ETF Radio Show

A Handful of ETFs, a Boatload of Diversification

Listen to The ETF Store Show every Tuesday at 9am on ESPN 1510 as we cover everything you need to know about Exchange Traded Funds and the world of investing.

Click here to listen to The ETF Store Show now.

On our most recent radio broadcast, we explained how you can build an institutional caliber investment portfolio using just a handful of exchange traded funds.  The term “institutional caliber” oftentimes gets tossed around without much credence.  However, over the past several years, more and more large, institutional investors, such as pension funds and endowments, are actually managing their hundreds of millions (if not billions) of dollars using a modest number of ETFs.  In an article we highlighted on the show last year from Pensions & Investments titled “More Pension Funds See Value Investing in Fixed Income ETFs”, both the Virginia Retirement System and Stanford University’s endowment were cited as examples of large institutional investors using ETFs.  The article also quoted Blackrock Chairman & CEO Laurence Fink who said his company had worked with “an unidentified large pension fund to shift 4,000 individual bond issues into four iShares ETFs”.  More recently, as chronicled in the Wall Street Journal article “Pension Fund Takes Neighborly Advice”, the $470 million Montgomery County Pennsylvania pension fund announced that after meeting with Vanguard founder Jack Bogle, they decided to move nearly all of their money into just a handful of index funds tracking broad stock and bond markets.  In the article, the chairman of the Montgomery County Board of Commissioners said, “The folks on Wall Street do valuable work, but there is no value for the county and other municipalities to be spending these fees and getting a lower return”.

At the end of the day, that’s exactly what’s driving this shift towards index based ETFs and away from other types of investments such as actively managed mutual funds:  lower investment costs and removing the risk that an active manager will fumble their investment selection and return something less than the market benchmarks.  These are two of the key reasons we prefer ETFs at The ETF Store.  Another key factor is simply that broad based ETFs can offer excellent portfolio diversification.  On the show, we drove home this point by showing you how a lineup of just six ETFs can immediately allow you to have exposure to over 4,000 stocks across the globe, over 1,900 bonds and even some alternative assets such as real estate and commodities – all for around 20 basis points, or 0.2%.  Compare that to the expense ratio on the average actively managed equity mutual fund which will run you in the neighborhood of 1.4% and can only offer exposure to stocks.  It’s pretty easy to see why more pension funds and endowments are moving to ETFs.

In our weekly market update, we continued our discussion on the recent spike in interest rates and explained how the last few weeks have offered a classic lesson in not overreacting to short-term, headline driven market moves.  We also discussed gold’s rough year and the overall role of gold in your portfolio.  In our weekly ETF Spotlight segment, we delved into an international, inflation protected bond ETF, the SPDR DB International Government Inflation Protected Bond ETF – ticker WIP.  If you’re concerned about inflation in foreign countries and/or if you think that the US dollar will decline, this could be a solid option in the fixed income portion of your investment portfolio.  Learn more about WIP by visiting www.etfbuzz.com.

Vanguard’s Jim Rowley Joins Us to Talk ETFs

Listen to The ETF Store Show every Tuesday at 9am on ESPN 1510 as we cover everything you need to know about Exchange Traded Funds and the world of investing.

Click here to listen to The ETF Store Show now.

On our most recent radio broadcast, Jim Rowley, Sr. Investment Analyst at Vanguard, joined us to discuss Vanguard’s approach to Exchange Traded Funds and some of the key factors driving the continued growth of the industry.  Vanguard is currently the third largest ETF provider behind only iShares and State Street and through the end of May, Vanguard has seen the largest inflows of ETF investor dollars this year.  Vanguard founder Jack Bogle is well known for his belief that low cost, index-based investing is the best way to achieve long-term investment success.  Vanguard built themselves into the country’s largest fund company based largely on this philosophy.  On the show, we discussed this philosophy and delved into Vanguard’s recently released research paper titled “Cost matter:  Are fund investors voting with their feet?”.  Vanguard found that “in response to investor interest, assets held in U.S. equity index funds and ETFs almost doubled over the decade, from 18% of all assets under management to 34%.”  Vanguard also examined where investors were placing their money based on how much the mutual fund or ETF costs and found that “the lowest expense ratio quartile attracted $292 billion of the cumulative net cash flow into all U.S. equity funds for the ten years ended December 31, 2012.  Funds with higher expense ratios (quartiles 2, 3, 4) suffered net cash outflows of about $368 billion.”

We also touched on a recent Wall Street Journal article by Burton Malkiel, author of the classic investment book A Random Walk Down Wall Street.  Mr. Malkiel penned the following:  “The quintessential low-cost investment vehicles are index funds, which should comprise the core of every investment portfolio.  The high fees charged for active management cannot be justified.”  He went on to say, “Over long periods, about two-thirds of active managers are outperformed by the benchmark indexes.  The one-third that may outperform the passive index in one period are generally not the same as in the next period.”  Mr. Malkiel is certainly not alone in his beliefs.  It’s clear that Vanguard shares these beliefs and we certainly share them here at The ETF Store.  They’re one of the main reasons we use Exchange Traded Funds in our client portfolios.

In our market update, we explained the recent selloff in stocks, bonds, and even alternative assets and offered some thoughts on what may lie ahead.  In our weekly ETF Spotlight segment, we examined the Vanguard Emerging Markets ETF – ticker VWO, an ETF offering exposure to over 1,000 emerging market stocks for a paltry 0.18% expense ratio.  We also discussed where emerging market stocks might fit into an investor’s portfolio.  Learn more about VWO by visiting www.etfbuzz.com.

IndexIQ CEO Adam Patti on ETFs

Listen to The ETF Store Show every Tuesday at 9am on ESPN 1510 as we cover everything you need to know about Exchange Traded Funds and the world of investing.

Click here to listen to The ETF Store Show now.

Exchange Traded Funds are continuing to evolve and individual investors are reaping the benefits.  Investment options that were previously reserved for only the most wealthy, sophisticated, institutional investors are now being made available to all investors through ETFs.  As we like to say at The ETF Store, with their combination of lower costs and access to an enormous range of investments and investment strategies, ETFs have democratized investing.  On our most recent radio broadcast, IndexIQ CEO Adam Patti joined us to discuss their lineup of liquid alternative ETFs which have helped bring some of these institutional caliber strategies to the broader investment marketplace.  IndexIQ offers several hedge fund style ETFs in addition to some interesting commodity and small cap equity ETFs.  Adam explained where these alternative ETFs might fit in your investment portfolio and he also offered some thoughts on where additional innovation in the ETF industry may come from.

In our market update, we explained how even though the stock market has felt more like a roller coaster ride than a place to invest money over the past month, investors must be careful not to overreact to the wild swings.  While volatility has certainly picked up, the fact remains that the Dow Jones Industrial Average is essentially flat since the Fed first hinted at tapering bond purchases back on May 22nd.  Unfortunately, the financial media might have you believe that the market is down significantly over this period of time.  The lesson for investors is that you need to ensure you have a well thought out, disciplined investment plan in place and not make rash moves based on news headlines or day-to-day price swings.  In our weekly ETF Spotlight segment, given our focus on IndexIQ ETFs, we examined a hedge fund style ETF that is the largest of its kind (IQ Hedge Multi-Strategy Tracker ETF – Ticker QAI).  This particular ETF offers investors exposure to several hedge fund strategies in an attempt to generate returns regardless of market conditions.  Learn more about QAI by visiting www.etfbuzz.com.