Ferguson Metrics help identify funds with equity-like returns but volatility that makes them “easier for investors to own through turbulent times,” describes Brad Ferguson of Halter Ferguson Financial, a fee-only independent financial advisor based in Indianapolis. They serve as a starting point for delving deeper, but also as litmus test when salespeople offer him funds to include in the firm’s portfolios.
There are three main metrics in Brad’s Continue reading →
“Perhaps time’s definition of coal is the diamond.”
Kahlil Gibran
The Zeo Short Duration Income Fund (ZEOIX), previously known as the Zeo Strategic Income Fund, is a non-diversified, actively managed, total return, fixed-income fund that seeks …
Clearly, ZEOIX’s focus is Continue reading →
Charles sends his regrets for being unable to join us this issue, but he’s retreated deep underground to the MFO Premium command center.
At Charles’s request, the good folks at Thomson Reuters have substantially (vastly, enormously) expanded the amount of data they provide each month. The new datafeed will not only allow MFO Premium users to access a new level of detail about the composition and performance of mutual funds and ETFs, but it will also allow us to expand our coverage to closed-end funds and insurance products. Continue reading →
“I’ve come loaded with statistics, for I’ve noticed that a man can’t prove anything without statistics.”
Mark Twain
We launched our premium site in November 2015. Its origin stems from our desire to identify funds that minimized downside performance across full market cycles, using metrics and evaluation periods not readily available on other sites at that time. Parameters of interest included maximum Continue reading →
“In investing, what is comfortable is rarely profitable.”
Robert Arnott
“An investment in knowledge pays the best interest.”
Benjamin Franklin
MFO profiled Alpha Architect’s US Quantitative Value ETF (QVAL) in December 2014, shortly after the fund’s launch and after our colleague, Sam Lee, praised QVAL’s strategy in a Morningstar piece, entitled “A Deep Value Quantitative Hedge Fund Strategy.” The firm’s CEO Wes Gray first impressed us during his presentation “Beware of Geeks Bearing Formula” at Morningstar’s ETF Conference in Chicago earlier that same year.
I had a chance to visit Wes, his partner and CIO/CFO Jack Vogel, and the rest of his team recently at the Alpha Architect office in Broomall, Pennsylvania. The picturesque town is nearby Bryn Mawr, Haverford, and Swarthmore Colleges; Villanova and Drexel Universities; and The Wharton School of University of Pennsylvania. Wes earned his PhD from University of Chicago, with Nobel Prize Continue reading →
“Timing, perseverance, and ten years of trying
will eventually make you look like an overnight success.”
Biz Stone
The AlphaCentric Income Opportunities Fund seeks to provide current income. Presently, it invests in often overlooked (some call “pejorative”) segments of non‐agency (private label) residential mortgage-backed securities (RMBS), specifically in seasoned (2007 or earlier) subprime mortgages with floating rate coupons.
The irony is that 10 years after the housing collapse these bonds, once highly discounted if not feared worthless, represent one of the more sought after asset classes, as described nicely in Claire Boston’s Bloomberg Continue reading →
“Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.”
Robert Frost
Like many metrics in the MFO screener, and indeed the screener itself, the latest come in response to Continue reading →
“If someone invented levitation tomorrow, it would still take five years to catch on.”
Alan H. Epstein
The last panel, entitled “Meet the Pundits,” enjoyed a winner’s circle atmosphere this year. It included Barron’s Crystal Kim, Morningstar’s Ben Johnson, Matt Hougan of Inside ETFs , Tom Lydon of ETF Trends , and Continue reading →
“Maybe the mind’s best trick of all was to lead its owner to a feeling of certainty about inherently uncertain things.”
Michael Lewis’ The Undoing Project
Took a while, but we’ve finally added rolling average analysis to the MFO Premium site.
The new Rolling Averages tool provides insight into how returns vary for selected rolling periods of interest. Each period overlaps the next, separated by one month, across the life of the fund. This insight is especially important when establishing expectations based on an investor’s risk tolerance and time-line, as it reveals Continue reading →
“Experts often possess more data than judgment.”
Colin Powell
The S&P 500 closed August yesterday with an annualized standard deviation below 6%. Typically, since about 1940, which marked the end of The Great Depression, annualized standard deviation runs between 13 and 14%. It was the second consecutive month to break the 6% threshold; in fact, only five times has volatility remained this low for consecutive months: 1964, 1993, 1995, 2006 and 2017.
