It’s that time of year again, when portfolio managers who are trailing their benchmarks throw well-crafted investment plans out the window and start chasing the market higher. The goal for this short-term focused crowd is to have a higher return than the market by the time of close of business on New Year’s Eve. The PowerShares High Beta ETF is your evidence of this shameless practice. High-beta stocks are stocks that tend to move up or down more than the broader market. If a stock has a beta of 1.5 for example, one would expect this stock to rise 1.5% for every 1% rise in the S&P … [Read more...]
Investors Building Risk by Blindly Pouring Money into Index ETFs
So says the boss of one of the largest ETF providers in the U.S. It is hard to argue with his point that blind inflows into market-cap weighted index ETFs aren't setting the table for an ugly unwind if market sentiment turns south. The FT has the story below. The head of the fourth-largest exchange traded fund provider has warned that investors are blindly pouring money into highly concentrated stock indices, putting them at risk of outsized losses if markets tumble. Martin Flanagan, president and chief executive of Invesco, an asset manager that bought Guggenheim’s suite of ETF’s in … [Read more...]
The Trouble with Balanced Mutual Funds and ETFs
In the past, when I thought about balanced mutual funds and ETFs I would think about a Swiss Army knife—a useful tool to have on hand. Today, with the ability to specialize a portfolio to your exact investment criteria and needs, I’m not sure if they’re the right tool for the average retirement investor. One half, for argument sake, of any balanced fund, is bonds. And it’s my belief a lot of these funds cater to a larger clientele, if you will. Institutions, pensions, foundations and trusts immediately come to mind. Their deep pockets assume a longer investment horizon than the average … [Read more...]
Are Index Funds Today’s Nifty-Fifty?
According to one seasoned value investing team that has been in the business for decades, index funds may be the next Nifty-Fifty. Many financial advisors are pushing index funds as one decision investments. Never mind the valuation ratios that have only been higher at the peak of the 1929 and the 2000 stock market bubbles these investors are told. It doesn't matter how expensive the FANG stocks are--they are winner take all businesses.t Barron's has more: Boniface (Buzz) Zaino of Royce Funds knows better than most the cost of charting a contrarian course. The value-oriented portfolio … [Read more...]
You Won’t Believe What Happened to These Mutual Funds
Barron’s reported over the weekend that Third Avenue Management, the firm founded by deep value investing pioneer Marty Whitman, is undergoing yet another management shakeup. The once-venerated value-shop’s assets under management are down 85% since reaching a peak of over $26 billion in 2006. CRASH, while maybe unfair, is the only word that comes to mind. Third Avenue is a firm that Young Research was heavily involved with in the early 2000s. We advised the funds in our flagship strategy report and to our exclusive investment advisory client. We moved on from Third Avenue and all … [Read more...]
The Trouble with this Bond Fund
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...]
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...]
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...]
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