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...]
Why Vanguard is too Big: Part III: BOND ALERT
In times like these, you can’t afford to fight other people’s social crusades. Vanguard has announced a new ESG bond fund. You need to know the pitfalls of ESG and avoid them. Vanguard has announced: We’re pleased to announce that Vanguard ESG U.S. Corporate Bond ETF (VCEB) is now available. This latest addition to our ESG (environmental, social, and governance) offerings was designed to complement our equity lineup of ETFs and mutual funds, satisfy evolving investor preferences, and enhance our low-cost approach. It’s time for Vanguard to get back to its roots. The venerable firm, … [Read more...]
Is Consolidation Coming to Mutual Fund Industry?
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...]
SEC Cracks the Floodgates to New Hedge Fund Investors
You may already be an "accredited investor," with more than $1 million in net assets (excluding your home) or $200,000 in annual income. If so, you've long had the ability to invest in hedge funds, where you get the privilege of paying the managers 20% of your profits and 2% of your assets. But now, the SEC is allowing many more Americans to play at the hedge fund casino. Paul Kiernan reports in The Wall Street Journal: The Securities and Exchange Commission deemed more investors capable of navigating the opaque world of leveraged buyouts, hedge funds and startups, a decision likely to … [Read more...]
Investors Facing Long-Awaited ETF Industry Shakeout
You have probably invested at some point in ETFs or ETNs. The exchange-traded investments have thrived for decades now as a lower-cost and more efficient alternative to mutual funds. But after years of huge fund companies issuing new ETFs and ETNs by just throwing products at the wall to see what stuck, the industry is shaking out. The Wall Street Journal reports that this year alone 188 exchange-traded products have been shut down. Michael Wursthorn writes: Asset managers have closed more exchange-traded products than they have launched this year, a sign of how market gyrations have … [Read more...]
Vanguard is Moving into Private Equity
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...]
Private Equity Investors Pay More for the Same Return and Lower Liquidity. Why?
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...]
You Want to Hire Who as Your Financial Advisor?
The Financial Times reports that Vanguard’s assets under management have surged past $6 trillion for the first time. In the investment business, the biggest rarely means the best. Big funds and big investment managers have fewer opportunities to choose from, and bigger funds are harder to maneuver. Do You Think Your Business Really Matters to Vanguard? Even if you have a $1 million portfolio with Vanguard, your business means almost nothing to the firm. They have $6 trillion under management. There are 5,999,999 other $1 millions in $6 trillion. Think about that the … [Read more...]
Think Your ETF Portfolio is Diversified?
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...]
Warning: Avoid Mutual Fund Year End Distributions
UPDATE: The end of the year is a great time to review your mutual fund year-end distributions. You should try to avoid them if possible. If you haven't done so already, read through Fidelity's primer on Mutual Funds and Taxes below. You don’t need to worry about year-end distributions with individual stocks. But with mutual funds, you absolutely need to worry. It’s why at Young Research we favor individual stocks in our Retirement Compounders investment strategy. Here’s a primer on year-end distributions courtesy of Fidelity. Pay particular attention to tax strategies for mutual funds, or … [Read more...]
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