage goes bankrupt, is doing its job.

SIPC “should be called the Securities Investor Persecution Corp.,” says Mark Maddox, president of PIABA and a partner in Indianapolis law firm Maddox Koeller Hargett & Caruso. He charges that the government corporation operates “like a big insurance company wanting to pay out as few claims as possible.”

As evidence, Mr. Maddox points to its payments of about $400,000 to only nine investors out of more than 3,000 who applied for reimbursement when broker Stratton Oakmont of Lake Success, N.Y., was shut down by regulators in 1996 for fraudulent securities activities. The firm is now being liquidated.

Yet published reports that SIPC does not deny claim it has paid some $2.8 million in fees and another $300,000 in expenses to Well Gotshal & Manges LLP, the NewYork law firm in which Stratton Oakmont trustee Harvey Miller is a partner.

Mr. Maddox’ group says the corporation, which controlled assets totaling nearly $1.2 billion at the end of last year, is “interpreting the law far too narrowly with the goal of not paying claims. I think that they’ve created some internal rules that were never intended by Congress,” rules which make it too difficult for most investors to be able to win restitution of their funds.

But the corporation’s general counsel, Stephen Harbeck, insists it has never failed to pay a documented claim, reimbursing 426,500 people since its inception. “We built up our fund in excess of $1.2 billion to make sure we could perform our narrow mission under virtually all circumstances,” he says. As a result, SIPC has been able to reduce the fees it charges the 7,500 brokerage firms it covers to a mere $150 a year, regardless of their size.

“We believe we do have an investor protection mission and that we perform that mission,” Mr. Harbeck says. “The costs of the kind of program suggested (to cover losses from fraud) would be incalculable,” he adds, and would result in a more complex, less clearly defined mission.


He also defends payments to Well Gotshal & Manges, saying that Stratton Oakmont trustee Harvey Miller is an acknowledged expert in brokerage firm insolvency. Money paid to the law firm has allowed Mr. Miller to sue the former principals of the brokerage to recover money improperly transferred out of the company Mr. Harbeck says.

“If Mr. Miller is successful in that, he will be able to make all general creditors whole.”

Mr. Miller says the litigation was time consuming and costly. “It’s all subject to approval by the court after review by SIPC.”

As for the investor-oriented bar group, this is its first foray into a public policy lobbying campaign. Started nine years ago, it has one employee, an executive director, and is funded by less than $100,000 in dues and fees from its annual meeting. The group wants Congress to investigate SIPC to determine if the recovery corporation is correctly fulfilling its legal mission, and to consider enlarging its responsibilities to cover more claims.

Several state officials agree with the bar group. In April Massachusetts Secretary of State William Galvin and his Nevada counterpart, Dean Heller, asked the Senate Banking Committee to draft legislation that would increase coverage to investors for losses from fraud or uncollectable judgments.

“The problem we now have is it’s very misleading,” Mr. Galvin says. As the number of small investors bilked in microcap stock fraud cases is on the rise, “brokerage firms highlight their SIPC coverage on decals, but what you find is the real coverage is limited to very narrow situations.”

Indiana securities commissioner Bradley Skolnik adds that “Many people may believe that SIPC provides a higher level of protection for investors than it actually does. It’s time to take a fresh look at what SIPC should and should not do.”

And Alabama Securities Commission Director Joseph Borg argues that when the recovery organization was formed in 1970 most investors ”were more sophisticated than today’s folks. Now that you have one out of three Americans investing, I think they expect it to be more like the (Federal Deposit Insurance Corp., which insures bank deposits to $100,000).”

Congress has so far shown little interest in the issue, however, and George Kramer, vice president and associate general counsel of the Securities Industry Association in Washington, says that covering fraud losses is “one of the worst ideas I’ve heard in a long time. It would enormously increase the payments into the funds that firms would have to make, which would be a tremendous increase in the cost of capital.”

Beyond that, he adds, “There’s the potential this opens for frivolous litigation. It’s going to create a tremendous incentive to recharacterize routine securities transactions as fraudulent in order to tap into SIPC.”

Mark Sargent, dean of the Villanova University School of Law in Philadelphia, agrees. “The attitude of many is that I lost money therefore, I was defrauded. There’s a chance that this would become almost a guarantee fund against investment loss, and we saw what happened with that in the S&Ls in the ’80s,” when savings account holders were paid above-market returns that taxpayers insured when many institutions became insolvent.

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13 Sep

Small Businesses And Foreign Investment… Possible??

