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Improving on Morningstar's Ratings: Moving Beyond Past Performance
Past returns provide little or no help in choosing the best fund going forward, and Morningstar's stars are the best known example of this failure. In this guest contribution, Tom Howard presents new evidence of the failure of past performance to predict future returns, and shows how his strategy-based rating methodology offers measurably better predictive power.
Asset Allocation Matters, But Not as Much as You Think
by Robert Huebscher,
The market downturn has caused a rethinking of many core principles underpinning investment advice, chief among them the role of asset allocation. We talk with Yale's Roger Ibbotson about the impact of market returns and active management in explaining return variance and the role of asset allocation going forward.
Dan Fuss: What Keeps Bond Managers Up at Night
by Dan Richards,
Highly respected fixed-income manager Dan Fuss of Loomis Sayles recently spoke with Dan Richards about what keeps bond managers up at night. Fuss identifies the critical issues bond investors face. We provide a video and a transcript of the interview.
Ten Ways to Improve Manager Selection
by Nancy Opiela,
Today's emphases on fiduciary responsibility, risk management and increased transparency require better due diligence when selecting managers. Especially in today's turbulent markets, advisors who spend more time and resources to do due diligence well can find themselves at a distinct competitive advantage. While these ten tips won't necessarily help you identify the next active management superstar, they can bolster your manager selection and due diligence program.
Actively Passive or Passively Active?
The active-passive debate typically centers on the nature of the investment product - whether it is an actively managed fund or a passive index fund. This, however, is only one aspect of that debate, and to consider it alone represents too simplistic a view, says Craig Israelsen in this guest contribution. A broader issue, namely how a portfolio of actively or passively managed funds is managed over time, has a more profound impact on whether one is truly an active or passive investor.
Why Some Hedge Funds Made Money in 2008
by Robert Huebscher,
Steven Drobny is the co-founder of Drobny Global, an international macroeconomic research and advisory firm that counts many of the leading global hedge funds and money managers as clients. He is also author of a recently released book that identifies why some hedge funds made money in the 2008 crisis, while the majority did not. In this interview, he discusses the common themes among successful strategies.
Paul McCulley?s Design for Financial Regulation
by Robert Huebscher,
PIMCO's Paul McCulley parents his 20-year-old son with an overarching principle: If you want access to the "Bank of Dad," then you must comply with the regulations of the "Bank of Dad." Wall Street abandoned similar tenets with in the run-up to the credit crisis, and now McCulley says that core principle - to play the game, you must accept regulation - needs to be restored before another crisis unfolds.
Gary Shilling: America?s Lost Decade
by Robert Huebscher,
The US faces 10 years of slow growth and deflation that could rival Japan's "lost decade" - two words which Gary Shilling did not utter but which unmistakably characterize his forecast. Shilling is founder and President of the New Jersey-based economic consulting firm A. Gary Shilling & Co.
A Short-Term Buying Opportunity for Long-Term TIPS
by Michael Brennan,
Fixed income investors should consider a short-term buying opportunity for Treasury Inflation Protected Securities (TIPS) with maturities of ten or more years, writes Michael Brennan in this guest contribution. The 10-year TIPS should have a total return anywhere from 30 to 40 basis points greater than the comparable nominal Treasury bond.
Follow-up to the Folly of Peer Group Analysis
by Various,
In response to a recent commentary by Research Affiliates, The Folly of Peer Group Analysis, a reader offers his own research on the performance of indices against peer groups, once impurities have been eliminated from those peer groups. John West and Ryan Larson of Research Affiliates provide additional analysis.
The Best Books on Passive Investing
Two finance professors, Edward Wolfe and Indu Chhachhi, survey the literature on passive investing and offer their recommendations for authors and books. Whichever side of the active-passive debate you take, these books should be required reading. The evolution through which the literature on passive investing has gone is striking. Early writers started out with a point to prove: that passive investing is the only way to invest that makes sense. Today, the writing in this area has moved beyond "proving a point" to expanding on what is a settled issue.
