March 9, 2009 at 3:59 PM
In response to Ted's revision, I too am revising my response.
I hope I didn't sound like a smart ass, but the subtle message embedded in my terse reply above is that the best time to invest is when things are cheap. So you easily could have bought twice as much of the S&P for the same amount of money back in '09 as today.
A second message meant to be conveyed is that markets are impossible to predict.
That said, all of the other responses are well considered and should be helpful to you. Had you included factors like age, years to retirement, and personal disposition towards risk, it would have helped in suggesting appropriate allocations and methods of deploying your cash.
Regards

Hi @clacy
Now, what you and @kevindow noted does make financial sense, eh?
But, money managers would put themselves out of work, yes?
I do believe that ego, the human essence and any other self esteem word one may discover has relationship to money managers.
I don't follow science up close; but the last time I checked, these folks sit upon the toilet just like the rest of us.
This recent CALPERS article offers clues and potential guidelines, if managers would accept defeat of their egos. Although one can not imagine many folks whose money is being invested are raising a glass of wine to these folks in celebration.
Hell, I've had to adjust my directions several times over the years from "realization factors"; and I'm not even investing "other peoples money" from which a poor rate of return (as with CALPERS) would cause me to be wholly embarrassed. I continue to be asked upon occasion about where to invest. My suggestions have changed from 10 years ago.
Take care,
Catch

I remember that we had this discussion some years ago... might even have been on FundAlarm. But I still don't fully understand the mechanism: Is it accurate to say that if 40% of the equity market is now indexed (passive), then the remaining 60% is active?
And if that's true, what happens when we get to 51% indexed vs 49% active? Would that mean that a "minority" of active investors would then be determining the market?
And if that's true, what is the ongoing situation as the active share decreases further? More and more "influence" from fewer and fewer investors?

You know this about perma-inflation Singer, right?

Ah, so he was the one; I was telling someone about the terrible Hamptons r/e inflation the other day and couldn't remember what caricature of a clueless zillionaire had said it.

Yes, but that article was two years ago. These days the Hamptons are so déclassé that Starbucks even has a mug for them:

The Hamptons Housing Market Is Getting Clobbered by Wall Street Jitters:
http://www.vanityfair.com/news/2016/04/hamptons-housing-market-wall-street

FYI: Demand for exposure to emerging markets has been on the rise in recent months, and one fund that has captured a lot of that interest is a fixed-income ETF, the iShares JP Morgan USD Emerging Markets Bond ETF (EMB).
So far in 2016, EMB has raked in $4.35 billion in net assets—huge inflows for a fund that has $9.7 billion in total assets today. EMB was the fifth-most-popular ETF in July based on creations, and is ranked among the 10 biggest creations we’ve seen year-to-date.
Regards,
Ted
http://www.etf.com/sections/features-and-news/emb-years-hot-emerging-market-bond-etf

Some people have been following JENSX and it's steady, strong performance. However, the lesser known JNVSX has had a great year. It has returned 16% YTD, and 8% over the last trailing year. This places it in the 6th percentile YTD and 16th percentile over the last year for its category according to Morningstar. Morningstar is placing it in the MV category, likely because it is multi-cap, however it holds more stocks in the large cap space (38%), than it does in mid cap (29%), and small cap (34%). If it were categorized in the large cap territory, it would be closer to the 1st percentile YTD.
It has had a couple poor years relative to the market (2012, 2015), but maybe it has finally found it's groove, or its investing style has paid off this year.

Hi Guys,
This post simply adds more grist to the Indexing mill.
Many other posts that address this debate have appeared on MFO recently. Here is an internal Link to one of my more recent contributions to this matter:
http://www.mutualfundobserver.com/discuss/discussion/29128/attacking-active-fund-managers-yet-again
Like Ted, although I'm fully fimilar with the primary arguements that tilt towards an Index portfolio, my portfolio is a mix of both passive and active products. I like the excitement.
Over many decades, Ellis has advocated an Index approach. Nothing new there. But I did learn something new from the referenced video. I had never heard of comparing a bond with an expected lifetime earning income. Taken the validity of that analogy, Ellis concludes that a portfolio should only have a very lightweight commitment to a bond component.
I'm a natural for an Index portfolio. I don't wake up worrying the stock market. Stock price volatility doesn't influence my decisions whatsoever. I don't know the current value of my portfolio. I'll check its value once a year to determine what my minimum required withdrawal rate demands in terms of action.
I satisfy the Ellis definition and model of a very, very long-term investor. Nothing much troubles me. I prepared well for my and my wife's retirement years.
Best Wishes.

