Opinion: Investors avoiding both stocks and bonds looks bearish for market – MarketWatch 11-05-15

Salient to Investors:

Conrad de Aenlle at Conrad de Aenlle’s Funds for Thought writes:

Louise Yamada at Louise Yamada Technical Research Advisors says ICI’s report of net withdrawals from both stock and bond mutual funds in July and August is a pattern not seen since the fall of 2008.

Todd Rosenbluth at S&P Capital IQ says mutual fund withdrawals around August were soaked up by ETFs: mom-and-pop investors accounted for the majority of mutual fund flows and institutions were behind the ETF flows – The trend away from mutual funds and toward ETFs represents an ongoing shift to passive products as people do not want to pay up to lose money.

Morningstar found 5 prior months over the last decade when investors had net withdrawals from stock mutual funds and ETFs combined, and from bond funds: 2 coincided with minor blips in long bull markets, and 3 occurred just before or in the middle of corrections or bear markets.

Read the full article at http://www.marketwatch.com/story/investors-avoiding-both-stocks-and-bonds-looks-bearish-for-market-2015-11-05

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Dividend Stocks Could Be Dangerous in 2015, Ketterer Says – Bloomberg 12-31-15

Salient to Investors:

Sarah Ketterer at at Causeway Capital Mgmt said:

  • Buying energy stocks very incrementally as oil prices eventually reach a floor and rise again but no idea when. Looks for companies with tremendous financial strength that can continue to pay dividends. Smart companies will use  their balance sheet strength to buy distressed company assets.
  • Do not be passive and just buy the S&P 500 or a world index in an ETF because markets are fully priced and the largest weighted stocks are the most fully priced.
  • Active management fees pay to identify stocks left behind and avoid those that won’t blow up the portfolio.
  • Owns some Russian stocks but not aggressively. If crude oil stays at current prices or slightly higher, there will be further economic strains in Russia over the next several quarters.
  • Underweight US-listed stocks in global funds at 45 percent versus the almost 60 percent benchmark. Some of the best-managed oil and gas companies are US-domiciled.
  • Outside the US there are few tech stocks and no managed care. Some of the best opportunities in financials are abroad.
  • Consumer staples, utilities and health care globally are overpriced so it will be hard for them to meet expectations.
  • Likes industrial stocks in Europe that have fallen because of concerns about growth in China and Europe because they will end up outlasting their competitors, taking market share and becoming even more efficient. If businesses are doing their job and constantly evolving they can succeed even in a stagnant environment.
  • Investors worst mistake is short-term thinking, by selling at just the wrong time.

Read the full article at http://www.bloomberg.com/news/2014-12-31/dividend-stocks-could-be-dangerous-in-2015-ketterer-says.html

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The Dumb Money Is Getting Smarter Every Day – Bloomberg 09-17-14

Salient to Investors:

  • Amateur investors are giving up on trying to beat the market, while even the most sophisticated investors are rejecting strategies that require advanced math and managers with million-dollar salaries. ICI reports the average expense ratio on an equity mutual fund is down 25% in 10 years.
  • Boston Consulting estimates the market share of index funds and ETFs has doubled since 2003.
  • Target-date funds are taking over retirement plans, and are the favorite of young workers.
  • Grant Easterbrook at Corporate Insight said that the new online advisors eliminate a million features that only 5% of the user base actually wants.

Read the full article at http://www.bloomberg.com/news/2014-09-17/the-dumb-money-is-getting-smarter-every-day-.html

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Identity Crisis in S&P 500 as Range of Valuations Narrows – Bloomberg 09-02-14

Salient to Investors:

  • P/E ratios among the 50 largest companies in the S&P 500 Index deviate from the mean by an average 22%, nearly the lowest on record since 1990. An average of 380 Index companies rose in each of the last 5 years, versus 307 in the 1990s. In 2007, the deviation in P/E ratios for the 50 largest Index companies was 25%, the lowest since at least 1990, the beginning of a decade when the average deviation was 37%. The deviation was highest at 57% in 1999.
  • Eric Schoenstein at Jensen Quality Growth Fund sees less interest in picking stocks than just investing in markets, with buyers are making too few distinctions among good and bad companies, and could exacerbate selling once it begins – the fact that everything moves in lockstep up means they would probably drop in lockstep down.
  • Hayes Miller at Baring Asset Mgmt said stocks should not be valued as similarly as they are, which is abnormal and unsustainable.
  • Scott Clemons at Brown Brothers Harriman Private Banking said people are buying stocks for the sake of buying stocks – akin to the late 1990s in only one area, dot-com, of the market.
  • ETFs make it easy to accumulate large positions without regard to the individual companies.
  • Brent Schutte at BMO Global Asset Mgmt said everyone was a stock picker in the 1990s, whereas today everyone does strategic asset allocations and buys index funds, which narrows valuations.
  • Doug Foreman at Kayne Anderson Rudnick Investment Mgmt said many companies and industries are doing very well, so the market does not feel the need to price one group much higher than everything else – a much better balance.
  • Morgan Stanley forecast a slower though sustained rise in the S&P 500 to 3,000 by 2020 amid continued US economic strength.
  • Merck trades at 17.2 x earnings with analysts forecasting profit will be little changed in 2014, the same valuation as Qualcomm with an estimated earnings growth of 32%. Apple is valued at 16.6 x earnings with a projected earnings growth of 14%, versus 20.8 x for PepsiCo with a projected earnings growth of 5%.
  • Todd Lowenstein at Highmark Capital Mgmt sees a whole group of stocks in growth purgatory, and expects returns from here to come less from multiple expansion and more from fundamentals.

