You could almost see the trouble coming at Double Line Capital’s largest bond fund Total Return. Actually I did as I wrote to you back in 2014. Turns out chasing performance has a shelf life. Investors are taking on more risk—and are doing it in a major way. Bond funds, which should be your anchor-to-windward money, are loading up on junk. The below investment grade waste piling up in the 10 largest bonds funds is shocking. We’re not talking small potatoes here. These are the big dogs. “Who wants an index fund that yields 2%?” said Jeffrey Gundlach, manager of the Total Return … [Read more...]
Crisis at Vanguard: Part I
Originally posted August 1, 2016. Vanguard Dividend Growth Closes to New Investors No, it is not the end of the world, but if you are a loyal Vanguard investor, as am I, having one of the few dividend-based funds in the world I advise for purchase close is a “Vanguard Crisis” for me as well as for many individual investors. How is this “Crisis at Vanguard” going to play out for the individual investor? I have been anticipating this “Crisis at Vanguard” for a long time. And it is going to become a broadening industry crisis, not just a “Crisis at Vanguard.” The handful of big mutual … [Read more...]
My Concerns with the Vanguard Effect on Your Family’s Survival
You gotta love low prices. Look at what Amazon has done to retail with my Bezos Law. Look at what Vanguard has done to lower investment fees, a revolution known as the “Vanguard effect.” The Vanguard Effect drove down prices on index funds, making them much more affordable than actively managed funds. With interest rates set by the Federal Reserve so low, and stock prices climbing with seemingly no end, index funds have been racing higher in price. The high valuations on index funds could leave investors and their families in trouble after a bear market correction. Low fee … [Read more...]
Ginnie Mae (GNMA) Bond Yields
What do Ginnie Mae (GNMA) bonds yield? The table below lists the yields on two of the major Ginnie Mae (GNMA) indices as well as the latest SEC yield on some of the top Ginnie Mae (GNMA) dedicated funds. A note of caution when you are looking at yields on Ginnie Mae funds. Like all SEC yields, these yields are based on the last 30-days of income generated by the fund. They are not directly comparable to the yields on the Merrill Lynch and Barclay’s Ginnie Mae (GNMA) indices. Description Symbol Yield as of 6/30/2017 Yield as of 7/31/2017 Merrill Lynch Ginnie Mae … [Read more...]
Lower Portfolio Risk to Boost Return
UPDATE: The words I wrote in this post from August 27, 2010 are as sound today as they were back then. The basic principles of good investing just never change. This is how we operate at Richard C. Young & Co., Ltd. Do you know the difference between total return and investor return? Most investors are familiar with the concept of total return. The total return of a fund is simply the sum of the capital and income return of a fund over a certain holding period. The total return of a fund of course assumes a buy-and-hold strategy. Investor return (a Morningstar term) is a measure of … [Read more...]
Are Index Based ETF Investors Making a Mistake?
Barron’s interviewed James Montier of Jeremy Grantham’s GMO over the weekend. Montier is a member of the GMO asset allocation team. Below are the highlights. Barron’s: Bonds are expensive, stocks are expensive. What’s an asset allocator to do? Montier: Things just don’t add up. One group has thrown in the towel and says, “If you can’t beat them, join them. I’m just going passive and be damned.” [Passive investing] is a very strange thing to do at this particular point in time. The U.S. market is at its second or third most expensive point in history. So people are saying, “I either … [Read more...]
Could Vanguard Take its Show on the Road?
Vanguard's CEO, Tim Buckley, is being urged to take Vanguard's low cost model into more foreign markets. You probably haven't had the time to research the investment options available to foreigners, but in short they tend to be expensive and narrow. That's just the kind of market that screams for the low cost model Vanguard brings to its customers. FT's Chris Flood writes of Buckley: In May, Vanguard announced it would sell its funds directly to UK retail clients in a move that will intensify the competitive pressures facing rival asset managers. Liberum, the brokerage, predicted that a … [Read more...]
One More Reason You Should Avoid Index-based Bond ETFs
The index-based ETF investment craze continues to lead to distortion in financial markets. Many investors are buying funds without fully understanding the risks. The risk of large-cap equity indices has increased over recent years as a handful of the market’s most expensive shares have become such a large portion of the index. The risk of bond index ETFs has also increased. The chart below shows that the duration of the Bloomberg Barclay’s U.S. Aggregate Index has increased 20% over the last five years and 35% since 2009. Duration is a measure of interest rate risk. The higher the … [Read more...]
Putnam Announces 3 “Alternatives” Funds: Time to Sell?
The low hanging fruit may have already been picked in “alternatives.” And yet, Putnam has announced three new Alt mutual funds. We’ve seen this movie before (see here and here). Putnam Investments plans to introduce three new alternative types of mutual funds that will be managed by PanAgora Asset Management, a Boston firm that typically manages money for institutions and is majority-owned by Putnam. The new funds include one aimed at investing money under “varying economic conditions,” and another that’s market neutral — or long/short fund — meaning the managers buy stocks they believe … [Read more...]
This Vanguard GNMA Winning Edge Feels like a Secret
Do you know Michael F. Garrett? There’s no reason that you should, but to me, the Senior Managing Director at Wellington Management Company LLP in Boston, Massachusetts might be one of the most important names in the fixed-income world today. He’s the portfolio manager of the Vanguard GNMA Fund, which is managed by Wellington. I knew about Mr. Garrett heading into a recent call with a senior team at The Vanguard Group—a presentation where one thing in particular made me sit-up in my chair and take note. It relates to a risk I believe to be paramount at this particular time. It’s a risk … [Read more...]
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