@Old_Joe Certainly not offended by you or most comments or posters on this site. I've also been amused quite often by Ted( see below ).But I've also gotten the "woodshed" treatment . I had to search this site for " ship " to recover my January post.Try the search feature for most any topic and notice some of the people that have left the site or rarely add their opinion/investment experiences. As far as I'm concerned, we've lost some people that added to discussions such as this one.I thought Ted's comment in this discussion a bit condescending.
@Old_Joe
PS Watching the Giants. 30 hits ! Bumgarner vs De Grom ? Dodger/Giant rivalry alive and well. The "Bum" vs the Bums .
@Ted said 'Just remember, every ship at the bottom of the ocean has a chart room !'
One of your better ones Ted They found another one ! And the chartists are more bearish by the .... hour?

http://www.mutualfundobserver.com/discuss/discussion/comment/73731/#Comment_73731
by ALEXANDER SMITH JAN 13 2016, 8:19 AM ET
Experts hunting for Malaysia Airlines Flight MH370 have discovered wreckage on the seabed. However, it's at least 100 years old and has nothing to do with the missing jet

Think of this as several different bubbles expanding and than popping inside of bigger and bigger bubbles. Etc. Etc.
So ... these bubbles will not pop all at the same time. Expect a wild ride as that process slowly unwinds over many years.
Caveat: I don't know anything about bonds, but markets seldom move in a straight line.
Regards :)

@davidmoran - One of the things people don't pay enough attention to when looking at tax efficiency is what one gets, after-tax, when cashing out.
Though DSENX appears to have a similar tax cost to LCV long term figures (in the 1.5% ballpark), this is not taking into account the hidden tax liability it's carrying due to NAV appreciation. In contrast to DSENX, the LCV funds are not carrying the same untaxed appreciation. That makes DSENX less tax efficient as I'll explain below.
First a simple example - compare a savings bond with a hypothetical fund, both returning 5% pre-tax. Savings bond interest is tax-deferred until the bond is cashed out. We'll assume that our fund generates only long term gains, but that it recognizes all of its gains annually. So if it starts with $100, at the end of the year it's made $5 in cap gains, on which $1 tax is paid (20% top rate, ignoring Medicare surtax), and has only $104 invested going forward.
If the investor cashes out at the end of ten years, the savings bond will have appreciated to $169.89, but after paying 39.6% taxes on the $69.89 gain, is left with only $138 (well, $137.99). The fund, which was tax-inefficient (distributing 100% of its gains yearly) is worth $148 (okay, $148.02). Since taxes were paid on appreciation as it went along, there are no gains recognized on the sale.
The totally inefficient fund came out way ahead, because although it kept distributing income, that was low tax rate income.
What you're seeing with DSENX isn't quite as stark, but similar. The LCV funds are distributing most of their income, but that tends to be lower-tax rate qualified divs. DSENX has a similar total return, but is distributing a smaller portion of its total return. Like the savings bond, it has a greater tax liability when cashed out than do the LCV funds which are more similar to the dividend paying hypothetical fund.
Even though DSENX is paying out a smaller percentage of its total return, the tax on that payout (tax cost) is similar to the tax on the LCV distributions. That's because the DSENX distributions come from bonds, and are thus taxed mostly at the higher ordinary income tax rate.
That's the key to the tax inefficiency of funds like this. They take what ought to be a tax-efficient investment (long term stock holdings) and mimic its total return, but in a tax-inefficient way (using bonds).
FWIW, Fidelity reports that the long term (10 year) tax cost ratio for LCV funds is 1.12%, less than the 1.5 ballpark I suggested above.
---
Briefly, why I don't like ETNs' risk - they're effectively bonds of a single issuer. If you were investing in bonds, would you put so much money into the bonds of one company, or would you diversify? Why or why not? What if you really, really trusted that one company?
It's similar but not identical to a risk in buying insurance (you're just another creditor to the insurance company). But with insurance, regulators see to it that the company has a certain level of reserves, and there are also state guarantee funds. No such controls or backstops here.

