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Crucial Facts When Evaluating Unmanaged Vs. Managed ETFs/Funds
- In discussing why ETFs and index funds are doing better than managed funds, many fail to consider some primary but often unrecognized reasons why this may be true.
- Most Large Cap managed funds attempt to provide a "smoother ride" than S&P 500-type ETFs and mutual funds, and thus, typically include foreign stocks as well as some cash.
- But this diversification comes at a cost, especially recently, since these non-US-stock investments have badly trailed US stocks over the last 5 years.
- S&P 500-type ETFs/funds are very heavily weighted to the largest capitalization stocks and will only outperform when these stocks are outperforming most other stocks as they are now.
- Index ETFs/funds are excellent choices if you are willing to assume all risk management yourself, especially in an overvalued market; professional managers can help less hands-on investors avoid overvalued stocks.
What Lies Ahead For Stocks? See What Today's Bond Prices Suggest
- Over the last decades, there has been a very high relationship between the yearly performance of the S&P 500 index and long-term treasury bond performance.
- During the last 15 years (1999-2013) that relationship has been highly negative with bond prices serving to essentially enable one to predict stock prices with much accuracy.
- However, during the earlier 12 years (1987-1998), while there was still a very strong relationship, the direction was positive, meaning that stock and bond prices moved in sync.
- Starting this year, however, the relationship reverted back to that found earlier - stock and long-term bond prices were again moving in the same direction.
- The reasons for the strong correlations, but in opposite directions, are discussed and the implications for both future stock and bond prices were spelled out.
Researching And Managing Your ETFs/Funds Can Give You A Huge Advantage
- A more and more recurrent theme in fund investing is that broad index funds will be the best choice for investors.
- Most managed funds tend to perform no better than the entire stock market but with higher fees.
- Fund returns for the entire stock market as well as for non-core categories likely will vary significantly from each other over periods lasting 5, 10, or more years.
- Knowledge of these discrepant returns, as well as careful specific fund selection, can point to investments that will outperform the core market averages by significant amounts.
- Data is presented that shows that even nearly 15 years ago, funds could be identified that would increase an investor's annualized return on each 10K investment by about $5K.
Investors' Choices Of Funds/ETFs Tend To Underperform
- Investors are apparently not very good at picking winning mutual funds or ETFs since their most popular choices tend to underperform.
- ETF investors' choices when held for the longer term perform more poorly than mutual fund investors' choices.
- ETF investors in particular may tend to pick sub-categories within the stock and bond markets that while perhaps appealing at the time turn out "not the best places to be".
- Investors can seek out investment companies whose offerings show a majority of market-beating ETFs/funds as compared to those popular funds frequently selected by investors.
- Planning For The Winding Down Of The Bull Market
- Sector Funds: It May Be Best To Keep These To A Minimum
The Stock Market Is Currently Overvalued And Irrational According To 2013 Nobelist
Oct. 30, 2013 • 13 Comments
- An Alert To Investors
- Many Types Of ETFs Could Be Facing Tougher Times Ahead
- Better Than Buy And Hold Over The Last 13 Years
- Why Your International Allocation May Be Crucial
- Simple Tests Of When To Add To Or Pull Back From Your ETFs
Do Record Highs Tempt You To Change Your Asset Allocation?
Apr. 2, 2013 • 2 Comments
- Overweighting Value Stocks Should Pay Off
- Investing In A Potentially Changing Tax Environment
- Should The Fed's Words Influence Your Asset Allocations?
- ETFs Vs. Mutual Funds: A Surprising Analysis
- What Happened To The U.S. Bull Market?
- Fund/ETF Selection In An Uncertain Environment
- Empirical Buy Vs. Sell Signals Suggest Long-Term Gains Ahead
Bull Markets And Investor Pessimism: Why The Huge Disconnect?
Feb. 29, 2012 • 6 Comments
- Was 2011 A Harbinger Or Merely A Pause?
- Stocks Vs. Alternatives: The Fund Investor's Asset Allocation Dilemma
- A Friendly Trend Continues To Suggest More Gains Ahead
Determining Buy Signals for Long-Term Investors
Aug. 1, 2011 • 10 Comments
Why Plunging Investor Sentiment and Consumer Confidence Index Aren't Cause for Concern
Jun. 14, 2011 • 9 Comments