The New Investment Paradigm: Graham Meets Markowitz
by Bob Veres,
Broadly speaking, the financial services industry has been divided into two competing paradigms since roughly 1950. One, articulated by Harry Markowitz, suggests advisors add value through diversified portfolios optimized along the efficient frontier. The other, advocated by Benjamin Graham, says advisors add value by purchasing assets at prices less than their fair value. Bob Veres reconciles those views and describes the New Paradigm that has emerged.
going active
by Tom Brakke of the research puzzle,
A study by Martijn Cremers and Antii Petajitso makes a persuasive case for using active share as a benchmark for determining how active a fund manager is. It concludes that the most active managers, as measured by active share, deliver the best performance. In a way, this comes as no surprise. The popularity of hedge funds derives from their tendency to hold positions regardless of their presence in an index, and a less scientific view of mutual funds holds that good performance over time tends to come from managers who stand apart from what the rest of the market is doing.
Robert Pozen on the Financial Crisis, Social Security, and the Mutual Fund Industry
by Dan Richards,
Robert Pozen is the chairman of MFS Investment Management and a senior lecturer at the Harvard Business School. In this interview with Dan Richards, he discusses the financial crisis, Social Security, and the mutual fund Industry. We provide a transcript and a video replay of the interview.
Jason Zweig on Protecting your Wealth
by David Raileanu,
Jason Zweig is a senior writer and columnist for Money magazine and frequently writes for the Wall Street Journal. In this interview, he discusses strategies for protecting client wealth, proper asset allocation, and the role of advisors in a fiduciary relationship.
Martijn Cremers on Active Management
by Dan Richards,
Martjin Cremers is an associate professor of finance at the Yale School of Management. He and his Yale colleague Antti Petajisto have conducted research that focuses on "active share" in mutual fund management. In this interview, Cremers discusses the implications of his research.
Chuck Akre on the Akre Focus Fund
by Robert Huebscher,
Chuck Akre is the Managing Member and Chief Executive Officer of Akre Capital Management, which he founded in 1989. He has a track record of above-average performance over the last 20-plus years managing mutual funds, separately managed accounts and partnerships, and he discusses the strategy he employs in his new Akre Focus Fund.
Using Alternative Investments to Build a Stronger Portfolio
by Robert M. Hussey,
Traditional asset classes may no longer provide sufficient portfolio diversification, but there's a new wave of mutual funds that offer alternatives strategies previously available only to large institutions. Robert Hussey of Natixis Global Associates describes how alternative strategies can be used in a mutual fund package. We thank them for their sponsorship.
Capture Ratio as a Tool to Measure Investment Performance
In this guest contribution, David Vincent and Ray Pinelli of Fred Alger examine the correlation of traditional up- and down-capture ratios to investment performance. They show that combining these two measures results in a metric with much higher correlation.
Diversification is Not Enough
The mainstream financial services industry, the media and academia - virtually everyone - has overestimated the value of diversification in risk management. The recent crisis has shown that investors need more than simple diversification to protect them from both the known and the unknown risk that they will eventually encounter. In this guest contribution, Roger Schreiner, says that when it comes to risk management, diversification simply is not enough.
Letters to the Editor ? Morningstar Responds
by Various,
Our article last week, Morningstar's Ratings Fail over a Full Market Cycle, drew two responses from readers and a response from Morningstar. John Rekenthaler, Morningstar's VP of Research, says the three-year time period we chose was arbitrary and does not necessarily reflect a full market cycle. We also have a letter regarding our article last week, The Investment Value of Art.
Ned Davis: The Cyclical Bull Rally is Not Over
by Robert Huebscher,
In February of last year, Ned Davis, president and senior investment strategist of an eponymous Florida-based institutional research firm, correctly forecast last year's market decline. In February of this year, he called the market rally that began in March. Now, he says, that cyclical bull rally is not over.
Bruce Greenwald on Positioning First Eagle?s Funds
by Robert Huebscher,
Bruce Greenwald is a professor of finance at Columbia, the Director of Research at First Eagle Funds, and a leading expert on value investing. Last week we published part one of our interview, where he discussed the structural problems in the economy and his forecast for higher unemployment. This week he discusses the positioning of First Eagle's investments, and why Warren Buffett's purchase of Burlington Northern was a mistake.
Alpha or Wealth?
by Sam Bass,
It is widely accepted that ETFs offer significant advantages over mutual funds, especially lower costs and taxes. But, as advisor Sam Bass argues in this guest contribution, the mutual fund industry may be all the more concerned that increasing numbers of investors are accepting the view that ETFs, and passive strategies in general, are better for wealth accumulation than active management - even if one assumes active strategies can generate positive alpha over extended periods of time.
