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US rates surge and most portfolio managers don’t know what to do

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Interest rates are hitting multiyear highs at a time when most portfolio managers have never dealt with this phenomenon before.

The U.S. 10-year Treasury note yield rose to its highest level since 2011 on Tuesday, while the short-term two-year yield traded near levels not seen in about a decade, raising concern about how portfolio managers will navigate this changing investment landscape.

But most of them have never operated in a rising rates environment. Themedian tenure of an active equity manager is eight years, according to Fundstrat, citing figures gathered from Morningstar.

The last time rates were in a significant uptrend was from 2003 to 2006 before the financial crisis struck.

“There are a lot of people that haven’t been through many things in this youthful industry,” said Timothy Parton, a portfolio manager at J.P. Morgan. “The time when rates are rising coincides with a period in the cycle that is tough for any manager. You don’t want to be too cautious, but you don’t want to be too aggressive too early.”

The Fed slashed the overnight rate down to zero in 2008 during the aftermath of the financial crisis. The central bank’s goal at the time was to stimulate the economy. Now that the economy is out of its financial-crisis trough, the Fed has started to gradually hike rates closer to historical levels and market rates have responded.

Since late 2015, the Fed has raised rates a total of six times — including once this year —bringing the overnight rate to a range of 1.5 percent to 1.75 percent. Market participants are expecting the Fed to raise rates at least twice more in 2018 and many think they may even raise four times.

“We’re concerned about rising interest rates,” said Walter Price, senior portfolio manager at Allianz Global Investors. “Last year, we got a lot of multiple expansion. We think that’s unlikely in a rising rate environment.”

J.P. Morgan’s Parton and Allianz’s Price have seen their share of rising-rate cycles. Parton has worked in portfolio management since the late 1980s, while Price has 45 years of experience in the financial industry.



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Tesla hires new chief financial officer for China

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Elon Musk, Chairman, CEO and Product Architect of Tesla Motors, addresses a press conference to declare that the Tesla Motors releases v7.0 System in China on a limited basis for its Model S, which will enable self-driving features such as Autosteer for a select group of beta testers on October 23, 2015 in Beijing, China.

VCG | Getty Images

Elon Musk, Chairman, CEO and Product Architect of Tesla Motors, addresses a press conference to declare that the Tesla Motors releases v7.0 System in China on a limited basis for its Model S, which will enable self-driving features such as Autosteer for a select group of beta testers on October 23, 2015 in Beijing, China.

Tesla Inc on Friday announced a number of key executive hires including former GE and General Motors executive James Zhou as its China CFO and Neeraj Manrao, a former Apple executive, as director of energy manufacturing.

Zhou previously served as CFO for Asia Pacific and India for Ingersoll Rand.

“We’re excited to welcome a group of such talented people as we continue to ramp (up) Model 3,” Tesla said in a blog post, adding it would announce more hires in the coming days.

China contributed around 17 percent of Tesla’s total revenue in 2017 and the electric carmaker has said it plans to build a gigafactory in the country.

The company on Wednesday slashed up to $14,000 off its Model X in China after Beijing announced major tariff cuts for imported automobiles.

Tesla has seen the departure of several senior executives and is also flattening its management structure as it seeks to improve efficiency and clear up production bottlenecks related to its new Model 3 sedan.



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Foot Locker shares are jumping 16% after a blowout earnings report

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Shoppers and pedestrians pass in front of a Foot Locker store on the Third Street Promenade in Santa Monica, California.

Patrick T. Fallon | Bloomberg | Getty Images

Shoppers and pedestrians pass in front of a Foot Locker store on the Third Street Promenade in Santa Monica, California.

Shares of shoe retailer Foot Locker surged Friday after the company reported earnings well ahead of Wall Street expectations.

The stock rallied more than 16 after the New York-based company reported adjusted earnings per share at $1.45 for the first quarter, above consensus estimates of $1.25 from FactSet.

The shoe store posted revenue of $2.03 billion, which also beat forecasts.

“The flow of premium product continues to improve, with increasing breadth and depth in the most sought-after styles from our key vendors,” CEO Richard Johnson said in a statement. “This led to first quarter results which were above our expectations. With the strength of our strategic vendor partnerships and our central position in youth culture, we continue to believe that we are poised to inflect to positive comparable-store sales growth.”

Foot Locker has been in hot water in recent months as Wall Street grows increasingly concerned with retailers. Fears that e-commerce giant Amazon may seek to expand into apparel have made it a tough year for Foot Locker shares, now down more than 22 percent over the past 12 months.

Last June, popular shoemaker Nike confirmed plans to sell a limited product assortment on Amazon’s U.S. website.

According to a 2017 survey by UBS, 13 percent of respondents indicated that they prefer to purchase Nike products on Amazon compared with the 9 percent who said they prefer to purchase the same products at Foot Locker.



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Roku shares jump after short-seller Citron reverses negative call

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People pass by a video sign display with the logo for Roku Inc, a Fox-backed video streaming firm, that held it's IPO at the Nasdaq Marketsite in New York, U.S., September 28, 2017.

Brendan McDermid | Reuters

People pass by a video sign display with the logo for Roku Inc, a Fox-backed video streaming firm, that held it’s IPO at the Nasdaq Marketsite in New York, U.S., September 28, 2017.

Shares of Roku spiked Friday after short-seller Citron Research said it is reversing its negative view on the maker of streaming players, given a major shift away from the traditional cable television subscription model.

“The move to cutting the cord and [over-the-top] advertising is real and it is a megatrend that Citron not only does not want to be short, but at this valuation I want to be long,” the research firm, headed by Andrew Left, said in a report Friday.

Roku shares briefly climbed more than 4.5 percent before paring gains to trade around $37 a share. The stock is down 28 percent for the year so far.

After the company went public in late November, the stock soared above $50 and Citron said it tweeted the stock would fall back to $28.

“BUT NOW EVERYTHING HAS CHANGED, AND IT IS TIME TO REEVALUATE,” the report said, in red capital letters.



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