ETF Prime Archive

ETF Store Show Recap – 11/19/11

Listen to The ETF Store Show every Saturday at 4pm on KCMO Talk Radio 710AM as we cover everything you need to know about Exchange Traded Funds and the world of investing.

On our most recent radio show, we delved into a number of ETFs including MUB, SPLV, SLV, and PCY.  We also discussed what’s driving the various financial markets right now including the recent mixed US economic data and the latest on the European Debt Crisis.

And, as we approach the end of the year, we explained why you may want to consider getting rid of your mutual funds and switching to ETFs to avoid taxable capital gain distributions.  ishares, the largest ETF provider, recently announced that 231 of its 233 ETFs (99%) are not expected to pay capital gain distributions this year.

Listen to the full show here.

Podcast: Play in new window | Download

Have ETFs Killed the Mutual Fund “Rock Star” Managers?

CNBC.com published an interesting article this week on Legg Mason’s Bill Miller, who announced he was stepping down as the manager of Legg Mason’s flagship Value Fund.  Miller was one of the last of a dying breed of high profile, “rock star” mutual fund managers trying to beat their benchmark indexes each year.  Unfortunately, Miller’s unlikely run of outperformance came to an end in 2006 and Miller has struggled mightily since that time.  A recent article from Reuters titled “Miller’s Fall Shows Luck at Play in Investing” had some interesting comments from the President of Fund Research at Morningstar, Don Phillips, who said that Miller himself “always acknowledged what a difficult competitor the S&P 500 is” and that “even when he was getting all the praise, he (Miller) was very skeptical”.

California Institute of Technology professor Bradford Cornell continued with “most of the annual variation in performance is due to luck, not skill.  Annual rankings of fund performance provide almost no information regarding management skill”.

It makes sense, then, that investors are continuing to gravitate in huge numbers towards passively managed ETFs, where investors can capture the benchmark returns at a fraction of the cost charged by overpriced actively managed mutual funds.  Investors are realizing that it’s more important to pick the right asset classes than trying to pick the right individual stocks or bonds.  And what better way to pick the right asset classes than with ETFs?

As Phil Pearlman, executive editor of StockTwits, commented in the CNBC.com article, “Mutual funds remind me of AOL dial-up:  a dwindling collection of old people who don’t know better, contributing monthly to a comically inferior product and Miller was the symbol figurehead of this beta minus fees charade”.

It looks like the charade is up and Miller is smart enough to recognize that.  ETFs are quietly killing the actively managed mutual fund industry and “rock star” mutual fund managers are becoming a relic of the past.

ETF Store Show Recap – 11/12/11

Listen to The ETF Store Show every Saturday at 4pm on KCMO Talk Radio 710AM as we cover everything you need to know about Exchange Traded Funds and the world of investing.

Does your financial advisor only have you invested in stocks and bonds or maybe some equity and fixed income mutual funds?  On our most recent radio show, we explained why you might be missing an important piece of a well-diversified portfolio – alternative assets.  Many people hear “alternative assets” and immediately think of some far-fetched or strange investments.  That shouldn’t be the case.  Investments like gold, real estate, and agricultural commodities can help lower the overall risk of your portfolio without sacrificing the returns.  Many alternative asset classes have a lower correlation with traditional investments like stocks and bonds.  So when stocks zig, maybe gold zags.  This has the effect of lowering the volatility of your portfolio and potentially, enhancing the returns.

It’s critical to have uncorrelated assets in your portfolio so when the markets take a nosedive (think 2008 for example), you have investments that can counteract some of the decline.  Even as recently as ten years ago, it could be extremely difficult for the average investor to access alternative asset classes.  Many alternative assets were unavailable to all but the wealthiest and most sophisticated investors.  That all changed in 2004 with the introduction of the first commodity-based ETF, the SPDR Gold Trust, ticker GLD, which invests directly in gold bullion.  Since the introduction of GLD, a number of ETFs have been launched that invest in a whole range of other commodities – things like silver, platinum, palladium, oil, natural gas and agricultural crops.  ETFs have become the everyday investor’s gateway to alternative investments.

So next time your advisor says, “alright, we’re placing you in a portfolio of 60% stocks and 40% bonds – now your diversified”, you may want to ask them where your alternative assets are.

Listen to the full show here.

Podcast: Play in new window | Download