View Tom Madell's Articles BY TICKER:
Strong Evidence That Fund Prices Can Get Too High
- This article provides data that when stock fund/ETF annualized performances get "excessive," their subsequent returns likely will be underperforming.
- Prior to the current bull market, the last time some categories of funds had huge five-year annualized performances of 16% or more was back at the close of 2010.
- Over each of the following four years, almost all these top-performing funds in their categories averaged significantly poorer performance than the average yearly performance of funds in general.
- This suggests that funds with extremely high annualized performance over the prior five years frequently won't be the best places to put your money over the upcoming years.
- But since so many funds/ETFs currently show 16%+ annualized performances now, investors should look for otherwise good funds which might now appear underperforming, but can likely excel going forward.
The Outlook For Bonds For The Remainder Of The Year
- Bonds may not outperform cash, and have some risk of negative returns this year.
- The Fed will raise short-term interest rates this year, and prices likely will fall in anticipation.
- Some types of bond funds appear to have better prospects than others.
- Three funds that I particularly recommend at this point are hedged foreign bonds (PFRAX), intermediate-term municipal bonds (VWITX), and the PIMCO Total Return Active ETF (BOND).
Can Quarterly Asset Allocations Predict Future Stock Performance? If So, What Action Should Many Investors Take Now?
- Most investors try to formulate appropriate allocations to stocks vs. bonds and cash.
- But do these allocations predict future returns? And if so, how far ahead?
- Ten years of quarterly allocation data were analyzed.
- High allocations to stocks were associated with significantly higher returns over the following three years and vice versa.
- Since research based allocation judgments currently suggest lower stock allocations, to avoid low returns, investors may want to have a lower than normal allocation now.
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