Mill Creek’s Chapin: Take More Risk With QE3

By
September 12, 2012
Share:

While the Fed may end up trying to lend a helping hand again, patience and commodities seem sensible as the economy slowly normalizes, Mill Creek Capital’s Chapin says.

 

Tom Chapin, chief investment officer at Conshohocken, Pa.-based Mill Creek Capital Advisors, says it sure looks like the market believes the Federal Reserve will launch QE3. The market should know by Thursday after the Fed’s policy meeting concludes.

More broadly, Chapin, whose firm manages more than $2.5 billion with a particular focus on high-net-worth families as well as endowments and foundations, says patience is crucial for investors as the economy continues to work through the indebtedness that led to the financial crisis. He says his firm favors ETFs for broad equity market exposure, and is looking with particular interest at asset classes such as commodities to deal with a difficult investment environment.

 

Ludwig: The market seems to be warming up to the idea of QE3. For example, GLD was the most popular ETF last month. Do you think it’s going to happen?

Chapin: My sense is the market thinks it’s going to happen, and the Fed has certainly left the window open; if they think we need it, they’ll do it. It’s helping support the markets in general. But we've seen this story before. And we keep hoping for some panacea. But it seems to me a stretch that that’s really going to make all the difference.

Ludwig: We’re in the sixth year of this balance-sheet recession. What’s your general sense about what it’s going to take to restore some sense of normality—a growth trajectory that looks more like most post-war recoveries?

Chapin: It’s going to take time. That’s what we all said at the outset: that this time it’s different. It was a much worse recession. If we think about it being a three-legged stool—the U.S. consumer, the U.S. government and the U.S. corporations—the U.S. government has gotten itself overleveraged. The U.S. consumer did as well.

It is going to take some time for consumers to deleverage themselves, and for the government to get out of the problem of increasing spending at a time of decreasing revenues. Those sorts of problems are larger than any we’d seen. It will take time to work them out. Corporations, on the other hand, quickly de-leveraged themselves and are operating at very high profit margins. So that leg of the stool is on firm ground anyway.

Ludwig: Would you say the economy is halfway through this period? Less? More?

Chapin: For consumers, we’re probably at least halfway through it. Consumer balance sheets are certainly improving. We’re finally getting improvements in home prices and stuff is starting to sell in some markets. But on the government side, we don’t seem to see any progress yet, for all the obvious reasons that we’re still climbing out of a deep recession.

So we’re still spending to keep things from getting worse, and there hasn’t been any congressional progress towards closing the gap. We’re less than 50 percent of the way there in fixing that problem.

 

ETF.COM CHANNELS

Want to learn more about smart-beta ETFs? Check out our smart-beta guide, essentials library and ETF screener!

ETF DAILY DATA

The AlphaDex financial fund 'FXO' led inflows on Tuesday, May 26, but net outflows and falling stocks pulled total U.S.-listed ETF assets down to $2.152 trillion.

A slew of redemptions from a number of iShares bond funds helped fuel that firm's issuer-leading outflows on Tuesday, May 26. Meanwhile, net outflows and a falling market dragged down total U.S.-listed ETF assets to $2.152 trillion.

ETF.COM ANALYST BLOGS

By Olly Ludwig

Yields will one day head higher, so is it time to get bond exposure outside the U.S.?

By Rachael Revesz

Stop dancing around the subject, call women ‘women’ and let’s be a more visible part of this industry.

By Olly Ludwig

It’s no secret that hedge funds love ETFs, but what’s less appreciated is that their love of ETFs will likely spell their demise.

By Olly Ludwig

Yes, bond yields are ticking higher these days, but it’s important to keep the whole yield-curve picture in mind.

ETF INDUSTRY PERSPECTIVE

By Nasdaq Global Indexes

Bond exposure or bond performance? Only defined maturity indexes provide the latter.

By Invesco PowerShares

Invesco PowerShares and Market Strategies International’s second annual survey provides vital insights about smart beta and ETFs overall.

By Invesco PowerShares

Investors are implementing smart-beta exchange-traded funds (ETFs) in their portfolios in a variety of ways and for different reasons.