The following appeared in today’s WSJ – “Moody’s Investors Service downgraded Japan’s credit rating Monday, highlighting the challenges facing Prime Minister Shinzo Abe as he tries to stoke inflation and growth.

In explaining its move, Moody’s cited heightened uncertainty over Japan’s ability to cut its fiscal deficit after Mr. Abe decided last month to delay an increase in the national sales tax scheduled to take effect next year.”

Given Japan has a fiat currency (yen), the deficit is not an issue, provided that the easy money policies necessary to get the economy going doesn’t stoke too much inflation. Clearly the growth in Japan’s debt hasn’t proven an issue to date. Japan has other issues, such as an aging population, that will keep demand for goods and services below historic levels, and if demand remains muted, so will both growth and inflation.

We hope that this blog post finds you well, and that you had a wonderful Thanksgiving holiday with family and friends.

In the latest edition of the KCS Fireside Chat, we share with you part one of a two part series on emerging managers, and the role that they have in the institutional investing community. KCS is blessed to have two colleagues who have each dedicated a significant portion of their careers researching and supporting emerging managers. Ivory Day and Lillian Jones are the foundation of Jones KCS Emerging Insights, LLC, which is a subsidiary of Kamp Consulting Solutions, LLC. Jones KCS is primarily focused on identifying the up and coming talent that we need to support our client’s portfolios. We hope that you find this edition worthwhile.

http://www.kampconsultingsolutions.com/images/kcsfcdec14.pdf

ETFs are clearly all the rage garnering assets at a record clip, with total AUM now eclipsing $2.5 trillion, and they may have just gotten a boost from the SEC that will further increase the pace of asset gathering.  Twenty-one years after the launch of the first ETF, the SEC has just granted permission to Eaton Vance to launch a series of non-Transparent ETFs.  These new vehicles will trade on exchanges just like traditional ETFs, but they will not be obligated to disclose the holdings and they don’t necessarily have to follow an index.  Is this a good development?

I was fortunate to be involved in the launch of the ETF industry’s first active ETF in April 2008, when the INVESCO Quant team brought to the market through Power Shares the R200 Mega Cap enhanced index product.  We understood that this ETF would have to be transparent, and as a result, we deliberately went with the R200 since we were already managing an S&P 100 enhanced index product for an institutional client.

I believe that the SEC’s decision to grant investment managers permission to launch ETFs with no transparency is a mistake.  These active strategies are designed to mirror institutional product, with the hope that they will provide an excess return relative to an index over some specified period of time.  Allowing these strategies to trade on exchanges daily defeats the purpose of “investing” in these products.  Active strategies should be bought and held so that the strategy can actually produce an excess return.  If investors want the beta that come with these products they would be much better off just buying the index.  Paying more for these active strategies, with no transparency, and then trading them regularly just doesn’t make sense.

We’d love to get your thoughts on this subject.

Good morning, and welcome to November.  Today also marks my Mom’s 79th birthday!  Happy birthday, Mom, and here’s to many more happy and healthy ones.

In the latest edition of the KCS Fireside Chat, Dave takes us through the recent updates within the defined contribution, 403(b) and 457 worlds from new funding limits to legislative changes, that might just impact you and your plan.  In addition, he speaks to some enhanced auditing that is being done by the IRS, and how you can prepare your plan just in case you get a visitor.

Have a great day, and I hope that you find this article as interesting as I did.  Thanks for the great job, Dave!

Click to access kcsfcnov14.pdf

We are pleased to share with you the link to the latest interview for Russ Kamp with Fox Business.  In this interview, Russ speaks to the continued mismatch of assets and liabilities and the impact that this mismatch has on funded status, especially given the decline in interest rates throughout 2014.  We hope that you enjoy the conversation.

Here is the link: http://www.foxbusiness.com/economy-policy/pension-crisis/index.html

Please don’t hesitate to reach out to us if we can be of any assistance to you.

We are pleased to share with you the KCS Third Quarter update.  In this edition you will find our insights on the global markets and the performance of assets and  liabilities, while also reporting on our team expansion and continuing support of the industry through conference appearances.  Enjoy!  Please don’t hesitate to reach out to us if we can help you in any way.  Here’s the link: http://www.kampconsultingsolutions.com/images/kcs3q14.pdf

Amazingly, bond yields are plummeting for US debt. The 10 year yield is at 1.96% this morning, having closed at 2.52% on 9/30/14. We have been stressing to plan sponsors throughout the last two years that they convert their fixed income exposure into a beta portfolio, and to get away from forecasting rates. As you know, most fixed income analysts were calling for higher rates at the beginning of the year. We, at KCS, have been calling for falling rates. But, we also stressed that we didn’t want to be in the interest forecasting game either.

Our strategy is to create a beta portfolio that cash matches near-term liabilities.  With this approach,we remove interest rate sensitivity, improve liquidity, extend the investing horizon for the alpha assets, and begin to de-risk the plan through a glide path to full funding.  The beta / alpha portfolio would have stabilized the asset / liability mismatch found in most DB plans, while helping plans avoid the chase for yield, by dipping down in quality in the high yield and bank loan segments, which have come under a ton of pressure.

We are ready to help you – call us!

We are pleased to share with you our latest edition in the KCS Fireside Chat series.  This article pertains to the use of the ROA (return on asset assumption) as a DB plan’s primary objective.

Click to access kcsfcoct14.pdf

We hope that you continue to find our articles insightful and importantly, useful.  Please don’t hesitate to call on us for any assistance.