Posted in Markets on 13.09.13

sbfiThe lure of the US. economy makes sources of financing overseas a viable option for small businesses.

For many business owners, the search for outside financing often begins at the nearest bank–and ends there, too, in the frustrating words, “We’re sorry, but you don’t qualify for a loan.”

Bank money is often the cheapest financing that business owners can get, but capital takes many forms and comes from many sources other than banks, including some that are unfamiliar to many entrepreneurs.

Take, for example, capital from overseas.

No one keeps tabs on how much capital American businesses raise from foreign sources, but the total probably grows every year, according to Lloyd C. Day, an assistant secretary at the California Trade and Commerce Agency in Sacramento. An arm of the state government, the agency fosters contacts between California businesses and potential investors overseas.

Day says he believes there may be hundreds of millions of dollars available to U.S. companies from foreign sources. “Money comes from institutions and from high-net-worth individuals overseas because U.S. business is a safe haven from a political standpoint–and because investors like the growth they see here.”

Put another way, the U.S. economy in general, and small and medium-sized businesses in particular, present foreign investors with opportunities that are unavailable anywhere else in the world, according to Mark Hyman, managing director of global corporate finance in New York City for Arthur Andersen LLP, an international professional-services firm.

U.S. Attractions

Hyman says Americans understand the industries that will fuel the global economy as the new century begins–computers, software, telecommunications, biotechnology, and electronic commerce, among many others. Indeed, Americans invented these industries and will very likely invent others.

Also, Hyman says, the social, political, and legal systems of the United States, despite their faults, make this country a safer place for capital than most other countries.

Among other advantages, U.S. accounting standards dictate the form and content of the balance sheets, income statements, and other documents by which outside investors can judge the risk and performance of any company they want to back, in essence making the operations of the company transparent to the outside investor.

Furthermore, investors who hit it big in the United States often hit it really big, and the new wealth created lures more investors from all over the world.

In short, Hyman says, foreign investors like their chances here, which is why each year they send a good deal of capital to these shores looking for work.

The trick is to find it. And the experience of Jerry Chang, CEO and co-founder of Clarent Corp. in California’s Silicon Valley, holds some important lessons for other business owners on the prowl for outside financing.

Linking With Hong Kong

lwhClarent makes hardware and software used to transmit telephone communications over the Internet. In essence, the company’s technology transforms the sounds carried as waves over conventional copper phone lines into digital information for Internet transmission. Privately held, the company employs about 100 people at its headquarters in Redwood City, south of San Francisco, and in six foreign countries.

A year ago Chang raised more than $10 million in a round of financing led by the Hong Kong office of Goldman Sachs, a major New York City investment-banking firm. About $3.5 million came from Goldman Sachs itself, investing on its own account, and the rest came from private investors in Hong Kong, says Richard J. Heaps, Clarent’s chief financial officer and chief operations officer.

How did Chang make the Hong Kong connection? “It wasn’t science,” says Heaps. “It was art. Jerry wanted investors who would be in it for the long term, and he spoke to venture capitalists in Silicon Valley and to some strategic investors on the West and East coasts.

“It was a process of leveraging off of who you know and what you know–and how to go about finding out what you need to know.”

Chang already knew that foreign investors like American business; in founding Clarent in 1996, he and his partner–Mike Vargo, Clarent’s chief technology officer–raised seed capital from a Taiwanese investor who is a personal acquaintance of Chang, himself a native of Taiwan.

The deal with Goldman Sachs proceeded just like any deal with U.S. investors, Heaps says. In early 1988, Chang wrote a business plan detailing Clarent’s product and his strategy for taking it to market.

He networked extensively, identified a handful of potential investors, and negotiated with two bidders, Heaps says. He closed the deal with Goldman Sachs and the Hong Kong investors–most of them wealthy individuals–last May.

“We had a commercially viable product, and it was time to scale up our operations,” Heaps says. “It took a lot of perspiration and networking.

“We were fortunate in our timing because the market we wanted to attack recognized Internet telephone technology as a legitimate product.”

Through the Hong Kong connection, Chang got what investment bankers term patient capital–so called because his backers, unlike those who invest in most other start-ups and young growth companies, did not insist that he cash them out by going public or selling out to a bigger company in three to five years. Instead, the Hong Kong investors, like Chang, saw the potential for long-term growth in Internet telephony, and they wanted in on it, Heaps says.

“There was nothing unique about the fact that the source of the funding was foreign, and there were no legal or cultural barriers,” Heaps says. “Other than the long distance, the dynamics of actually raising the financing were the same. The job was simply to make sure that our prospective investment partners had a clear picture of the opportunity.”