Matt Hougan of Inside ETFs and Dave Nadig of ETF.com hosted an Inside Smart Beta Conference this past month in New York City. Their career paths overlapped at ETF.com, which promotes itself, arguably so, as the “world’s leading authority on exchange-traded funds.” I find both Matt and Dave articulate thought leaders on ETFs and investing generally. They co-authored CFA’s A Comprehensive Guide to ETFs. Continue reading →
In last month’s commentary, David challenged readers to review their portfolios and be sure they understand how bad it could get when markets head south. “There’s a break in the rain. Get up on the roof!” he’ll often advise. He shared his own portfolio, which maintains a modest 50/50 stock/bond allocation. He estimated his drawdown to be 30% for perhaps three to five years, using the bear market of 2008 as guide. A look back at US market volatility since 1926 helps provide further insight into the question of just “How Bad Can It Get?”
The results presented below use the monthly database maintained by Amit Goyal, the same database referenced in Timing Method Performance Over Ten Decades, but updated as appropriate from January 1960 through April 2017 with our Lipper Data Feed Service. The three principal indicies modeled are S&P 500 Monthly Reinvested Index, Bloomberg Barclays US Treasury Long Total Return Index, and US 3-Month Treasury Bill Total Return Index. Continue reading →
Morningstar held its annual investment conference in its headquartered city of Chicago last week. That’s a couple months earlier than typical, perhaps to give it some distance from September’s ETF conference. Pink and purple tulips lined Michigan Avenue and Millennial Park. April showers abounded. The Intelligentsia coffee bar at 53 West Jackson Blvd each morning never smelled better. Continue reading →
The Litman Gregory Masters Alternative Strategies Fund seeks to provide attractive “all-weather” returns relative to conservative benchmarks, but with lower volatility than the stock market. It seeks this objective through a combination of skilled active managers, high conviction “best ideas,” hedge fund strategies, low beta, and low correlation to stock and bond market indices.
The fund’s risk-averse managers, asset allocations, and hedging strategies position it as an alternative to traditional 80/20% or 60/40% bond/stock portfolios for conservative or Continue reading →
We’ve eliminated load from our MFO Ratings methodology, following Morningstar’s lead, effective immediately on our premium site and starting with 4th quarter update on our main site. Previously annualized return calculations included any maximum front load specified in the prospectus, which is what an investor may pay when purchasing shares of a fund, expressed as percentage of the purchase amount.
Morningstar’s Director of Global ETF Research, Ben Johnson, was quoted recently that “fewer investors are paying commissions or sales charges, which is why we’re removing Continue reading →
USAA was founded in San Antonio, Texas, when 25 Army officers decided to insure each other’s automobiles. The year was 1922. Its original name: United States Army Automobile Association. Today, USAA stands for United Services Automobile Association – a Fortune 500 diversified financial services organization that caters to US military personnel and families. It has more than 11 million members. Its chairman is retired General Lester Lyles. Why choose to invest with USAA? “Military Values: Our disciplined approach stems from our military values of service, loyalty, honesty and integrity.” Continue reading →
Our colleague Ed remained curious about Vanguard’s Quantitative Equity Group (QEG) after we reported on our brief conversation with John Ameriks, head of QEG, at Morningstar’s ETF Conference last month. So, we reached out to Vanguard with a few follow-up questions. Continue reading →
The good folks at Morningstar hosted the seventh annual ETF conference in Chicago, its global headquarters, this past month. More than 650 total attendees, including more than 500 registered attendees (mostly advisors), more than 80 sponsor attendees, nearly 40 speakers, and more than 30 members of the press. An increase from last year.
“… over the long term the benefits offered by diversifying a portfolio of less correlated asset classes can be significant … investing in a diversified portfolio across equity and fixed income is the best option for most individuals,” wrote Jeremy Simpson in 2015, then director of Morningstar Investment Management in the article The Benefits of Diversification.
In Mebane Faber’s classic The Ivy Portfolio, he cites multiple sources on the benefits of diversification Continue reading →
At the recent Chicago conference, Morningstar’s Gregg Warren stated that asset management remains an attractive business because of steady fees, high operating margins, low start-up costs, and because “investment inertia is its best friend.”
Through June there were 281 funds with assets over $10B, including 8 that have trailed their peers in absolute return by at least 1.7% per year during the current market cycle since November 2007, or about 14% or more in underperformance. (See table below, click on image to enlarge.) Most are bottom quintile performers, trail nearly 90% of their peers, and four are Three Alarm funds. They include Templeton Growth (TEPLX), Thornburg Investment Income Builder (TIBAX), Davis New York Venture (NYVTX), Fidelity Magellan (FMAGX), and American Funds’ Bond Fund of America (ABNDX) and Intermediate Bond Fund of America (AIBAX). The folks invested in these funds certainly can’t be accused of chasing returns. Continue reading →
