Schwab’s Intelligent Portfolios’ use of a cash allocation for even the most risk-tolerant investor has caused a dust-up among financial bloggers that goes beyond the robo-advisor debate to ask the fundamental question: Should cash ever play a role in an investment portfolio? On his blog Compounding My Interest, Elliot Turner makes the case that it should. He cites Warren Buffett’s belief that cash is “the most important” part of his portfolio, as it acts as “a call option with no expiration date, an option on every asset class, with no strike price.” He also shows Claude Shannon’s example of how a portfolio annually rebalanced into an even split with cash outperforms the fully invested portfolio over time, as it systematically prompts an investor to buy low and sell high.
Last year was another losing year for active managers, with 87 percent of domestic equity funds underperforming the benchmark, according to the 2014 U.S. S&P Indices Versus Active Funds (SPIVA) Scorecard. In fixed income, about 98 percent of government long funds lagged the benchmark, compared to 73 percent of high yield funds that underperformed. The highest percentage of underperformers were in the best-performing asset classes. Mid-cap growth, for example, returned 10 percent last year, yet 91 percent of managers in this category underperformed.
At a press conference Tuesday, Credit Suisse made a surprise announcement that Tidjane Thiam, head of Prudential, would replace Brady Dougan as CEO. Many saw the announcement as a move to accelerate the Swiss bank’s move towards wealth management, as Thiam’s resume is barren of investment banking experience but deep with managing assets (Prudential’s market cap almost tripled under Thiam). As the Swiss government imposes higher capital requirements on investment banks, both Credit Suisse and UBS are downsizing that side of their business in favor of wealth management, which requires less capital and generates steadier earnings
No one is immune from cyber attacks, but information-sharing legislation, if done right, could make us safer. In remarks before the Futures Industry Association on Wednesday, former Senator Saxby Chambliss said the average cost to a firm of a cyber breach was $3.5 million in 2013. Additionally, there were over 10 million cyber intrusions per day, resulting in a global cost of $445 billion. The former senator said he supported federal legislation around the issue, but added any laws needed to be flexible and that the information-sharing needs to be voluntary, with liability protection in place to protect firms acting in good faith from litigation.
