Archive for 'October 2014'

    Time for Emerging Markets to Enter Decouple Counseling?

    October 31, 2014 10:40 AM by Leah G. Traub, Ph.D.

    While emerging markets have continued to outpace developed markets, the differences in economic policies have been dramatic

    Looking back at the third quarter, investors were struck by how much the policies of developed and emerging markets have diverged from one country to another. While the U.S. Federal Reserve and the Bank of England are generally expected to hike interest rates in the next six to nine months, the European Central Bank (ECB) is cutting interest rates and beginning a quantitative-easing program of its own. The Bank of Japan, meanwhile, may have to enlarge its quantitative-easing program.

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    Backdoor Roths: An IRA Strategy for High-Income Earners

    October 30, 2014 1:25 PM by Brian Dobbis

    Going through the back door can pay off for upper-income retirement savers.


    When the Federal government allowed the establishment of Roth IRAs, it closed the door on certain high-income earners. The front door, that is. Advisors who have such clients might want to bring them around back, where the door is likely to be open.


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    The Fed: No Detours from the Rate-Hike Road

    October 29, 2014 3:05 PM by Zane Brown

    The policy statement on October 29 indicates that the central bank remains on track for a mid-2015 increase in the fed funds rate. 

    There were no “October surprises” from the Federal Reserve this time around. At the conclusion of its two-day meeting on October 29, the Fed’s policy-setting arm, the Federal Open Market Committee (FOMC), kept the fed funds target rate at 0–0.25%, and reiterated the planned termination of quantitative easing (QE). In its post-meeting statement, the FOMC also kept the “considerable time” language with regard to how long the fed funds rate will stay in its current range, consistent with expectations of an initial rate hike at some point near mid-2015.  

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    Investing in Russia with "Putin Risk"

    October 29, 2014 11:25 AM by Leah G. Traub, Ph.D.

    While the ruble has been battered for months by risk aversion toward Russian assets caused by the conflict in Ukraine, yields on some government bonds remain attractive.  

    When it comes to managing Lord Abbett’s emerging markets currency and emerging markets local bond funds, while supporting the firm’s currency-hedging strategies, political risk often goes with the territory, especially in Russia, where markets have gyrated wildly this year.

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    Why Consumer Staples Hinge on Millennials

    October 28, 2014 12:30 PM by Lord Abbett Editorial Staff

    Failure to adapt to profound changes in the marketplace has put some well-entrenched companies on the defensive.

    After 30 years of covering the consumer staples sector, Lord Abbett Research Analyst John McMillin has seen a lot of change. But nothing compares to how much millennials (the generation born after 1980; see Chart 1) are transforming the companies he follows—and with good reason. As a group millennials are larger than the baby boomers born between 1946 and 1964. Soon millennials will comprise half of the workforce. And some experts expect them to account for one third of all retail spending in five years.1

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    What You Need to Know about the Net Investment Income Tax

    October 24, 2014 1:15 PM by Vito Fronda

    Wealthy taxpayers can take steps now to manage the effects of the NIIT and potentially avoid an unexpectedly large 2014 tax bill.


    A note from Brian Dobbis: I get many tax-related retirement questions, and one of the most frequently asked has to do with the Net Investment Income Tax. I am turning over this week’s blog to Lord Abbett’s tax expert, Vito Fronda. 

    Certain higher-income earners were unpleasantly surprised this year when they paid their 2013 tax bills. The new 3.8% net investment income tax (NIIT), which resulted from the Affordable Care Act, increased the amount of tax due on the earnings generated from certain investments.

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    Puff, the Magic Dividend

    October 24, 2014 11:38 AM by Lord Abbett Editorial Staff

    Tobacco companies may be blowing smoke at consumers, but investors are still getting attractive dividends, thanks in part to strong international sales.

    Say what you want about tobacco companies. The Surgeon General of the United States and countless state attorneys general certainly have over the last several decades, not to mention the U.S. Food and Drug Administration, which now regulates the sector. But despite all the governmental scrutiny, courtroom drama, and court settlements (the biggest being a 1998 agreement by the four largest U.S. tobacco companies to pay 46 states a minimum of $206 billion over the first 25 years of the agreement), tobacco companies still have managed to pay healthy dividends, so try not to cough. Some socially responsible investors and funds won't go near them, even though dividend yields of leading tobacco companies, as of October 9, 2014, ranged between 2.82% and 5.14%, and their five-year dividend growth rates ranged between 8.56% and 26%, according to Bloomberg.

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    Do Healthier Lifestyles Make for Healthy Stocks?

    October 21, 2014 4:00 PM by Lord Abbett Editorial Staff

    Not always, but the trend certainly has more legs, which is to say that organic foods should outperform beef jerky.