Ties On The Coasts

On the West Coast, Asian capital comes largely through intermediaries with family, personal, and professional ties in countries such as Taiwan and China and in cities such as Singapore and Hong Kong. On the East Coast, capital comes mostly through the big investment-banking houses and through private equity groups with ties to investors in Europe.

“In California, you have to network among diverse populations,” says the Trade and Commerce Agency’s Day. “Especially when you’re talking about capital from Asia, you have to make connections personally through foreign chambers of commerce, through banks with overseas operations, and through the many AsianAmerican business associations.

“It takes persistence and homework,” he adds, “but California is the center for venture capital in the world, and a lot of investors want to partner here so they can create their own venture-capital communities at home. They want to get in on all the activity here.”

Things You Need To Know

Heaps has some final words of advice for business owners seeking capital.

Don’t assume that your only sources of capital will be domestic, and know why your business presents a good opportunity to investors, whether they’re foreign or domestic, he says.

In addition, know what you need from your investors–for example, connections to your customers or to potential strategic partners, or board members who can bring wide expertise in your industry.

Last but not least, Heaps adds, do due diligence on any investor who bids on your proposal, because the relationship will be crucial to your success.

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08 Aug

The Tech Bubble Times – Remember Those?

Posted in Market History, Markets on 08.08.13

scEach of the Mutual Fund contestants began the yearlong contest with a $100,000 hypothetical investment in six stocks. Two of the stocks remain in place for three months, two for six months and two for the full year. Contestants include investors, analysts, portfolio managers and channel executives, who pick under code names. The CRN Grab Bag comprises stocks picked at random from a list submitted by CRN editors.

Proving the market confusion, the CRN Grab Bag outperformed many of the experts in the most recent quarter. CRN’s picks moved up to third from ninth place in the third quarter, attaining a value of $120,829, up from the June 30 mark of $111,231.

Taking the lead at the end of the third quarter, by moving up from second during the period, is 1997′s defending champion Raging Elk. The channel executive saw his portfolio rise 4.1 percent from the half-year mark of $128,681.

Propelling Raging Elk to the top spot was three-month pick Apple Computer Inc., which has risen 32.8 percent since June 30; and one-year picks Intel Corp. and Microsoft Corp. Microsoft has rocketed 70.4 percent so far this year.

For the fourth quarter, Raging Elk is replacing Apple and his other third-quarter pick, 3Com Corp., with Network Associates Inc., a supplier of enterprise network security and management software; and Dell Computer Corp., despite the fact the stock has dropped 41.4 percent since June 30.

“As a disciple of the channel, I still must give credit where credit is due,” said the channel executive. “Dell has defined a new [price-to-earnings] paradigm on Wall Street.”

Raging Elk is not alone in picking the direct-only computer maker. Two other contestants-Martin Wolf, president of Martin Wolf Associates, and channel executive Black Knight-also chose Dell for their three-month picks. “The company is winning the [PC] war,” Wolf said.

amcPerhaps most disappointed with his third-quarter performance was Hambrecht and Quist Senior Technology Analyst Todd Bakar, who dropped from the coveted No. 1 position to sixth place. While most of Bakar’s stocks experienced gains-among them Macrovision, Transaction Network Services and Applied Micro Circuits Corp.-Bakar witnessed a steep decline in three-month pick Daou Systems Inc., a health-care computer network provider that has dropped a precipitous 74.9 percent during the past quarter.

Bakar hopes to regain the top slot with new three-month picks Remedy Corp., a developer of enterprise resource planning software; and contract electronic manufacturer Sanmina Corp.

“Sanmina is a great company,” said Bakar. “It’s stock is inexpensive, having taken a pounding after falling shy of [analysts' expectations] last quarter. But I expect the stock to bounce back.”

Following Raging Elk’s tracks, and moving to second place from 11th, is RAM Partners’ Matthews. The investor profited in part by shorting six-month selection Oracle Corp.; and by going long for the year with Unisys Corp., which has shot up 63.9 percent so far this year.

For 1998′s final quarter, Matthews is betting he will continue do well by shorting: in this case, a thumb’s down to IBM Corp. and Onsale Inc. The latter is an online auction company whose business model, said Matthews, is shakier than competitors’ because it carries all the merchandise it sells and, therefore, must contend with inventory obsolescence.