Absolutely ? Maybe
by Robert Huebscher,
Since Putnam introduced its absolute return funds earlier this year, over 4,200 advisors and $650 million in assets have flocked to the new financial products. Putnam's four funds seek to beat inflation by 100, 300, 500 and 700 basis points, and their performance over their first nine months (3.1%, 6.4%, 8.4% and 12.2%, respectively) was encouraging for their investors. Impressive as those results may be, the question is whether they are sustainable.
Leveraged Index Mutual Funds Evolve to Meet Market Needs
by Direxion Funds,
Until recently, leveraged index funds had daily objectives, rebalancing their leverage at the end of each trading day in order to match their stated exposure rate. This characteristic made it necessary for investors to monitor them daily in order to both track and manage the exposure rates applied to their investments in the funds. Direxion Funds has released the first monthly-rebalanced leveraged funds, and they explain how they operate. We thank them for their sponsorship.
Letters to the Editor ? Fama-French and the Active-Passive Debate Redux
by Various,
Last week, two active management proponents responded to our article, Luck vs. Skill in Mutual Fund Alpha Estimates, on the latest research from Ken French and Gene Fama. This week, a reader takes on one of those responses and Michael Edesess, author of our article, says the debate between active and passive management is really a sidelight to the real issue - which is excessive fees.
Interview: Jeff Mortimer, CIO of Charles Schwab Investment Management
by Robert Huebscher,
Jeff Mortimer is Senior Vice President and Chief Investment Officer-Charles Schwab Investment Management, Inc. (CSIM). Mortimer has overall responsibility for approximately $240 billion in Schwab Funds and managed accounts. We spoke with Mortimer two weeks ago about the economy and why he believes the market has already priced in the bad news trumpeted by the media.
Will Momentum Move Your Portfolio?
by Robert Huebscher,
Instead of mixing value and growth stocks, investors would be far better served by combining value and momentum stocks, according to Cliff Asness, co-founder and Managing Principal of AQR Management. In fact, momentum has "kicked butt" when compared to growth over the last 80 years, Asness said.
Predictably Irrational - How Investors Frame Decisions
by Robert Huebscher,
One of the most provocative sessions at last week's Schwab Impact conference was given by Dan Ariely, who deftly summarized his current research in the important field of behavioral finance. Ariely's message was that, no matter how good their intentions or how deep their experience, people - investors specifically - consistently make the wrong decisions. They behave irrationally, and predictably so.
The Key to Trading and Investing in ETFs
by Paul Weisbruch,
In this guest contribution, Paul Weisbruch argues that an ETF does not require a certain amount of trading volume in order to be liquid. The underlying securities of the ETF determine its liquidity. Many within the industry do not grasp this reality and are missing out on a lot of quality ETFs.
Should Investors Hold More Equities Near Retirement?
by Ron Surz,
A just-published paper argues that investors should hold more equities as they near retirement, contrary to conventional wisdom and to the glide paths employed by the target date fund industry. Ron Surz examines this research, and argues that the authors of the paper failed to properly consider the risks inherent in such a strategy.
Letters to the Editor
by Various,
In our letters to the Editor, a reader responds to Dougal Williams' article last week, A Crash Course in Investing: Six Lessons from the Market Meltdown, and other readers respond to our article on Actively Managed TIPS and to an Advisor Market Commentary on healthcare policy.
The New Normal and Asset Allocation Merriman?s Response
by Larry Katz, CFA,
Larry Katz, Director of Research at Merriman, Inc., responds to Geoff Considine's article two weeks ago, What the New Normal Means for Asset Allocation. He has multiple objections concerning much of Considine's logic, and would not recommend his alternative portfolio to their clients.
A Crash Course in Investing Six Lessons from the Market Meltdown
The market decline from October 2007 to early March 2009 was the worst since the late 1930's. Stocks dropped 60%, investor uncertainty skyrocketed, and trust and confidence were shattered. The age-old rules for personal investing are now being questioned: Is Buy-and-Hold dead? Has Asset Allocation outlived its usefulness? Does Diversification still work? In this guest contribution, Dougal Williams provides answers to these questions that can serve as a guide for long-term investment success.
