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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Bill Gross and the Dying Breed of Mutual Fund Superstars – Bloomberg 09-26-14

Salient to Investors:

  • Hedge fund stars and private equity CEOs get huge headlines, but few mutual fund managers of the sort that average Americans can invest with do.
  • Neil Pardasani at Boston Consulting said advisers like to invest in fund brands that their clients know.
  • Investors often stick with star managers even when their performance is weak.
  • Sanford Bernstein estimates up to 30% of Pimco’s assets could leave following Gross’s exit.
  • The biggest firms mostly do without big fund manager stars, which helps put the emphasis where it belongs, on performance.
  • Klaas Baks at Emory University said investors know that a few years of big gains are as likely to be a fluke as a sign of genius.
  • BCG says passive investments’ share of all assets has doubled since 2003, while the share in traditional active assets fell 29%.
  • Investors are getting better at telling substance from celebrity.

Read the full article at http://www.bloomberg.com/news/2014-09-26/bill-gross-and-the-dying-breed-of-mutual-fund-superstars.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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Morningstar shocker: Active funds lose heat – MarketWatch 08-14-14

Salient to Investors:

John Rekenthaler at Morningstar said:

  • Over the trailing 12 months, 68% of net sales to mutual funds ended up in passive investing vehicles versus 32% active.
  • Of $134 billion going into active funds, $30 billion is being placed in target-date funds.
  • Low-cost, passive funds keep more of the investor’s money in their pocket.

Read the full article at http://www.marketwatch.com/story/morningstar-shocker-active-funds-lose-heat-2014-08-14

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Bogle’s legacy: Returns that trounce active investing – MarketWatch 08-07-14

Salient to Investors:

Mitch Tuchman at Rebalance IRA writes:

  • The best strategy for a retirement investor with a 5 to 25 year time horizon in a tax-deferred account uses low-cost index funds allocated across multiple asset classes and re-balanced at least annually.
  • Re-balancing – the discipline to sell assets that have gained to reinvest in assets that have declined – brings is a huge advantage.
  • Burton Malkiel at Princeton says re-balancing a stock/bond split portfolio annually added 1.5% to returns during the past 15 years.
  • Diversify over multiple asset classes, including large-caps, small-caps, developed-foreign and emerging-market stocks, bonds and real estate.
  • John Bogle at Vanguard says over a lifetime of active investing, the active manager gets 80% and the investor gets 20%.

Read the full article at http://www.marketwatch.com/story/bogles-legacy-returns-that-trounce-active-investing-2014-08-07

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Did you miss this foreign stocks boom? – MarketWatch 07-31-2104

Salient to Investors:

  • Pundits calling for a huge decline in equities are either the absolutely certain types, who have stuck to their prediction for years, and the less media-savvy academics and heads of research at big investment firms who see a decline but after the market goes higher.
  • The last set of economic “reasons” for global markets to implode did not lead to that result.
  • Emerging bonds are back in vogue among big investors. Emerging country stock markets are pushing gains well into the double digits.
  • The US stock market could easily rise for a number of unknowable reasons, including late-arriving investors, Fed pronouncements, and a stronger economy.
  • Owning a diversified portfolio of global index funds benefits from all trends, all the time, regardless of underlying economies or investor sentiment, because a re-balancing strategy would have cashed out gains in up markets for investment in down markets.

Read the full article at http://www.marketwatch.com/story/did-you-miss-this-foreign-stocks-boom-2014-07-31

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Why Do Investors Make Bad Choices? – Bloomberg 04-09-14

Salient to Investors:

Cass Sunstein at Harvard said:

  • Economists know that if you invest in stocks, it makes sense to invest in a passively managed diversified portfolio of largely low-cost index funds, weighted toward equities, and add money as you get it – diversifying it as well – and keep the cash you need.
  • The first behavioral mistake is “availability bias”, or if something has happened in the recent past, people tend to exaggerate the probability that it will happen in the future. The stock market collapsed in 2008, and does not collapse very often, so in 2011 you should not have feared another meltdown.
  • The second behavioral mistake is “loss aversion”, or hating losses from the status quo far more than equivalent gains. Suddenly losing $10,000 is more stressful than the joy of suddenly gaining $10,000.
  • The third behavioral mistake is “probability neglect”, or focusing on worst-case scenarios, especially when emotions are running high, and not on the likelihood that such scenarios will actually come about.
  • Investors are prone to the “disposition effect,” or selling stocks too quickly when they appreciate in price and holding on too long when they have depreciated in price.
  • Many individual investors are overconfident, men worse than women.

Read the full article at http://www.bloombergview.com/articles/2014-04-09/why-do-investors-make-bad-choices

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Hedge Funds Are Not Necessarily for Suckers – Bloomberg 07-12-13

Salient to Investors:

Matthew C. Klein writes:

  • Hedge Fund Research says the S&P 500 index with dividends reinvested beat the average hedge fund over the past decade.
  • There are always periods when certain asset classes did better than others. E.g., gold from the middle of 2001 increased by more than 600 percent over the following decade, while the S&P 500 stock index with reinvested dividends returned just under 20 percent. But stocks dramatically outperformed gold in the following 2 years.
  • Many types of hedge funds do very different things, so it makes no sense to lump them together as a single asset class and then compare them against stocks.
  • Over short periods, the relative performance of different funds is mostly determined by luck, whereas skill becomes increasingly important as the time horizon lengthens, The performance of the “average” fund does not indicate whether or not there are funds worth investing in.
  • The best approach is to diversify into assets that tend to rise over time but that move in different directions over shorter periods, and this equally applies to hedge fund allocations.

Read the full article at  http://www.bloomberg.com/news/2013-07-12/hedge-funds-are-not-necessarily-for-suckers.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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Hedge Funds Ads Will Only Harm the Greedy – Bloomberg 07-11-13

Salient to Investors:

Matthew C. Klein writes:

  • Hedge funds et al can now solicit the public for capital by advertising, a welcome development.
  • It is easy to avoid scoundrels by sticking to index funds. Only the greedy get fleeced by offers that are too good to be true.
  • Most finance academics advise parking your savings in simple index funds that charge minimal fees. Yet people allocate trillions of dollars to the mutual fund industry, which has been ripping off investors with high fees and sub par performance for decades.

Read the full article at http://www.bloomberg.com/news/2013-07-11/hedge-funds-ads-will-only-harm-the-greedy.html

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