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The-Global-Investor
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The-Global-Investor is a private client portfolio manger based in London. He also runs his own money, and enjoys doing so, free of the "house view" and risk managers.
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  • Q1 2013 Update On The CAT Bond Market

    The Swiss Re Global CAT bond index is up 3.2% year to date. This index is the most commonly used index for tracking the CAT bond market. It tracks the total return of all USD and EUR denominated CAT bonds, whilst hedging out the EUR currency risk.

    This is behind the performance of other more well known asset classes like equities, and corporate bonds, but ahead of others like commodities (down 3% YTD)

    Investors should not be surprised to hear little news about the CAT bond market until later in the year when the hurricane season in the US starts.

    The main news stories about the CAT bond / reinsurance market revolve around issuance of new CAT bonds.

    2012 saw new issuance hit levels not seen since 2007. During the first quarter of 2013, $670m worth of CAT bonds came to market. The total size of the CAT bond market now stands at roughly $16.5 billion.

    As mentioned in previous blog posts, the CAT bond market is but a fraction of the wider insurance-linked-securities (ILS) market which is estimated to be $505 billion in size.

    There are a few signs that increased demand for CAT bonds are starting to affect pricing, for examples bonds initially priced with a coupon of 9-10% going off at 8.5% due to the level of demand from investors.

    Given the strength of other asset classes, the expected returns still look relatively reasonable. For example the Barcap Global Corporate index now has a yield to maturity of only 2.5%.

    The real advantage of this asset class, still remains its low correlation to other asset classes though

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 29 10:01 AM | Link | Comment!
  • Investing In Catastrophe Bonds - The Next Big Asset Class?

    Investing in Catastrophe Bonds…..possibly not the most obvious sounding asset class to invest in.

    None the less, with their near zero correlation to equity markets and the prospect of 5% plus in the form of income, investors, particulary 'yield hungry' ones are starting to consider investing in catastrophe bonds.

    The following link, shows the performance of the benchmark index for Catastrophe (NYSE:CAT) bonds:

    http://www.bloomberg.com/quote/SRGLTRR:IND

    The benchmark index is the Swiss Re Global CAT Bond Index, which at the time of writing is up 9% year to date.

    These returns are after Hurricane Sandy, showing that one major event is not enough to destroy your returns from this asset class.

    The main advantages are: low duration risk, low credit risk, near zero correlation to equity markets and yet returns that are on a par with equity markets.

    The disadvantages are: if you invest just before a major disaster. Very few CAT bonds have gone to zero (only 2 so far), but it's still best to hold them through a fund.

    Here's a few links to find out some more:

    http://the-global-investor.com/investing-in-catastrophe-bonds/#more-203

    http://www.globalreinsurance.com/home/

    www.catcoim.com

    Dec 24 1:15 AM | Link | Comment!
  • Magic Formula Portfolio Performance (One Year Later)

    I've had a few people asking how the portfolio I posted in July 2011 performed over the following 12 months.

    Just to recap, the portfolio was picked using a version of the Greenblatt 'Magic Formula' screen. It is global in nature, meaning the MSCI World is probably the best index to use for benchmarking purposes.

    It is an equal weighted 20 stock portfolio.

    The screenshot below shows the figures.

    All figures are over the 12 month period.

    The full performance picture is on my blog.

    The main points are:

    In the 12 month period, the portfolio is up 6.48%

    It outperformed all major equity indices.

    The only index that came close in performance was the S&P 500.

    It's a global portfolio and yet beat the global index (the MSCI World) by 13.2%, despite being underweight US equities (the best performing market).

    With just a bit of stock selection (to avoid value traps), one could potentially have missed out Netflix and missed out on the 3.78% negative contribution.

    All in all, it's a good example of how this simple stock screen works. I'll post more examples in the future.

    A private investor could use this screen for their equity allocation and beat most professional investors.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Oct 03 12:23 PM | Link | Comment!
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