IBM is generating earnings more on the strength of financial and tax management than on its product line, he said. “The company’s [electronic-]commerce business with the channel lacks coherence,” he said. “Its stock is approaching an all-time high just as its prospects are eroding.”

Channel executive Data Master, who dropped to fifth place from third, is more bullish on the PC manufacturer. He bet long on IBM in part, he said, because the company traditionally does about 35 percent of its business in the fourth quarter, and because it has a mainframe product line that “is a hell of a story.”

Moving up two notches during the quarter was IPS Millennium Fund Portfolio Manager Robert Loest, who sits in fourth place at $119,078. Loest rose mainly on the strength of one-year pick EMC Corp., a maker of computer storage devices whose stock has rocketed 108.3 percent since January.

Loest was less fortunate with other picks: Software vendor Sterling Commerce Inc. has come down 28.6 percent since the half-year mark; Applied Materials has fallen 16.2 percent since the start of the year; and three-month selection Qwest Communications has dropped 10.1 percent since June 30.

For the final quarter of the contest, the portfolio manager is flagging three-month picks that might realize a faster return than Qwest: Earthlink Network Inc., an Internet gateway; and Verio Inc., a provider of Internet connectivity, Web hosting and other Internet services to small and midsize businesses.

That high-tech’s future is so tightly linked to advances in telecom and datacom equipment is a recurring theme among contestants this quarter. Thus, several players are betting in favor of companies offering hubs, high-speed routers, switches, local loops and the like.

For example, California Technology Stock Letter Editor Michael Murphy, who sits in 12th place, replaced third-quarter pick Cymer Inc. with Premisys Communications Inc., a maker of integrated access products that connect users to high-speed networks via copper wire.

“Premisys’ stock is trading at less than 10 times its earnings,” Murphy said. “The company is the leading player in its industry.”

Also betting on network equipment providers is Wolf, who is in 15th place and chose Cisco Systems Inc.; and Kelley Williamson, a private investor who opted for wireless solutions providers that cater principally to emerging market companies lacking in landline telecom equipment.

Williamson’s three-month picks included P-Com Inc., a maker of point-to-point communications for shortwave radios; and Advanced Fiber Communications Inc., a wireless local loop provider. “The company’s growth is awesome-60 percent in the June quarter. And the stock is dirt cheap,” he said.

Williamson is hoping his new picks will catapult him into a more competitive position. The private investor sits in 18th place at September’s close, owing to the uniformly dismal performance of his six picks. Those selections-among them Merisel Inc., equipment makers Cymer Inc., RIT Technologies Ltd., MRV Communications and Galileo Technology-left Williamson with a portfolio value of $34,170 at the end of the third quarter.

Others focusing on telecom/datacom equipment companies in the fourth quarter are Gerard Hallaren, vice president of Invesco Funds Group, who opted for 3Com and laser subsystems/fiber optic maker Uniphase Corp.; Black Knight, who bet long on Lucent Technologies Inc.; and Prudential Bear Fund Portfolio Manager David Tice, who sits in the basement with a portfolio value of $30,785.

Tice, however, is not singing Lucent’s praises. He is shorting the equipment maker, believing it will experience a downturn in the fourth quarter because capital is drying up for companies that invest in voice and data networking equipment. “[Lucent] has taken write-offs for six of the last 10 quarters,” Tice said. “Its stock is selling for an outrageous price and is bound to go down in today’s bear market.”

As in the third quarter, Tice for the final three months of 1998 also is shorting Applied Magnetics Corp. The storage maker, he said, is among the weaker players in a disk-drive industry that suffers from depressed prices and excess production capacity. Applied Magnetics as a short in the third quarter was among Tice’s best-performing stocks, due to a 44 percent price decline. Meanwhile, Yahoo Inc. and Lycos Inc. have been poor shorts, with Yahoo up 274.5 percent and Lycos up 63.9 percent for the year.

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30 Jun

Don’t Let The Market Kill Your Enthusiasm

Posted in Markets on 30.06.13

mkyeCorporate America has enjoyed unprecedented growth over the past decade. When the stock market soared past 11,000 on May 3 nearly everyone displayed confidence in the future. But the economic landscape still isn’t as giddy as it was before the reality of troubled foreign markets hit many minds. Asian markets last year declined by as much as 80 percent. Latin America, the fourth largest U.S. trading partner, slowed from a record high growth rate of 5 percent in 1997 to an estimated 1.5 percent in 1998. Russia and Eastern Europe teeter near economic collapse.

