Category: Press
Investors Pulling More Money From Actively Managed U.S. Stock Funds
Traders says outflows have exacerbated the sharp declines in the stock market in 2016
By Corrie Dreibusch
January 13, 2016
Investors yanked more money out of actively managed U.S. stock funds in 2015 than in any prior year.
The outflows represent a stark change in investor attitude toward stocks. After nearly seven years of a bull market, many investors faced their first year in 2015 of negative portfolio returns, a fact that has distressed them, financial advisers say.
More than $169 billion left actively managed U.S. stock funds last year, the most money to be pulled in any year ever, according to data from Morningstar Inc.
“The tone is definitely different (among clients),” said Steve Dudash, president of IHT Wealth Management in Chicago. “For the first time in a long, long time, clients are really concerned. I mean, calling at 6:30 in the morning, wanting to talk about the markets type of concerned.”
These outflows have exacerbated the sharp declines in the stock market in 2016, traders say.
Stocks tumbled around 6% last week, posting their worst first five sessions of any year. Even if money managers were inclined to buy dips in the broader indexes, they have less money to do so.
Money has been flowing out of actively managed U.S. stock funds for years as the rise in popularity of passive funds, such as exchange-traded funds, has grown. But recent years’ flows are dwarfed by the amount of money pulled in 2015. In 2014, investors pulled a net $84 billion, and in 2013, investors took out a net $4.7 billion from actively-managed U.S. stock funds, according to Morningstar. The last year of net inflows to actively managed U.S. stock funds was 2005.
To be sure, some of the money pulled out of these mutual funds likely found its way back into stocks through exchange-traded funds or other passive stock funds. Traders and money managers also say some went to bonds and other remains in cash.
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IHT President Steve Dudash featured on the cover of WSJ’s Market Section; See original article
By Steven Dudash
October 9th, 2015
Chinese stocks suffered an epic collapse, absorbing losses of nearly 27% during a nine-day stretch at one point in August. This, along with concerns that the broader economy in China was beginning to cool, sparked widespread contagion fears, spooking investors and roiling worldwide markets. The tremors continue to be felt today, with the Fed declining to raise interest rates last month in part due to concerns over China.
Still, China has forecasted 7 percent growth this year, a figure that has raised eyebrows among many economists, especially in the wake of a recent report indicating that Chinese imports are off nearly 14% from last year and are expected to plunge again in September. Amid waning demand, is it possible to grow the economy at that rate?
Dubious forecasts are nothing new. There have long been questions about the validity of Chinese government’s numbers, since how it calculates its economic data has always been a mystery, which is hardly surprising given that much of what happens there is shrouded in secrecy. In the past, when growth seemed unending, this lack of transparency was easier to overlook. Now that the environment is souring, other countries whose economies are more interconnected with China than ever before are starting to feel the residual pain and will eventually demand greater openness and transparency.
The problem is that China doesn’t care what the rest of the world wants and is very unlikely cave in to international pressure to conform to accepted accounting and disclosure requirements. However, what the Chinese people want is another thing. Chinese officials are far more sensitive to internal pressure than most realize, especially on economic matters.
In recent years the government has taken a series of steps to encourage more and more of its citizens to become active in equities markets, including encouraging brokerage houses to increase margin lending and investing directly in state-owned companies to artificially prop up valuations. With those markets now floundering, the public – which now has more to lose by the government fudging its numbers – could begin to pushback more forcefully, potentially resulting in less ambiguity.
So what would a more open and transparent China mean for investors? Short term, probably very little. Longer term, though, it could prove to be an enormous benefit to beaten down energy companies. One of the big reasons behind the decline in the price of oil has been concerns over the Chinese slowdown.
The problem is no one really knows for sure how bad the environment really is, and whenever there is uncertainty human emotion tends play an outsized role. In part, that has led to the huge oil selloff. There could be tremendous opportunity in the near future to snatch up beaten down energy stocks, such BP and Exxon, which have the capital to withstand prolonged downturns and now are trading at a steep discount to historical valuations, even after rallying from lows last month.
Large banks, meanwhile, present another opportunity. There is very little question that the pullback in China affected the Fed’s decision to hold off on rate hikes, which has squeezed bank profits, as margins remain thin due to artificially low rates. Bank stocks, as result, have suffered.
IHT Wealth Management President Steve Dudash discusses volatility and where potential opportunities are in the U.S. markets
By Steven Dudash
June 29, 2015
For most Americans, Cuba is an isolated third-world island country with a backward economy and a regrettable political and human rights record. After 56 years of the Castro regime, this reputation has been well-earned, but there was a time when Cuba represented something quite different. During pre-revolutionary days, it was a hotbed for American tourism, a place where well-heeled East Coasters came to enjoy plentiful sunshine, opulent beaches and a nightlife scene that bustled year round. In many ways, parts of Cuba were Las Vegas before Las Vegas, right down to the unmistakable presence of nefarious underworld characters, brought to life most vividly by Godfather II, critical parts of which were set in Havana.