How to Think about Return and Risk at the Same Time
by Adam Jared Apt,
In this guest contribution targeted to the educated layman, Adam Apt discusses the relationship between return and risk. Only when you can keep in mind at one and the same time these two concepts can you properly understand how to invest. And you will also understand why you should invest. Without the marriage of the concepts, you will be playing the market-or shunning it-as if it were a casino.
Change or be Changed
New financial services regulation will touch on many areas, and mutual fund evaluation and monitoring is one likely candidate. Over the past two decades, screening has been at the core of most mutual fund evaluation processes. The advisor picks the criteria, sets a minimum or maximum level for each, and comes up with a list of funds that survive all screens. Bob Padgette and Ted Ponko of Klein Systems demonstrate several inherent flaws in this process.
Q2 2009 Performance among the Most Popular Mutual Funds in the Advisor Perspectives Universe
Each quarter we analyze changes in the Advisor Perspectives database - a $50+ billion universe of high- and ultra-high net worth assets managed by Registered Investment Advisors. Our analysis has three parts. We look at changes in asset allocation, the performance of the most popular mutual funds, and the mutual funds that showed significant gains or losses in popularity during the quarter.
SIFMA?s Proposed
by Ron Rhoades,
On July 17, 2009, the Securities Industry and Financial Markets Association ("SIFMA") announced that its Private Client Group Steering Committee unanimously supports a new federal fiduciary standard for broker-dealers and investment advisors, embracing a proposal advanced by the Obama administration a week earlier in a draft of the "Investor Protection Act of 2009." Ron Rhoades looks at whether this shift in direction by SIFMA poses a radical change in business models, or whether the "new federal fiduciary standard" is something else in disguise.
Three Steps to a Referral Conversation that Works Today
by Dan Richards,
Recommendations initiated by someone looking for an introduction to an advisor doing a good job for a friend have always been an important driver of referrals, but this will be especially true this summer. In some instances, your clients will be asked outright how they feel about the job you've done and if they are comfortable recommending you. Dan Richards provides a three-step plan to make this happen.
Compelling Evidence That Active Management Really Works
by Ken Solow,
The majority of academic studies conclude that active management does not add value for investors. However, a closer look at how many studies were conducted reveals several flaws in their methodology that are not as well-known as the accepted conclusion about active versus passive management. Guest contributor Ken Solow revisits work by two Yale researchers showing the value added through active management.
Changes in the Most Popular Mutual Funds
by Robert Huebscher,
Each quarter we review changes in the Advisor Perspectives (AP) Universe, which represents $50 billion in high-net worth assets managed by RIAs. Our analysis looks at changes in asset allocation, the mutual funds and ETFs that gained or lost market share, and the performance of the most popular actively managed mutual funds. This analysis focuses on the most popular mutual funds.
Changes in Asset Allocation
Each quarter we review changes in the Advisor Perspectives (AP) Universe, which represents $50 billion in high-net worth assets managed by RIAs. Our analysis looks at changes in asset allocation, the mutual funds and ETFs that gained or lost market share, and the performance of the most popular actively managed mutual funds. This analysis focuses on changes in asset allocation.
Q1 2009 Performance among the Most Popular Mutual Funds in the Advisor Perspectives Universe
Each quarter we review changes in the Advisor Perspectives (AP) Universe, which represents $50 billion in high-net worth assets managed by RIAs. Our analysis looks at changes in asset allocation, the mutual funds and ETFs that gained or lost market share, and the performance of the most popular actively managed mutual funds. This analysis focuses on performance across the most popular mutual funds.
Jeremy Grantham's Warnings to Investors
by Robert Huebscher,
Of the thousands of investment letters penned in the industry, only one draws as much readership as Warren Buffet's annual letter to his shareholders: The quarterly commentary written by Jeremy Grantham. Grantham, the Chairman of the Boston-based investment firm Grantham Mayo Van Otterloo, was a featured speaker at Morningstar's Investor Conference last week, and he spoke at two breakout sessions. Those who, like me, attended both were richly rewarded, as he gave two distinctly different talks, addressing many subjects not covered in his commentaries.
Results 3,251–3,300
of 3,303 found.
