Indexor

A Quant Approach to TAA: Winning by Not Losing

Thank you Mebane, I especially enjoyed your paper and its references. I have used a very similar approach for a number of years, first with no-load mutual funds and now with ETFs, although not equally-weighted. While it has eliminated tremendous amounts of risk from individual client portfolios, while providing market rates of return, most do not appreciate the value. Only during the 2000-2002 Bear market did clients appreciate being in cash instead of stocks.

Following Asset Class Returns

While the chart information may be useful, without more descriptive headers it is too difficult to decipher.

The Good, the Not-So-Bad and the Ugly Commodites ETFs

Regardless of whether you are bullish or bearish on commodities, the reality is that this asset class has been trending to the upside for some time. In my humble opinion, common sense dictates 5-10% of a portfolio should be allocated here, if only to take advantage of the negative correlation. 5% could be placed into a broad-based ETF such as DBC, DJP or GSP and 5% in a more concentrated issue such as IAU, DBA, OIL etc. Of course, if you are more bullish, use techinal analysis or are comfortable closing out of reversing positions, those amounts could be tripled for as long as stocks and bonds continue deteriorating.

An Interview With Gary Gastineau

Excellent interview with interesting information. Thank you.

What's So Great About Actively Managed ETFs?

Here's another opinion. The reason the SEC is so concerned about allowing active ETFs, is partly the admission that open-end mutual funds have been flawed for decades, and the SEC has simply turned a blind eye, and is unwilling to admit their error and fix the problem.

Investors have flocked to ETFs for three reasons:

1. Ability to buy/sell intraday at current market prices, not stale once-per-day prices. As a growing number of investors wake up to the fact that Buy-and-Hold is reckless and can be extremely dangerous to ones wealth in down markets such as 2000-2003 (although it keeps the ongoing income stream of fees pouring into the fund company on a daily basis), the importance of liquidity will gain in credibility. ETFs cannot arbitrarily close to new fund flows, add 2% redemption fees or unilaterally change or tilt a fund's investment style. Open-end funds should't either.

2. Expense ratios are much lower and more realistic. The SEC should have capped expense ratios a long time ago on open-end mutual funds, at increasingly lower percentage levels as fund assets grew, especially for funds in 401(k) accounts where individual investors have been completely taken advantage of for far too long.

3. The compelling logic and historical experience proves that indexing is a much more intelligent choice for providing consistent returns for the vast majority of investors.

A simple solution (to the horror of the mutual fund companies) would simply apply the same liquidity and transparency rules of ETFs to open-end mutual funds, while capping their expense ratios.

Foreign and Domestic Stocks: Evolving Correlations and Portfolio Management

There is a growing amount of "junk" investment advice being published every day on the web, cloaked in the respectability of a known or respected web site. The result only serves to tarnish the reputation of sites such as Seeking Alpha. Obviously nobody is editing or even reading these articles before they appear.

5 Golden Rules for the ETF Industry to Live By

Good article Matt. Unfortunately, iShares problems with last year's EEM performance and their refusal to lower expense ratios are only two visable signs of troubling developments within the company in the past year. Their leadership within the ETF industry seems to be rapidly declining.

Barclay's great care and feeding that was showered upon advisors even three years ago has abruptly ended. Even their web site, which was the envy of the industry has turned sterile. Their telephone support now appears staffed by rookies who aren't even able to determine how many issues are included in the indices that their ETFs are tracking. It appears they are now cashing in on the success they have built up over the last five years.

So maybe a new fund family like SSgA's SPDRs, Vanguard or PowerShares will take the lead and keep their expense ratios low, offer responsible ETFs without the advertising hype that sullied the mutual fund industry, and do the extra work required to follow a replication approach for true "indexing."

I would add one more "Golden Rule." Pay the additional money to staff excellent telephone support staff for both advisors and the public. They are the only contact most have with these ETF providers and are able to leave an indelible mark - positive or negative - concerning the professionalism and perceived capability of that particular firm.

Keep up the good work Matt.

Where Morningstar Goes Wrong on ETFs

In my humble opinion, the only value Morningstar provides is that of a data provider. Anything beyond data - star system, risk ratings, opinions, etc., should be considered as nothing more than filler. Morningstar is stuck in a 1980's 8% front-end-load mutual fund model. When it comes to ETFs, their comments are very transparent (always in favor of the mutual funds being threatened by new ETFs) and almost comical at best.

For ETFs especially, and even general investment information, take a look at IndexUniverse, Seeking Alpha and The Kirk Report for starters, to find opinions that offer value. While M-Star obviously has many well-educated, smart and talented analysts they are sadly being misdirected and biased against the entire ETF industry.

While John Bogle's anti-ETF views mirror those of Morningstar, look at the success Vanguard's ETFs have experienced under John Brennan. Maybe Morningstar needs a change at the top in order to transform itself into the research firm for mutual funds, ETFs, CEFs, stocks, bonds and annuities that it has the talent to become.

Buying Stocks: The Importance of Timing

kkin365, please listen to Dick Davis' advice. Timing is THE most important element in buying ANY security - stocks, bonds, mutual funds, ETFs, real estate, commodities, options, futures - in ANY account - IRA, personal, 401(k). Patient timing of your purchase can make the the difference between success or failure and further, validate the many hours of fundamental research. This is not to say that you should try to find the absolute bottom price for the security you want to purchase, for this will almost guarantee that you will fail. But you should seldom buy when an issue is selling at the high end of its range, or at an all-time high. Technical analysis can help you develop both entrance and exit strategies.

Morningstar Doesn't Get What ETF Investing Is All About

Matt, I couldn't agree with you more. Unfortunately, you and I both know that Morningstar has a staff of very bright, investment-wise individuals who understand the markets. But Morningstar has a vested interest in mutual funds, not ETFs. They have carefully and craftily written negative articles over the past few years, likely to appease their main business partners - the traditional open-end mutual fund companies.
Their stance on ETFs is simply too transparent for anyone who has been in the investment business for more than ten years to take seriously. They must not care very much about the increasing damage they are doing to their reputation as more sophisticated investment people eschew their star system for actively managed open-end funds in favor of a more intelligent choice.
Had Morningstar embraced ETFs, their reputation as an unbiased and trustworthy provider of investment research would have grown considerably. But there actions over the past few years have left them with very little value other than being another statistical data provider of past returns. And the ETF providers already provide that service themselves.

Long and Junk Bond ETFs: Stepchildren of Fixed Income Investing

Excellent thoughts, probably because I agree with most of your ideas. While I no longer use junk bonds, I do use iShares 1-3 year Treasuries (SHY), Vanguard Total Bond (BND) and SPDR Lehman International Treasury Bond (BWX). 10 years ago I read an interesting white paper by Dimensional Fund Advisors (DFA) that claimed all bond holdings should be placed in 1-year Treasuries with the rest commited to equities. It makes sense from a portfolio protection perspective as well as increasing returns in upward markets. I wonder if that concept still isn't valid today. I'd love to see new research on that topic.