Read the full article at http://www.bloomberg.com/news/2014-09-01/identity-crisis-in-s-p-500-as-range-of-valuations-narrows.html

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Emerging ETFs Turn Positive for 2014 as Outflows Reversed Bloomberg 07-25-14

Salient to Investors:

  • Flows into emerging-market ETFs have turned positive for the year, reversing outflows in the first 2 1/2 months of 2014. The most inflows in 2014 have gone to India-focused ETFs. Investors have withdrawn $1.5 billion from China-targeted ETPs over concern over economic imbalances there.
  • The RSI of the BlackRock ETF is approaching the 70 mark that indicates overbought. The MSCI Developing-Nation stock index is at 11.2 times estimated earnings, the highest since 2011.
  • Adam Laird at Hargreaves Lansdown said emerging markets have grown in popularity in the past few months because nobody is 100 percent sure where the growth is going to come, but they know that the emerging economies are likely to see it.
  • Arko Sen at Bank of America said stronger US Treasuries and a more stable China has supported the entire emerging market complex. Sen said the major risk is geopolitics, like in Russia and the Middle East.
  • Mark Mobius at Templeton Emerging Markets predicts Chinese shares will rally, and likes state-owned banks and energy companies because of cheap valuations and plans to open up state-dominated industries.
  • Irene Bauer at Twenty20 Investments said they increased their emerging markets allocation to 25 percent of their portfolios, versus near zero 5-6 months ago, as the macro economic data has improved for many emerging-market countries, with India and China having particularly good outlooks.

Read the full article at http://www.bloomberg.com/news/2014-07-25/emerging-etfs-turn-positive-for-2014-as-outflows-reversed.html

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Investing Basics: Why Use ETF Funds – MarketRiders 01-31-14

Salient to Investors:

Advantages of ETFs

  1. Low cost. Active mutual funds charge upwards of 1.5% versus ETFs charge as low as 0.05%. The fees investors pay managers account for a third and up to half of their potential gain over the years.
  2. Simplicity. Buying and holding, then buying and selling over and over to keep in balance, the S&P 500 would be cumbersome and the trading commissions immense. ETFs do the same in one package that trades under a simple ticker.
  3. Control. A broad-index ETF offers an accurate price with no hassles.
  4. Tax advantages. ETFs automatically buy and sell to track the index but securities law allows them to do the buying and selling without triggering investment taxes on the owner.
  5. ETFs de-personalize your investments and therefore reduce being influenced by emotional reaction to individual stock events.

Read the full article at http://www.marketriders.com/investing/investing-basics-use-etf-funds/

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The ETF industry has exploded in recent years, that’s for sure. In the early 1990s there were only a small handful and almost nobody used them. By one recent count, there are now 1,194 exchange-traded funds controlling $1.3 trillion in assets.

Investors have come to rely on them to achieve a number of goals, both short- and long-term, and the major retirement firms have begun to market them as the solution to nearly any saver’s needs.

A silver bullet? Perhaps not, but they do have specific features that help serious savers get the job done.

1. Low cost

There are exceptions, as you would imagine in any group numbering over 1,000, but most ETFs are built to offer exposure to a given part of the market at a very low cost. While active mutual funds charge upwards of 1.5%, ETFs provide access to hundreds, even thousands of stocks for as low as 0.05%.

The difference here is not just a number. The fees investors pay managers account for a third and up to half of their potential gain over the years, money that they simply lose to the manager, forever.

U.S. cent Investing Basics: Why Use ETF Funds

2. Simplicity

You really could not replicate owning the S&P 500 as an individual investor. The trouble of purchasing and holding (then buying and selling over and over to keep in balance) would be cumbersome, the trading commissions immense. ETFs wrap all that up in a neat package that trades under a simple ticker.