With the United States and Cuba having taken small steps to normalize relations in recent months, one of the questions that have been raised is whether the island can once again become a prominent destination for American tourists and, more broadly, a haven for outside business investment.
To be sure, a number of hurdles stand in the way before this can become a reality – not the least of which is that an American travel and trade embargo remains in place. Only Congress can change that, and despite the initial signs of a détente, opposition to Cuba’s leaders on Capitol Hill remains fierce, meaning the embargo being lifted is still anything but guaranteed.
Equally important is that Cuba’s crumbling infrastructure is in no position to support Western-style tourist activity. The country generally lacks many of the amenities needed to attract an influx of regular visitors, including a wide selection of luxury hotels, golf courses and high-quality restaurants.
Clearly, new investment will come slowly, and economic progress – if it comes – will be measured in years, not months, but just as Las Vegas emerged from the shadow of the mob to become a hub of tourism and legitimate business, so, too, can Cuba, even in the face of considerable structural and political obstacles.
Here are some industries that could benefit should Congress lift the current embargo and allow U.S. companies the freedom to pursue opportunities on the island:
**Hotels and Lodging: Any potential resurgence in Cuba starts here. Absent significant upgrades to current hotel and other lodging options, very few American travelers will consider Cuba a realistic vacation or business destination. Obviously, this would be an ambitious undertaking, but as the U.S. economy has improved in recent years, the fortunes of the world’s largest hotel chains have also surged, with Marriott (MAR) and Hilton (HLT) both up around 20 percent over the last year. By acting decisively, these companies could gain a valuable first-mover advantage over potential rivals and for years to come establish a dominant position in this potentially lucrative market.
**Shipping and Cruises: The U.S. recently granted permission to four small companies to operate limited ferry services to Cuba. And while American travel is still tightly controlled and Havana must first approve these companies’ licenses, this move may encourage bigger players such as Royal Caribbean (NYSE: RCL) to pursue Cuban routes. Cruise liners would likely be among the first businesses to benefit from the country potentially embracing more open economic policies, since the industry would be less affected by its lack of hotel infrastructure. Situated only 250 miles from Miami, Cuba would also attract attention from cargo ship operators, who would likely want to participate in trade activity were the embargo lifted.
**Housing and Real Estate: First, it’s important to note that almost without exception nonresidents are barred from owning real estate in Cuba. But as the two sides slowly pursue more normalized relations, there has been speculation that such restrictions could ease as part of a more formal future agreement to re-start American trade and travel. If so, it could somewhat ease the upcoming financial burden facing many Baby Boomers, many of whom are hurdling toward retirement woefully unprepared. Should Cuba open up, top retirement-community builders in the U.S. like Lennar Corp. (LEN) and Hovnanian Enterprises Inc. (HOV) could seize this opportunity to construct low-cost developments geared to older Americans looking for a more affordable housing alternatives.
**Gaming: Casino operators have hit a wall in Macau, where gaming revenues have fallen 12 straight months amid a softening Asian economy and corruption crackdown in China. Shares of Wynn Resorts (WYNN) are down more than 30 percent since the beginning of the year, while Las Vegas Sands Corp. (LVS) and MGM Resorts International (MGM) have shed over 10 percent over the same period. Obviously, these negative trends could reverse in time and revenues may come roaring back. Still, the always ambitious casino industry is unlikely to pass on the opportunity to enter a new, potentially profitable market – especially one so close to the East Coast now that Atlantic City, N.J., is a shell of its former self.
**Telecommunications: According to estimates, less than 20 percent of Cuba’s 11 million citizens have cell service. Even fewer have access to the Internet. U.S. policy makers pursuing closer ties with Cuba have prioritized further mobile phone penetration and getting more people connected to the outside world, having recently placed telecommunications equipment and services on a list of embargo exemptions. Naturally, this is an opening for one of the two American telecom giants, Verizon (NYSE: VZ) or AT&T (NYSE: T), to build more cell towers and establish a greater level of connectivity – which could ultimately lay the groundwork for better broadband access. Facebook (NASDAQ: FB) would also probably consider making investments in Cuba. Never shy about spending money on high-growth potential projects, the company has said expanding Internet access in the Third World is one of its key strategic goals moving forward.
Much of the above, of course, is pure speculation. There are no guarantees U.S. lawmakers will lift the longstanding embargo or, for that matter, that Havana will open itself up to outside business investment if they did. And even if those two things happened, it would take years for many of the these projects to come to fruition. Time will tell. In the meantime, it doesn’t hurt for investors to keep an eye on Cuba for the future.
