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...]
Boutique Value Manager Closes Flagship Fund
Longleaf Partners has long been a boutique value manager we have followed at Young Research. They are one of the good guys in the mutual fund industry. Longleaf uses long-term value oriented approach and eschews the benchmark hugging and overdiversification that handicap most mutual fund managers. So what does it say about the market when a highly respected boutique value manager that only buys about 15-25 companies in its portfolio closed not because its fund has grown too large, but because there are a lack of opportunities? You can read between the lines. Here is more from … [Read more...]
Vanguard GNMA Outlook 2017
One of the major factors that will impact the outlook of the Vanguard GNMA fund in 2017 is the Federal Reserve. After holding rates near zero for almost a decade, the Fed finally began a process of normalizing interest rates. The Fed has explained to the public it plans to raise interest rates at a gradual pace until the overnight interest rate is at a level that neither stimulates nor restrains economic growth. Compared to prior cycles, the Fed’s normalization of interest rates has been more glacial than gradual, with only three rate hikes in the 17-month period. But with inflation and … [Read more...]
If You Had to Own Just One Mutual Fund Should it be this One?
If you had to own just one mutual fund, which one should it be? My answer is Vanguard Wellesley. In 2011, I coined the phrase “Sleep Well-esley at Night” to capture the safety first, survivalist manner of this balanced fund. A must have for you and your family. Since then we've made a lot of money together with the fund. It’s not an exciting fund. After all, close to two-thirds of the Vanguard Wellesley fund is in bonds. The rest is in stocks. But Vanguard Wellesley pays you a decent wage while you work through this market. It yields 2.74%. Sure there’s stocks or mutual funds that … [Read more...]
Apple Owns More Corporate Bonds than the Biggest Funds Own
Apple has hordes of cash overseas. CEO Tim Cook says he won't bring the cash back until better tax rates are available. In the meantime, Apple has amassed a pile of corporate debt holdings larger than the top bond funds. Bloomberg's Claire Boston reports: If Apple Inc. were a bond fund, it would dwarf the competition. The iPhone-maker has $148 billion of its record $257 billion cash pile invested in corporate debt alone, according to a company filing from Wednesday. That’s enough to buy all the assets in the world’s largest fixed-income mutual fund, the Vanguard Total Bond Market Index … [Read more...]
Investors Evacuating Big Hedge Funds in a Panic
This isn’t going to end well. The big money of pension investing that is. Imagine all of the money leaving hedge funds, and for indexing? It’s like everyone deciding to run from starboard to port aboard the same ship. Geoffrey Rogow details the hedge fund massacre taking place. Investors pulled nearly $7 billion from the largest publicly traded hedge-fund firm in the U.S. in the first four months of 2017, the latest sign of investor disillusionment with Wall Street’s most prominent money managers. Och-Ziff Capital Management GroupOZM -2.90% LLC said Tuesday that it received net redemptions … [Read more...]
How to Buy Vanguard GNMA
Yesterday I wrote “Why Vanguard Works for You in 2017” and a reader asked: "E.J. I’m thinking about consolidating at Fidelity. Can I buy Vanguard GNMA?" Yes. You can buy any Vanguard fund at Fidelity. Your access to funds today at Fidelity or any custodian is incredible. Gone are the days where you can only buy the custodians' family of funds. … [Read more...]
Why Vanguard GNMA Works for You in 2017
It’s time to get your lazy money off the couch and back to work. You know the lazy money I’m talking about. The rainy day fund that’s turned into a big-screen TV, the matured CDs that took a cruise to the islands, and the emergency cash that’s betting on Apple. Let’s not forget where your safe money should safely be employed: At Vanguard GNMA. Did you know that over the last three-years, a time when investors worried about interest rates going up, up, up, GNMA had an average annual return of 2.6%? Today, just like three-years ago, that lazy money is sitting there, worried about the … [Read more...]
This is a Disturbing Trend for Mutual Funds
Exchange traded funds are a booming business today. Brokers, advisors, and everybody’s mother has been moving assets from actively managed funds into ETFs, but now even actively managed mutual funds are buying ETFs. I guess since many investors now recognize that actively managed funds are nothing more than high-fee closet index funds, the “portfolio managers” of these funds feel they can just openly buy index based ETFs. Marketwatch reports that in 2016 1,222 mutual funds held an ETF as a component in their portfolio. The median size of the ETF holdings were 4.5% of the portfolio. In … [Read more...]
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