I thought it would be instructive to take a look at a portfolio of these funds to see how it would have performed since 2000, as well as what they are buying now.
It has taken me awhile longer to finally get the technology working here, but I think we are all set.
If you want to go ahead and signup for the premium version of the blog here is the link.
Future posts will have the WSJ style posts locked down unless you have a login. I imagine there will be a few hiccups so please let me know if you have any issues.
I prefer to see this less as locking down part of my content and more of an incentive to produce and put to paper more of our research that otherwise never sees the light of day.
I’m looking forward to doing lots more writing on the coming months, and please email in any burning questions you want me to research..
“I look at where the music industry is now and it’s not helping me so I’ve learned to exist without it!”
Replace every “music industry” phrase with “(high fee) financial industry” and you begin to understand. Phenomenal post by
As you all know I’m self publishing my next book in a week or two and have written a longish case study post that I’ll update as the experience progresses.
There is a lot of silliness going on across the Atlantic with Cyprus and their bank deposit seizure plan. (For those that haven’t heard here is a brief summary:
“In exchange for €10 billion ($13 billion) in rescue money, creditors would impose a one-time tax of 6.75 percent on all bank deposits under €100,000 ($131,000) and 9.9 percent over that amount….Anastasiades said savers would be compensated with bank shares. Moreover, all those depositors who opt to keep their money in Cypriot banks for at least two years would receive government bonds with a value equal to their losses. The bonds will be backed up by future revenue generated from the country’s newfound offshore gas deposits.”
And while I think it is absolutely moronic, I also think it is worth putting in context. One thing that people miss is that there are a lot of threats to wealth. One is taxes, one is outright confiscation, and one is inflation. In the US we are in a scenario many refer to as “financial repression”. This scenario of low/zero interest rates and inflation (2-3%) is terrible for savers as their deposits slowly bleed and lose 2-3% a year to inflation.
So while everyone is gnashing their teeth and freaking out about Cyprus, realize that here in the US, even though your deposits are safe – nonetheless they are getting confiscated, just by a different means…
Nice to see the journalism outlets starting to recognize the silliness of focusing on dividends in isolation.
Below from this weekend Barron’s:
I was going to do this post as an issue of The Idea Farm, but there is already a two week backlog of good pieces so I figured I’d just post it here. Passive and active are meaningless terms to me since I’m a quant and everything is active in my mind. You have rules for buying, selling, and rebalancing. It is always ironic to me that likely the largest and most famous index, the S&P 500, is really an active fund in drag. It has momentum rules (mkt cap weighted), fundamental rules (4Q of E, liquidity requirements), and a subjective overlay (committee input). Does that sound passive to you?!
However, most of the early indexes were built to be representative of the marketplace. So while indexing was revolutionary, it was not necessarily the best approach for managing money. Over the past 30 years we have seen an amazing amount of research that has shown simple ways to construct mechanical portfolios, ie indexes, that outperform these market cap indexes. Simple indexes that take into account value, momentum and trend, and carry have been applied within and across asset classes to form more robust portfolios. Second generation indexes have improved upon the first generation (commodities are a great example here). (For a recent piece of ours that details why market cap indexing is flawed, check out Global Value in the Journal of Indexing.)
Below the good folks at O’Shaughnessy put together a piece titled ”Combining the Best of Passive and Active Investing” that is well worth your time.
Below are two charts that I find highly useful. The first looks at yields on various indexes (the red dot is where we are now and purple/green represent one standard deviation bands). This chart poses the problem many investors complain about daily – where to find yield? (Note: S&P500 is TTM PE yield.)
One would conclude, that with the exception of mortgage REITs and US stocks, everything else is highly unnattractive. Bonds and REITs seem to be at their worst yields EVER.
However, if one looks at yields after inflation, so called real yields, the picture changes. Most asset classes are in normal valuation ranges, and while bonds are still trading at low yields, stocks are even more attractive, and mortgage REITS too.
The world doesn’t look so bad. (HT: DJ.)