3. Control

Stock pickers sometimes get in an out of single shares in an attempt to avoid losses or take gains while they can. They assume, too often, that a buyer will appear and give them the price they seek. With a broad-index ETF, the very liquidity of the market assures the investor an accurate price with no hassles.

4. Tax advantages

In tax-deferred accounts this is less of an issue, but investors with taxable holdings can greatly benefit from using ETFs. The funds automatically buy and sell to track the index, but securities law allows them to do the buying and selling without triggering investment taxes on you, the holder of the security.

5. Ease

The great danger facing most retirement investors is their own emotions. As your portfolio grows larger, the stakes are higher. Active investors often take on unusual risks far too late in the process or they shut down and avoid all risk out of fear. Either reaction can be a serious problem for the long-term investor.

ETFs depersonalize your investments. Since you own everything, you are much less caught up in the drama of who is the CEO of which company, or the likely effect of some global political trend. Distance helps you keep things in perspective.

Retirement investing should be a simple, easy check-off on your to-do list, not a part-time job that creates stress in your life. ETFs are a great tool for making that simplicity happen.

S&P 500 Erases Loss for Week on Earnings, Spending Data – Bloomberg 01-30-14

Salient to Investors:

David Kelly at JPMorgan Funds said the Fed looks justified in continuing to taper given economic momentum and recent sharp declines in the unemployment rate. Kelly said assuming the volatility in emerging markets subsides, this economic report should bolster the case for both higher interest rates and higher stock prices.

Investors pulled money from emerging markets ETFs at the fastest rate on record in January on China’s slowing growth and tapering sink currencies from Turkey to Brazil.

Dan Greenhaus at BTIG said a quarter with GDP growth more than 3 percent despite government spending contracted as much as it did, is unquestionably a positive. Greenhaus said concerns over emerging markets are the dominant topic and to the extent this remains contained, the sell-off is likely to be limited.

Analysts estimate S&P 500 companies increased EPS by 6.6 percent in Q4, 2013 and revenue by 2.6 percent.

Read the full article at http://www.bloomberg.com/news/2014-01-30/u-s-stock-index-futures-rise-as-facebook-jumps-on-sales.html

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How to Play Africa: One ETF Banks on GDP – Bloomberg 07-22-13

Salient to Investors:

AFK is the most actively traded Africa ETF and the first ETF to move to weighting holdings based on GDP of the countries it tracks.

The vast majority of ETFs that focus on foreign countries and regions are weighted by market cap, which captures only the shares outstanding that are freely traded, excluding shares owned by insiders or the government and leaves smaller, more emerging countries and companies out of the equation. However, GDP weighting rewards past achievement, as GDP is reported quarterly and often revised, and including companies with larger insider or government ownership increases the risk of manipulation or corruption.

The IMF says Africa will grow 5.7 percent on average in 2013.

Read the full article at http://www.bloomberg.com/news/2013-07-22/how-to-play-africa-one-etf-banks-on-gdp.html

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ETF Simplicity Betrayed by Volatility in Market Selloff – Bloomberg 07-11-13

Salient to Investors:

Share prices for the 10 largest diversified emerging-market ETFs on average were 42.6 percent more volatile than their underlying indexes from May 22 to June 24, when Bernanke triggered the sell-off that sent emerging-market stocks to a 1-year low, while the 5 biggest emerging-market index mutual funds were only 4.8 percent more volatile than their indexes.

Todd Rosenbluth at S&P Capital IQ said this proves that you are not just buying a benchmark when you buy an ETF, but also the related costs, including volatility and the spread price and net asset values.

Jack Bogle at Vanguard says ETFs encourage investors to trade frequently, undermining the long-term investment philosophy of indexing – traitors to the cause of classic indexing,

The only difference between an index fund’s price and the per-share value of its underlying index will come from the manager’s inability to exactly replicate the index in the fund’s holdings.

Volatility is less of an issue for ETFs that track large and liquid markets and whose shares trade during the same hours as the underlying assets.

Dennis Hudachek at IndexUniverse said emerging-market ETFs and certain fixed-income ETFs, such as those that invest in munis, may also see increased relative volatility during periods of market stress because it’s too difficult to buy thousands of different bonds and the funds may not track the indexes exactly.

EPFR Global said emerging-market equity ETFs had $10.3 billion in redemptions in June, the most since it started tracking the data in 2001.

ETFs that track emerging stocks tend to suffer bigger price swings than their underlying indexes.

Rodney Comegys at Vanguard said these premiums/discounts have limited impact over longer periods since they typically revert to around zero.

Read the full article at  http://www.bloomberg.com/news/2013-07-12/etf-simplicity-betrayed-by-volatility-in-market-selloff.html

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