Steven Dudash is President of IHT Wealth Management, a Chicago-based firm with approximately $650 million is assets under management.
By Elizabeth Dilts
May 27, 2015
Full Reuters Article
Steven Dudash, like most brokers, spends a lot of time making it easier for his clients to retire. This summer, though, his plan is to make it easier for older brokers to retire.
After starting IHT Wealth Management in Chicago in June with six brokers, Dudash says he will buy four businesses from retiring brokers in coming months. The acquisitions will boost the assets his firm looks after to more than $800 million.
The 38-year-old Dudash, and brokers around his age, have a lot of businesses to choose from. Of the 300,000 brokers now working in the United States, nearly 35 percent are over 55. Between those Baby Boomers, and others looking to retire in coming years, some 40 percent of brokers will try to sell their businesses before 2022, according to research firm Cerulli Associates.
“(Buying) retiring advisors will be a huge part of the business moving forward,” said Dudash, who now has 19 brokers at IHT and said he gets three calls a week from older advisers seeking to discuss selling their businesses.
Buyers close to Dudash’s age have been in business long enough to be able to afford to buy a competitor, and they are young enough to wring substantial income in years to come from the businesses they are buying.
For brokers born during the Baby Boom — from the mid 1940’s through the early 1960’s — finding someone like Dudash to buy their business is an increasingly urgent matter. Just 26 percent of brokers are in the younger half of Generation X.
With so many older brokers looking to sell to so few younger ones, wealth management will likely end up being a much more concentrated industry in the future, with a smaller number of mega-brokers handling large numbers of assets, industry experts said.
It also means that retiring brokers are likely to get less money for their businesses the longer they wait.
For the brokers buying from their older counterparts, it’s a good time to get new customers: New clients have become tougher to win in recent years, as more investors push to cut expenses by managing their own money, or by getting automated advice from platforms like Wealthfront or Betterment.
FINANCIERS
It’s also a good time for niche banks and private equity firms that finance these deals for buyers. Live Oak, a bank based in Wilmington, North Carolina, with about $680 million of assets as of the end of March, launched an adviser lending division in 2012.
A typical loan to fund the purchase of a senior adviser’s business is about $800,000, said Jason Carroll, who heads the division. As of April 30, Live Oak had made a total of $175 million in loans. By the end of May, Carroll expects its volume will top $200 million.
Over the last year, brokers have been able to sell their businesses for two to 2.5 times annual revenue, if they have desirable qualities such as younger clients and accounts that generate steady revenue, Carroll said. An adviser who manages about $75 million of assets and generates $750,000 of annual revenue could sell his or her book of business for at least $1.5 million. [ID: nL2N0QI2MC]
Private equity firm Lightyear Capital, which built Cetera Financial Group from a series of acquisitions made starting in 2008, sold the combined business in 2014 for $1.15 billion. Lightyear did not disclose how much it paid for Cetera’s constituent businesses. It remains active in as an investor in wealth management firms – it bought a majority stake in the Minneapolis-based independent firm Wealth Enhancement Group last month.
Banks, historically among the biggest buyers of wealth management firms, are also showing interest in the deals. In 2014, banks bought 47 registered investment advisors and trust companies, twice as many as in 2013, according to the mergers & acquisitions consulting firm, Silver Lane Advisors. In one of the biggest, Canadian Imperial Bank of Commerce bought Atlantic Trust Private Wealth Management in Chicago for $210 million.
Prices for brokers’ businesses are likely to fall in the future as clients get older and begin withdrawing money from their accounts. Most advisers have not prepared to sell their business. Roughly a third of U.S. brokers have a succession plan, and only 17 percent have created a binding agreement, according to a study by SEI Advisor Network.
Many will try to sell only after they realize their business is depreciating, potentially flooding the market, said Mark Hurley, CEO of Fiduciary Network, which has bought minority stakes in 17 wealth management firms.
However, not every broker nearing retirement age can commit to selling his or her business, Hurley said. Many have trouble letting go.
“A lot of owners can’t get through the grieving process,” said Hurley.
Investment advisory services offered through IHT Wealth Management, LLC., a registered investment advisor.
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All posts and comments are personal and conversational and are not meant to be recommendations in any way. Investors should seek professional advice before making any investment. Any discussion of markets, investments and asset classes is for discussion purposes only and should not be construed as a recommendation in any way. All investments have risk and may lose value. Past performance is not indicative of future results.
© IHT Wealth Management
IHT Wealth Management may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements.
All posts and comments are personal and conversational and are not meant to be recommendations in any way. Investors should seek professional advice before making any investment. Any discussion of markets, investments and asset classes is for discussion purposes only and should not be construed as a recommendation in any way. All investments have risk and may lose value. Past performance is not indicative of future results.
© IHT Wealth Management