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...]

The WSJ reports today that BlackRock is slashing fees on one of its index ETFs by almost 75%. An investor friendly move? Maybe, but we are talking a reduction from 4 one hundredths of a percent to 1.25 one hundredths of a percent. For every $1,000 invested, ETF holders save a whopping 25 cents. You probably tip the coffee girl more than that every morning. This race to the bottom in index-based ETFs is getting silly. Compound out the difference between 4 basis points and 1.25 basis points for 30 years and you’d barely have enough to take your wife to dinner. And let’s not forget … [Read more...]

Managed payout funds are certainly better for retirees than annuities, but can you rely on them in retirement? Funds promising steady income for retirees are subject to the same market swings as other funds. If your expectation is that you'll always receive the same income stream, you should carefully reread the fund's prospectus. They aren't guaranteed. Barron's reports: Converting a pot of money into retirement income isn’t an easy task for many retirees—and it’s a tricky proposition even for fund firms. Take the Vanguard Managed Payout fund (ticker: VPGDX), one of the largest of a type … [Read more...]

This post I wrote on September 25 was one of readers' favorites this year. My concerns with the Vanguard Precious Metals and Mining Fund should be taken seriously. I'm concerned about Vanguard more broadly as well, and have written a series on that here.  Barron’s had a solid write-up on gold over the weekend. “Gold has been a traditional hedge against financial and economic crises, playing that role during the 2008-09 meltdown. Gold rallied 17% from the collapse of Lehman Brothers on Sept. 15, 2008, until the stock market bottomed on March 9, 2009—a period during which the S&P 500 fell … [Read more...]