    Walk down any supermarket or specialty grocery store aisle and a number of trends will hit you. Consumers are more conscious than ever about what they are putting into their bodies, and they are demanding and getting healthier foods, drinks, and even nicotine-delivery systems (as an alternative to conventional cigarettes and cigars). They are clamoring for fresh, organic vegetables, free-range chickens with no antibiotics, grass-fed beef, natural juices, packaged goods with less salt and more flavor, zero-calorie sodas, gluten-free pasta, low-carb snacks, and BPA-free baby bottles, to name a few. And unlike their parents, who were content to drink old-line lager beers, they have a plethora of choices, such as summer and Oktoberfest brews, regional craft beers in a variety of flavors and colors, and extra-hoppy pale ales.

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    Brazil at a Crossroads

    October 21, 2014 11:12 AM by Leah G. Traub, Ph.D.

    Investors are looking for much needed reforms after Brazil’s elections on Sunday. 

    No matter which hot spot is on the front burner, our investment team assesses how political risk affects a country’s economic underpinnings. Typical questions include: How strong is the country’s central bank? Is it independent from whatever political turmoil might be unfolding at the time? If it is, can it intervene to support the local currency?

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    Inheriting a Roth IRA: Some Strings Attached

    October 20, 2014 4:26 PM by Brian Dobbis

    Individuals who inherit Roth IRAs need to be aware of the rules governing what can and can’t be done with the windfall.


    Roth IRAs can be a terrific estate-planning tool, providing potential tax-free payouts to your heirs for their lifetimes—and, in some cases, beyond.

    How much control the beneficiary has over the inherited Roth IRA depends on the status of the inheritor. In general, beneficiaries who inherit from their spouses have more or less carte blanche with regard to what they do with the money. Not so, with non-spousal beneficiaries, who are subject to a litany or rules.

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    Fixed Income: Opportunity amid Volatility

    October 16, 2014 2:59 PM by Zane Brown

    Amid the current market turmoil, where should bond investors focus?

    Risk is off and volatility is back. Financial markets have been whipsawed this past week by fears of a slowing in global economic growth. While equities have suffered sizable losses, the Treasury market has benefited as investors seek the perceived safety of U.S. government debt. 

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    Why Technical Analysis Is Important in Growth Investing

    October 15, 2014 5:30 PM by F. Thomas O'Halloran

    Technical analysis, while no guarantee of future results, can improve your chances of spotting a stock just as it is starting to take off or plummet.

    Let’s face it: investors are human and sometimes invest not only on logic but also with their emotions. For insight into those emotions, Lord Abbett’s growth investment team uses technical analysis as an overlay to our fundamental work to both pursue returns and manage stock-specific risks. To get a return, you have to take a risk. And then you need to protect it, lest you give it all back.

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    IRA Beneficiary Trusts: A Clear View of a Complicated Issue

    October 9, 2014 4:52 PM by Brian Dobbis

    Designating a "look-through" trust as an IRA beneficiary can be tricky. Advisors and their clients need to be aware of the nuances of these arrangements.


    I receive numerous questions about trust beneficiaries, but the one I hear most frequently is some variation of the following: Can I name a trust as a beneficiary on my IRA?

    The answer is “yes.” In general, the federal government gives IRA owners a lot of latitude in naming IRA beneficiaries; in fact, any individual person and/or non-individual (such as a charity, estate, or trust) can be a named a beneficiary.

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    The Greats of Roth: "Do-Overs"

    October 3, 2014 5:00 PM by Brian Dobbis

    Investors who convert to Roth IRAs can change their minds and reverse the conversion through a technique known as recharacterization.


    If you’ve ever fretted about the way you handled your IRA, take heart. Uncle Sam recognizes that mistakes happen, particularly when it comes to converting an IRA to a Roth IRA. As a result, the tax code allows IRA account holders to change their mind via a “do-over” technique called a recharacterization.  

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    Explaining the Wide World of Municipal Bonds

    October 2, 2014 10:30 AM by Daniel S. Solender, CFA

    Ever wonder where all those attractive tax-free yields come from? If you’re thinking mostly from general obligation bonds, think again. Revenue bonds comprise a much larger portion of the investable universe.

    I used to drive my children crazy on long trips. To keep them interested, or at least engaged, I would point out all the things Lord Abbett’s municipal bond funds may invest in. It wasn’t just the towns and states we were driving through (or the general obligation bonds1 they issue (see Chart 1), a category that makes up nearly 28% of the $3.7 trillion municipals market - see Chart 2). There was much more to choose from in the revenue bonds2 sector, which comprises more than 72% of our market (see Chart 3) and offers a wide variety of high yield opportunities.)

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