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Posted by on Nov 6, 2015 in Madrona Funds, Market Insight

Risk-on Risk-off vs. Qualitative Market Environments

By Kristi Henderson, CPA/PFS, Madrona Financial Services and Co-Portfolio Manager of the AdvisorShares Madrona ETFs (FWDB, FWDD, FWDI)   A “Risk-on Risk-off” environment exists when prices fluctuate relative to investors’ tolerance for risk. In this environment, stocks and sectors tend to be highly correlated. Volatility is often higher during these times as a result of investor uncertainty, similar to what we’ve seen in recent months. Many investors decide to go “all-in” or “all-out,” often through buying or selling an index. Indexes are simple to trade and their market cap weighting is appealing during fearful times. Mega-cap stocks tend to be more familiar household names which provide comfort to investors. As a result of investors flocking to indexes during risk-on risk-off environments, it’s more difficult for active strategies to outperform the index during these times. However, as a risk-on risk-off environment matures, stock prices have a tendency to gravitate away from fair pricing based on company valuations. This is largely a result of an abundance of index investors that overweight...

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Posted by on Sep 22, 2015 in Madrona Funds, Market Insight

J-E-T-S, Jets, Jets, Jets

J-E-T-S, Jets, Jets, Jets

By Kristi Henderson, CPA/PFS, Madrona Financial Services and Co-Portfolio Manager of the AdvisorShares Madrona ETFs (FWDB, FWDD, FWDI)   If you think the airline industry is struggling due to decreased airfare costs, think again. Although ticket costs have recently declined, you’ve probably noticed that the industry has found other ways to raid your pockets. They’re profiting from the combination of booked flights with passengers that are willing to pay for internet, video consoles, movies, and even additional leg room. While customers continue to spend more money for these luxuries, the airline earnings and growth projections look healthier than the rest of the stock market. Let’s take a closer look at the analyst projections of the industry, which are largely derived from the recent decline in fuel prices and anticipated record high load factors. The forward looking price to earnings ratio about 10, meaning analysts expect investors will earn $1 for every $10 invested over the next year. Compare that to the average P/E ratio of the stock market, which...

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Posted by on Sep 26, 2014 in Madrona Funds

Lessons From The Past

Lessons From The Past

By: Brian Evans, CPA/PFS, portfolio manager of the AdvisorShares Madrona ETFs (FWDB, FWDD & FWDI), owner of Madrona Financial Services and Bauer Evans, CPAs Let me start by making two unremarkable statements.  The first: Businesses are in business to make a profit.  The second: Buying low and selling high is more effective than buying high and selling low. I trust this sounds so logical to you that I may lose your attention unless I point out how most investors aren’t doing this!  The fact is that the largest equity mutual funds on the planet are indexed funds.  Why is it then, that index funds are programmed to buy more of a stock after its price increases, sell when the price lowers, and buy it back if the price then recovers?  Also, why do indexes have no programming to take into account standard valuation principles such as projected earnings and growth of earnings relative to share price? It was the flaw of indexing that was the biggest reason for the...

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Posted by on Sep 26, 2014 in Madrona Funds

Predicting the Predictable

Predicting the Predictable

By: Brian Evans, CPA/PFS, portfolio manager of the AdvisorShares Madrona ETFs (FWDB, FWDD & FWDI), owner of Madrona Financial Services and Bauer Evans, CPAs Did you know the value of the global bond market exceeds the value of the global public equities market? That’s right, bonds trump stocks in total value yet most of the press is focused on the sexier stock market. It’s for this reason that bonds should begin the discussion for what to look for in the 4th quarter of 2014. The biggest concern will be the tapering of bond purchases by the Fed and what that will do to broad market bond funds and targeted bond funds. Most passive bond market indexes own a significant overweight to US Treasury and agency debt. They obtain this overweight by virtually eliminating US high yield, preferred bonds, convertibles, emerging market sovereign and corporate debt, and international high yield bonds. The Treasury and agency sectors are the very two areas at highest risk of loss of principal when they...

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Posted by on Jul 26, 2013 in Investment Perspective, Madrona Funds

What’s Wrong With Indexes?

What’s Wrong With Indexes?

By: Brian Evans, CPA/PFS is the owner of the CPA firm, Bauer Evans, Inc. P.S. and Portfolio Manager of AdvisorShares Madrona Forward Domestic ETF (FWDD), AdvisorShares Madrona Forward International ETF (FWDI) and AdvisorShares Madrona Forward Global Bond ETF (FWDB) It has been more than 35 years since the first broad market index funds debuted. At the time, they were a cutting edge strategy for core equity allocation. Today, index funds are a major part of 401(k) and other retirement plans, particularly ones tracking the Standard & Poor’s 500. But they have deep flaws. Prior to index funds, investors could not assemble broad baskets of equities because trading costs to buy 500 or so stocks were high. The composition of index funds is the problem. For one thing, indexes like the S&P 500 focus on the most popular, highest valued stocks and slight the most undervalued equities in the market. In our experience, most successful investment advisors avoid the methods used in selecting stocks for index funds. Instead, they work...

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