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...]

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...]

Vanguard announced it is launching a private-equity fund. Initially, the fund will only be offered to endowments and foundations, but Vanguard plans to open its private equity fund up to wealthy individuals in the future. Is Vanguard’s move a sign of froth in the private equity space, or trouble with the hurdles required to come public? Probably both, but the number of IPOs in the U.S. has plummeted since the dotcom bust and it still hasn’t recovered. The cost and hassle of being a publicly-traded company has made staying private or going private more attractive. Dawn Lim reports at The … [Read more...]

At The FT, Jonathan Ford reports that after 2006, private equity returns have been about the same as those from tradeable stocks. Yet, despite higher fees and lower liquidity, investors are still clamoring for private equity investments. He writes: Academics have long questioned whether the internal rate of return (IRR) calculations favoured by buyout firms overstate their performance against quoted stocks. Consequently, most recent studies favour the so-called “Public Market Equivalent” measure, which takes all the cash flows between the investors and a buyout fund, net of fees, and … [Read more...]

If you are buying ETFs because you hope to build a more diversified portfolio than you believe you can get by purchasing individual stocks, this chart is for you. The chart below from Bespoke dispels the myth that ETFs always provide adequate diversification. The chart shows the weighting of the top two holdings in each S&P 500 sector. Like many ETFs, the S&P 500 sector ETFs are market-capitalization-weighted. As you can see, the top two stocks are driving the ship in most sectors. In the Communications Services, Energy, and Technology sectors, the top two stocks account for about … [Read more...]