Even if the gloom and doom surrounding the health of the global economy has waned a little, the shrinking of some foreign markets has changed many companies’ market outlook. Still, marketing strategists can set a successful course for their companies by carefully analyzing fundamental marketing issues.

Look beyond your markets. It’s not enough to know your own markets. You must look at the markets your customers serve. Like you, your customers are being forced to shift their business models. What may have been true about your customers’ corporate strategies and how your solution fit yesterday, may no longer apply. Assess the impact of possible changes and make adjustments quickly.

What are the likely retrenchment tactics of the customers in your target markets? How should your marketing plan change as a result? The key is to anticipate the fundamental changes your customers will need to make in order to be successful in a shrinking global market. Retrenchment tactics can include increasing U.S.-based manufacturing, putting price pressure on suppliers, slowing the pace of upgrades, and increasing investment in cost-saving technologies. These changes will differ within each market segment and within each geographic region.

At the very least, follow the financial predictions about your customers’ markets, not just your own. Then, within each market, identify who will fare best in a smaller economy. From this information, develop plans to focus on specific major accounts or on subsegments within your key market segments.

Assess your competitive position. Now, more than ever, companies must own a market segment. In a down market, customers’ buying psychology shifts. They go with a known entity. They play it safe. If you are not first or second in a given market segment, you have some serious thinking to do. And if you do enjoy a top spot, you must leverage that position aggressively.

Assuming you’re in a relatively poor position in one of your defined market segments, You have two options: exit the segment, or re-define it to change your position. Sometimes an exit is the right choice. If you have not succeeded in a certain arena, ask yourself whether you should continue to invest in it.

The other option, redefining your segment, can be one of the most effective approaches to securing a lead. Redefinition is largely a matter of positioning. One of the best historical examples of a tech company’s use of that option to improve its market position is Sybase.

rdbmsIn the late ’80s, Oracle was the dominant relational database vendor, and the market was littered with competitors. Sybase lacked the size and sheer market strength of Oracle. But in a stunning marketing maneuver, Sybase redefined its segment. The company turned its RDBMS product into a transactional processing system, thus creating a new segment. That strategy proved incredibly successful. It resonated with Sybase’s largest target audience, the financial community, whose biggest concern was managing high transaction volumes.

A more contemporary example is Sun Microsystems. Positioned as a vendor of workstations for desktop computing, Sun found itself losing the desktop war against Intel and Microsoft. Rather than continue to fight a losing battle, Sun redefined itself as a network-based computing company, reviving a position it had used almost since its inception.

Sun can now declare Microsoft the winner in desktop computing and still claim ownership of a market segment. The company, however, hasn’t stopped there. To further strengthen its “new” position, Sun has attempted to reposition its traditional competition–IBM, Digital (now Compaq), and Hewlett-Packard–as offering host-based computing solutions. Such marketing savvy at a crucial juncture in the company’s history helped propel Sun back into the spotlight with strong growth prospects.

Of course, if you own a dominant position in your defined segment, you can’t rest. It is imperative that prospects understand the importance of doing business with you. In a down market, they will need to sell and justify your solution internally to people who may not know who you are. You need to provide your prospects/customers with ammunition to make their buying committees feel comfortable committing to your solution.

Revisit the role of each geography. So far we’ve looked at your customer’s markets and your position within each market segment. Now we need to look at specific geographic regions and the impact they have on your global marketing strategy. You should ask yourself two questions: (1) What are the geographies that are most important to you vis-a-vis your competition? (2) What is your competition’s strategy within each of these markets?

To help you assess geographies and the necessary decisions based on your discoveries, consider a few examples. Assume the first geography under review is China, which has positive growth. If your key competitors are increasing their investment, you must match their investment (percentage) growth or lose out on immediate potential returns. That move is essentially a defensive maneuver.

If your key competitors are now decreasing their investment in China, you have an opportunity to significantly ramp up your investment, relative to your other geographies. Thus, you would take advantage of the opening your competitors have created, making an offensive maneuver.

Now, consider a second geography, Indonesia, which has negative growth. If your key competitors are investing more than they have historically (or more than you think prudent), you should minimize your investment. In some cases, you should exit the market for a period of time. In this situation, you may find the cost of re-entry lower than the costs of remaining in a market.

If your key competitors are investing less than you expected they might to defend their current position in Indonesia, you may want to invest more than you would otherwise. Again, you’re taking advantage of the opening they’re offering you. This is an offensive maneuver with a longer payback period.

