To frightened investors who sense something bad is due after a seven-year bull market and amidst a wobbly economy, MFS Investment Management's commercials touting a "significant advantage to active management" may be striking just the right chord.
These investment pros are working to reduce "downside volatility" and to "consistently deliver alpha," says the investment firm's one-and-a-half-minute commercial on the power of active management.
But of course, not everybody's having it. RIA Mark Hebner, a proponent of indexing, applies statistical tests to MFS' fund lineup and suggests just one out of 87 funds has any alpha to offer (and even that one could be a fluke, Hebner further argues). He concludes that investors would be better served seeking beta.
Hebner has previously argued that it could take something like a century to evaluate investment skill in a statistically significant way.
Comes along SA contributor Ronald Surz, an innovative thinker, and proposes a method to deliver statistical significance in years rather than decades: "microwave alpha," he calls it. This quick-cooking alpha is achieved through portfolio simulations:
"The breakthrough determines statistically significant success in the cross-section rather than across time… A portfolio simulator creates all the portfolios the manager might have held, selecting stocks from a custom benchmark - thousands of portfolios… To state an extreme example, a return of, say, 1000% is significant, and you don't have to wait 50 years to declare it significant."
With no further ado, we've got many other advisor-relevant stories to start your week with:
- Jack Waymire gives five reasons why mobile-optimized websites are no longer a luxury for financial advisors.
- Advisors' annual reviews may be too frequent: the case for leap-year reviews.
- New advisor tech platform aims to help RIAs create optimal portfolios tailored to each client's risk tolerance.
- Lance Roberts offers lots of reasons to be down on this market, two of which are Carl Icahn's and Jeffrey Gundlach's strong bearishness.
- The best that fintech has to offer, but regular investors can't get in on it.
- Swift system hack takes money, not data, as bank security continues to deteriorate.
- SA Q&A: business cycles expert on the current downtrend in the U.S. economy.
- Eric Parnell, CFA explains why John Maynard Keynes must die.
- Salo Aizenberg: Why every investor should buy and hold 5-8% yielding high-yield bonds of good credit quality.
- IEA expects global oil supply to dramatically shrink in the second half; Robert Boslego disagrees.
- Who sells more natural gas? Chevron, ExxonMobil or Goldman Sachs? Think GaS.
- And…this SA contributor argues natural gas is poised for major outperformance.
Your comments on any of the above are, as always, most welcome below.