The Federal Reserve Bank of Boston's President, Eric Rosengren, has criticized the Fed's low interest rate policy. Rosengren believes the policy has created an unstable buildup in risk. The Wall Street Journal's Michael S. Derby reports: Mr. Rosengren opposed the Fed’s move in 2019 to lower interest rates, and he said Thursday the effects of those low rates on risk appetite are playing out now. The Fed lowered rates last year in large part from a realization that, as strong as the job market was then, it wasn’t driving up inflation at a time when the central bank was in fact struggling to get … [Read more...]
Archives for October 2020
Why Vanguard is too Big: Part VI
Do you know what career risk means? Of course, you do. It means you could lose your job. Well, in the investment world of pensions, mutual funds, and ETFs, career risk means you might lose your job if you underperform an index. That’s why so many pensions, foundations, and the like are piling into the Jabba the Hutt funds, like Vanguard’s Total Stock Market Index. If they lose a pile of money, at least they can say, “Hey, so did everyone else. We performed just like the market did”. You’ve read here, here, here, here, and here about my concerns with Vanguard being too big. That goes for all … [Read more...]
Why Vanguard is too Big: Part V: How You’re Being Forgotten
I’m not trying to be unfair to Vanguard, or other companies with airplane-hangar-sized call centers, but nowadays you tend to feel like a number. You feel like what’s more important to the big guys is telling you how many assets they have under management. It’s in the trillions. How does that help you? It doesn’t. It also doesn’t help when the phone rep you’re speaking with is either fresh out of college or is worth a fraction of what you’ve been able to save over a lifetime of work. There tends to be some value in working with someone who has actually made some money, don’t you think? It … [Read more...]
Another Reason to Rein in Big Banks
J.P. Morgan, the nation’s biggest bank, plans to cut exposure to companies that don’t align their operations with the Paris Climate Accord. Apparently, firms that don’t agree with J.P. Morgan’s political views on climate don’t deserve loans. Thankfully, there are thousands of banks still operating in the U.S. that are willing to lend to these apparent “climate heretics.” There are many reasons to rein in the big banks, but this may top the list. Billy Nauman reports in The Financial Times: JPMorgan Chase says it is shifting its financing portfolio away from fossil fuels after facing years of … [Read more...]
Why Vanguard is too Big: Part IV: Meet the Jabba the Hutt of Funds
When you spend hours on vanguard.com like I do, you realize how hard it is to get the information you’re looking for. Take for example the bloated Vanguard Total Stock Market Index Fund. The thing is a behemoth, with so much money stuffed into it, it’s a wonder it can even move the needle. Jabba the Hutt comes to mind—you deserve better. Not to tool on Jabba, but take a look at what you’re really getting yourself into. Consider for a moment the title—Total Stock Market—where you think you’re buying a diversified fund. Not necessarily the case. How can it be when ten stocks account for over a … [Read more...]
Are Index Funds Still Diversified?
Just because you own an index fund, doesn’t mean your portfolio is properly diversified. Goldman Sachs estimates that only five stocks account for almost 40% of the Russell 1,000 Growth index. As Bloomberg points out here, if you are an active growth fund manager, the concentration of stocks such as Apple has reached such an extreme level that it has become the only stock that matters for relative performance. Lu Wang reports: Apple Inc.’s unprecedented market weight creates headaches for stock managers when it rallies: They never own enough of it. That dynamic played out vividly in the … [Read more...]
Why Vanguard is too Big: Part III: BOND ALERT
In times like these, you can’t afford to fight other people’s social crusades. Vanguard has announced a new ESG bond fund. You need to know the pitfalls of ESG and avoid them. Vanguard has announced: We’re pleased to announce that Vanguard ESG U.S. Corporate Bond ETF (VCEB) is now available. This latest addition to our ESG (environmental, social, and governance) offerings was designed to complement our equity lineup of ETFs and mutual funds, satisfy evolving investor preferences, and enhance our low-cost approach. It’s time for Vanguard to get back to its roots. The venerable firm, … [Read more...]
Inflation Targeting A Losing Strategy
At Bloomberg, Richard Cookson explains why "inflation targeting is a very stupid policy." He writes (my emphasis added in bold): In trying to increase by a fairly random amount an index of prices that they largely can’t or shouldn’t control, central banks couldn’t have done much more harm. They’ve crushed the savings and finance industry by slashing interest rates to historically low levels and driven the prices of all financial assets to a point where the phrase “unprecedented” scarcely covers it. Interest rates, bonds, credit, equities, foreign exchange: Not a single market is … [Read more...]
Why Vanguard is too Big: Part II
Short-term noise is an investor’s worst enemy. As if it’s not hard enough to set an appropriate course, you have the constant barrage of information that can make you feel uneasy. Times are changing. That’s a fact. Take a look at the S&P 500 or Vanguard’s Index 500 or some other ETF. Today, seven stocks account for 26% of the index, while not one of them trades at less than 33x earnings. You have read here that the stock market has dropped by 33% three times already this century. Doesn’t it make sense that the chances of that happening again become more likely when only seven … [Read more...]
Is Consolidation Coming to Mutual Fund Industry?
Are the activist shareholders coming for the mutual fund industry? In The Wall Street Journal, Corrie Driebusch explains that Trian Fund Management has taken positions in Invesco and Janus Henderson Group and plans to push a merger. She writes: Shareholder activist Trian Fund Management LP has taken big stakes in investment firms Invesco Ltd. and Janus Henderson Group PLC and plans to agitate for deal making aimed at building a rival to the biggest asset managers in the world. Trian has accumulated 9.9% stakes in both Invesco and Janus Henderson, with the two positions totaling roughly … [Read more...]