The Vanguard Wellington Fund (VWELX) is the original balanced mutual fund. It was the first mutual fund to include bonds in its portfolio and the 7th open-end mutual fund ever launched in the United States. It also happens to be one of the most successful mutual funds of all-time. From its inception in 1929, the Vanguard Wellington Fund has turned a $10,000 investment into over $11,000,000 (through year-end 2018). Wellington’s approach of investing in stocks, as well as bonds, is the driving force behind the fund’s 90+ year record of investment success. Were it not for the decision of … [Read more...]

Many investor presentations and fund brochures focus on three year returns. But without a bear market since 2009, how can investors see how a fund handles volatile markets using three year returns? Past returns can never predict the future, but an investor can learn something about the resilience of a fund manger's strategy by examining how the fund performed in past times of turbulence. John Coumarianos suggests using 15 year returns for fund analysis today, so investors can see an entire cycle included. The future ain’t what it used to be, Yogi Berra said. But now, when it comes to … [Read more...]

Bloomberg's Heejin Kim and Myungshin Cho report that Michael Burry of "Big Short" fame has called out what he says is a bubble in passive investing. They write: Michael Burry shot to fame and fortune by betting against mortgage securities before the 2008 crisis, a trade immortalized in “The Big Short.” Now, Burry sees another contrarian opportunity emerging from what he calls the “bubble” in passive investment. As money pours into exchange-traded funds and other index-tracking products that skew toward big companies, Burry says smaller value stocks are being unduly neglected around the … [Read more...]

Can ETFs maintain liquidity during times of market turbulence, or should rules be changed to allow ETF providers to pay market makers directly in order to ensure stability? That's the debate currently raging among market participants. At Bloomberg, Ksenia Galouchko reports on the problem and possible solutions: Some see a potential cure in a practice that’s commonplace from Italy to the U.K. but banned in America: ETF providers paying market-makers directly. The argument goes that conflict-of-interest concerns are misplaced -- and that traders under contract to keep transacting in passive … [Read more...]

The WSJ's Dawn Lim reports that after a temporary lull, the flood of money moving into passively managed index funds and ETFs has resumed. Lim writes: A decadelong shift of money and power from old-fashioned money managers into index funds resumed its march in 2019. Last year, net inflows into funds that track markets fell about 30% from the year before, according to Morningstar data. Some firms said fears around slowing global growth and a particularly volatile stock market led investors to take money from asset management’s most popular products. The 2018 slowdownwas … [Read more...]

There's something akin to a bank run happening at some bond ETFs. Despite the easily traded nature of ETFs, when the underlying assets they represent aren't very liquid, redeeming shares can be a real problem. Bloomberg's Rachel Evans and Emily Barrett report: A couple of prominent investment funds are currently living through a portfolio manager’s worst nightmare: So many customers are demanding their money back that withdrawals need to be frozen. Amit Deshpande, a former longtime risk manager, sees it as a wake-up call. In particular, he’s watching the growing ranks of asset managers who … [Read more...]

Asset managers have been begging the SEC to allow them to hide their ETF holdings for years, with the simple argument that they can't deliver market beating returns if all their competitors know what they're holding at all times. Currently ETF managers are forced to disclose their holdings each day, but the disclosures haven't allowed for managed ETFs to take off because managers can't maintain secrecy. A new decision from the SEC could change all that, allowing managers to hide their assets better, but do investors even want that? Annie Massa and Rachel Evans report at Bloomberg: After more … [Read more...]