Discipline is the key to success. A down-turn in the global economy doesn’t have to spell disaster for most companies. But it does mean that companies must become more disciplined. Marketers can contribute to their company’s success by adopting the type of analytical evaluation process recommended here. Knowledge and the ability to act on information will go a long way to securing success despite market turmoil.

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18 Jun

Is Value Really Ever A Value?

Posted in Markets on 18.06.13

ivreav“The move to indexing and near indexing continues to be an underlying theme,” says David Bullock, senior consultant for Eager Advisory. “The other theme of the study is that people are comfortable with value investing and the portion of their portfolio … in value will stay about the same.”

Roughly 86% of the 321 plan sponsors polled by Eager Advisory hold value investments in their portfolios. The total average allocation to value, currently at 31%, will make a minimal drop to 30% by 2001, according to the survey, which was compiled in late July.

While the total percentages won’t change much, the study shows that value managers will have ample opportunity to hold onto and earn new business. Sixty-one percent of value investors plan to maintain their allocations, 16% plan to increase their holdings, and 22% anticipate decreasing their value allocations. (Numbers may not equal 100% because of rounding.)

Plan sponsors are holding onto their value assets for several reasons, Bullock says. Managers are communicating with their clients during down cycles and trying to minimize style drift.

The survey revealed that 78% of plan sponsors with value investments still believe that the value style serves a purpose in their portfolio. An even larger number, 89%, feel they understand their value manager’s investment approach.

“I think the upswing certainly muted the grumblings,” says Terry Dennison, a principal at Mercer Investment Consulting, Atlanta, which is Eager Advisory’s parent company. “But my sense is that most plan sponsors are looking at style strategically, and they have a portfolio structuring process that says, we want to be diversified to style as well as market cap and geographically.”‘

In the end, he says, plan sponsors don’t just diversify to increase their holdings, they do so to ride out every possible type of market. So they understand and actually expect cycles of low performance.

Holding the Course

Not drifting from investment style is an important aspect of maintaining a diverse allocation, Bullock says, and that is why a majority of plan sponsors say that they expect managers not to deviate, even to avoid underperformance. The survey found that about 88% of value investors never want their managers to deviate, and 9% prefer a manager drift only under certain circumstances.

“If they had wanted to give them the leeway to move away from the value platform … they would have selected a growth manager or some other style,” Bullock says. “The consensus is hold the course.”

Despite the upswing in returns, the poor performance of last year will continue to play a role in how some plan sponsors allocate to value during the next two years. Sponsors are beginning to focus more on which value style best fits their investment needs.

The study shows that while 60% of the sponsors use low PIE in their portfolios, 70% find that style attractive. Another 49% utilize the CARP strategy, while 65% would like to use it. Deep discount is another arena that may see growth, with 22% of the sponsors using it and 41% showing interest in it, and income and contrarian styles could also see gains, with 20% and 19% using them, respectively, while 35% and 31% find them attractive. Virtually none of the value investors index or want to index their value accounts.

The study also reveals that 55% of the largest fund sponsors, those with $1 billion or more in assets, prefer deep discount, while 80% of the smaller fund sponsors, those with less than $250 million in assets, like the CARP style.

Completing the survey were 123 plan sponsors with $1 billion or more in assets, 79 plans with $500 million to $1 billion in assets, 68 plans with $250 million to $500 million, and 51 funds with $150 million to $250 million.

Indexing Takes Off

Where money managers can expect a real net growth in domestic equity business is in passive management, according to the study. Of the plan sponsors with enhanced index allocations, 39% planned to increase their exposure during the next two years. Only 1% of the respondents planned to decrease enhanced indexing. Pure passive allocations saw a planned increase of 28% and a planned decrease of 9%.

“When you look at where the increases will come, it’s really the enhanced index,” Bullock says. “There has been a growing awareness of the tools that allow you to customize around [a plan sponsor's] specific requirements … people can modify and create an index they feel comfortable with.”

James McKee, a quantitative consultant at Callan Associates, Atlanta, Ga., says he’s certainly seen an increased interest in indexing of late. Plan sponsors have watched the amazing performance of domestic equity indices match and outperform their active managers and are feeling that active management isn’t delivering on its promises.

But he hesitates to say if that will mean a long-term trend toward moving assets into indexes. “It’s a reaction to this bubble we have that’s driving the cap-weighted index,” McKee says. “If you watch the S&P underperform for just two or three quarters, I think you will see a reversal of the blip.”

Whether or not it’s a reactionary blip, Bullock says, the plan sponsors have shown their interest, and managers should be ready to step. up. “It’s all a matter of timing,” he says.

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