ETF Radio Show

A Better Way To Invest With Bill Gross?

Recently, PIMCO and renowned bond fund manager Bill Gross filed for registration to list an exchange traded fund (ETF) version of their highly popular PIMCO Total Return Fund.  This is just the latest example of active mutual fund managers attempting to move into the mushrooming ETF space.  Previously, active mutual fund managers have been reluctant to offer ETFs because of the daily disclosure requirements.  Unlike mutual funds, which are only required to disclose holdings on a quarterly basis (and 60 days in arrears at that), ETFs are required to disclosure their holdings daily – so investors always know exactly what they own.

As investors demand more transparency in their investments, mutual fund managers are realizing that they can either watch assets flow out of their mutual funds or operate their fund transparently via an ETF.  Give credit to PIMCO and Bill Gross for having the confidence to open the curtain on their most popular mutual fund and allow investors the opportunity to invest with greater transparency.  As Dave Nadig of IndexUniverse points out in the article, this move by PIMCO “puts the nail in the coffin for active managers who need to hide in the world of non-disclosure and poor transparency”.

Think Your Mutual Fund Advisor Is Adding Value? READ THIS.

According to recently published research by Merrill Lynch, only 1 in 5 Mutual Funds beat the market in 2010. 

Merrill said growth mutual fund managers actually did the best, with only 30% beating the Russell 1000 Growth Index.  Core managers (i.e., Growth/Value blend) did the worst, with only 11% beating the Russell 1000 Index.  The percentage of value managers able to beat the Russell 1000 Value Index was 13%.

It is interesting to note that these returns relative to the benchmarks are BEFORE the impact of taxes mutual fund investors might owe on capital gains that were distributed to those investors in 2010.  If the Merrill Lynch data had included the impact of those taxes, the relative underperformance of mutual funds vs. their benchmarks would have been more astounding.

If your advisor only uses mutual funds in your portfolio, it would make sense for you to analyze how each of your funds has done relative to their benchmarks.  Perhaps your advisor is one of the few who is able to “pick the right manager”.  Odds are, they’re not.

First Quarter Commentary

We’ve just posted our first quarter market and economic commentary.  You can download it here.

Victims of Madoff’s Ponzi Scheme Should Have Invested in ETFs

The cost and tax advantages of ETFs compared to mutual funds are well known.  A less well known benefit is their transparency.  Unlike the holdings in a mutual fund, which are only published four times a year, the holdings of an ETF are published every day.  As this Arizona Republic article so explains, with ETFs you won’t be surprised when your mutual fund manager invests in things you don’t know about.  This kind of visibility makes ETFs perfect for someone who wants something “180 degrees different from what Madoff was up to.”

“When we see people moving to stock funds, they’re not using conventional funds – they’re using ETFs”

Here at the ETF Store, we believe asset allocation is the most important investment decision and the primary determinant of long term investment success. We believe that ETFs are generally the best investment vehicle to use in investment portfolios because they are inexpensive, tax efficient and well diversified.

We are evidently not alone in that opinion as assets invested in ETFs recently topped $1 trillion for the first time.  ETF assets grew nearly 30% during 2010 and are expected to grow over 20% a year for many years to come.  As a Lipper research manager says in this USA Today article, “When we see people moving to stock funds, they’re not using conventional funds – they’re using ETFs.”