So far, DSENX has done what it has promised. It is one of a class of funds typically offered by bond houses (e.g. MetWest, PIMCO, DoubleLine) where the sponsor tries to apply its bond expertise to the equity market via derivatives.
Looking at a funds like PSTKX, it seems that it is possible to add some value above an index. PSTKX long term (15 years) has added about 40 basis pts/year. According to its prospectus, DSENX has added about half that (per year) for its first 26 months of existence (through December 2015). It has done much better in 2016, though.
So the performance (relative to an index) may be sustainable, especially with a good bond fund manager. But there is risk in the technique, which can have short term blowups. In contrast, an ETN by design has no tracking risk (beyond bid/ask spread). But it does have credit risk (backed only by its sponsor, not with any real securities in a portfolio).
I'm no fan of ETNs, so on that basis alone I'd take DSENX over CAPE. But that's me.
DSENX or any of its ilk belongs strictly in a tax-sheltered account. Holding bonds in lieu of equity, their tax efficiency is horrendous. In contrast, stock and bond ETNs are supposed to be extremely tax efficient (more so than ETFs). So that could tip the balance the other way in a taxable account.
Have I equivocated sufficiently? :-)

The fact sheet and prospectus both state that "The Fund’s investment objective is to seek total return which exceeds the total return of its benchmark index."
The fact sheet goes further to claim that the benchmark is the S&P 500. (In case there's any doubt, the benchmark returns it gives are S&P 500 performance figures.) But that's not the index the fund's designed to beat.
The prospectus states clearly: "The Fund seeks total return (capital appreciation and current income) in excess of the Shiller Barclays CAPE® US Sector TR USD Index (the “Index")."
This is important because it means that if one is comparing performance with the S&P 500, one is making the wrong comparison. The prospectus gives comparisons against both the S&P 500 and the CAPE® index. The fact sheet's omission of CAPE® index figures strikes me as downright deceptive.
Similarly, the webcast page shows the fund handily beating the S&P 500 since inception, but doesn't give performance figures for the CAPE® index that it is tracking. It is true that the fund has beaten this index also since inception, but by a much smaller margin, and the fund fell short in 2015.
Beating the true index that a fund is "enhancing" is what's hard. It's why AlphaTrak for example is just slightly ahead of its benchmark index (which really is the S&P 500 for that fund) over five years, while slightly behind over 10 and 15 years.
The whole thing strikes me as similar to corporations reporting adjusted EBITDA instead of GAAP. If you want objective facts and figures, you need to go to the standardized, legal documents.
http://www.zerohedge.com/news/2015-01-08/wsj-looks-non-gaap-earnings-horrified-what-it-finds

Agree COMPLETELY. To me, a 'heavyweight' manager does not live on TV networks or press coverage, and does not focus on raising their AUM at every opportunity....in fact, hopefully they're fairly anonymous! I hold mutual funds for the long haul (as in "old school" long-term, meaning years and decades) so I want them, like their managers, to be boring, hardworking, and laboring in the background as they grind my money higher in a controlled manner.

There are indeed some "heavyweight" managers out there. Fortunately, most of them are not media darlings. My definition of of "heavyweight manager" is probably different from other folks. I think of them as people who quietly grind away, year after year, seldom making headlines, but continuing to give their funds' shareholders solid returns. There may be an occasional disappointing year, but never a really bad year. And in most cases, these managers let their investors sleep at night without worry. Another reason for fewer heavyweights is that many funds are now run by a team, which is a smart move on the part of fund companies, I think.

Hi Guys,
Heavy weight fund managers do exist, but they do not persist. Yesterday's winners are likely to be tomorrow's losers. That's a fair summary of the historical record that is repeated time and time again.
“So if you can get a couple of decent years together and a decent story and then slide quietly into mediocrity, it’s a recipe for success for your fund company, and a recipe for disappointment for investors.” Thea's not me talking. That's a quote from Professor Snowball.
Fund managers do a terrific job at stock selection that would generate a positive Alpha without integrating research and trading costs into the equation. Most managers can not consistently overcome that frictional drag.
With a very few rare exceptions who can not be identified ahead of time, heavy weight fund managers are a myth. That's a major factor in the increasingly popular passive Index investment strategy. Actively managed mutual funds are becoming an ever decreasing fraction of my portfolio. I tend to apply lessons learned slowly.
EDIT: Sorry, I neglected to include a reference to the article that I extracted the David Snowball quote from. Here it is:
http://www.marketwatch.com/story/90-of-fund-managers-beat-the-market-but-their-shareholders-dont-2015-01-21
Best Wishes.

FYI: Almost five years ago, when Bill Miller left the Legg Mason Value Trust — the mutual fund he once led to an astounding 15 straight calendar years of beating the S&P 500 — the question was whether the lasting memory of his career would be one of legendary success or epic failure.
Last week, when it was announced that Miller would formally break ties with Legg Mason after more than three decades, the answer was clear: the pains speak louder than the achievements.
Regards,
Ted
http://www.marketwatch.com/story/whatever-happened-to-the-heavyweight-mutual-fund-managers-2016-08-16/print

The full disclosure is not a requirement, but smaller shops tend to be do a better job. Just because Chris Davis funds disclosed the size of his personal stake in the Davis fund, it doesn't mean I want to invest with them either. The large financial allocation contributed to more volatility in recent years.

Recency is awesome! Be sure not to compare JENSX w FCNTX, PRBLX, or indeed RPG *except* at the 1y and 2y mark.

JENSX slightly beats out FCNTX, PRBLX, and RPG during the last 3 years; JENSX beats out FCNTX and slightly beats out PRBLX during the last 5 years (essentially tied with PRBLX over the last 5 years), but slightly loses to RPG over the last 5 years. This according to Morningstar data. The 3 and 5 year time periods are long enough to compare, at least for me.

Yep, it's amazing how much even a partial year's returns can color a fund's overall relative record. I finally got that thru my thick head only in the last couple of years.
Jensen was okay but not great for years, then started a run in Q4 15. The discipline they follow is pretty great, though.

Bobpa,
This is a good way to start an argument. Similar to holding gold, there's no simple cut & dry answer, but the question is likely to provoke strong feelings.
As one who has routinely maintained a 5-7% stake in what I consider real assets for a couple decades, the only thing I can say definitively is that they tend to run hot and cold, helping returns in some years and hurting in others. (Last year they had me pulling my hair out and this year they've had me jumping with glee). Honestly, I don't think they've made much of a difference over the past two decades.
My simple explanation for holding a limited amount is that I feel that for retirees inflation is a greater long term threat than deflation. I could be completely wrong on that last assumption, but that's been my reason. (I'd define real assets broadly to include things like: commodities, natural resources & energy producers, precious metals, and real estate.
Regards

Hi @Bobpa,
I have dabbled in commodity funds (PCRAX & JCRAX) in the past ... and, I have made money in both of them. Over the past five years I would have lost money if I had stayed invested in them. I, like you, have been thinking of reestablishing a position in a commodity fund (JCRAX) in my specialty/theme sleeve held in the growth area of my portfolio. However, I am thinking the better time to do this would be in a market pullback rather than now since the markets are at, or towards, all time highs even though commodities might not be but their producers have had a nice upward run with the markets. JCRAX holds a good number of producers while PCRAX trades more in commodity paper. With this, I am looking more towards JCRAX since part of the fund holds producers plus it can also trade in commodity paper (contracts).
It is interesting that you bring this up.
Now, I wonder if the talking heads start to talk commodities?