Dear friends,
As you know, I hold ETFs in the same regard as I hold, say, tasers in the hands of toddlers. Charles is, I know, far more hopeful of their potential for good. It might be selective perception on my part, but it seems as if there have been many more skeptical essays about them since the Monday crash than I'd seen before.
One argument that the term "passive investing" is a marketing fraud. John Rekenthaler does a nice job of pointing out that "passive/active" is not a simple split. There's a spectrum from truly passive (a cap-weighted broad market index) through covertly actively ("smart beta" and rules-governed active ETFs) toward more active (most "active" funds) to most active. I believe that even John's "passive" category is "active but lethargic." The S&P 500 is an actively managed quant fund whose the managers are employed by Standard & Poor's. They decide who gets in based on a combination of arbitrary rules, from market-weighting to float, profitably and market cap criteria. As a simple example, Avon was booted after 50 years. Why? Market cap was too small. It was then replaced by Hanes. The minimum cap is $4.5 billion, Avon was $3.2 billion, Hanes was $13 billion. So Hanes, a large and profitable firm, has been sidelined for years waiting for another firm in its industry sector to shrivel and get ejected. If Hanes was more representative of the market, should it have been added years ago? Maybe, but the rules say ... Should Berkshire Hathaway, excluded until 2010, have been added decades ago? Maybe, but the rules say ...
The prime arguments against ETFs seem to be:
1. their cost advantage is illusory. The fact that some ETFs are spectacularly cheap leads investors to assume that all are, which reduces their vigilance as they select investments.
2. they are structurally flawed. The uncoupling on market price from NAV during the crash was one signal of that. A recent article on hedge funds' strategies for gaming the ETF market is another.
3. they structurally encourage bad investor behavior. I smile whenever I read advocates list ETF's "advantages," one of which is always "easy to trade, like a stock." Uhhh ... right, but trading is bad for everyone except those who make money executing your trade.
I read two interesting essays this morning that add a bit of useful evidence to the discussion.
The Hidden Costs of Commission-Free ETFs lays out the costs of getting on platforms like Schwab and into their NTF programs. Schwab charges ETF advisers an $250,000 "shelf fee" plus 40 basis points to participate in the program. As a result, NTF funds including commission-free ETFs end up charging higher expenses. For every $1,000 you invest, you end up paying $2.20 more in annual expense for commission-free ETFs than for commissioned ones. If the commission is $9/trade, the break-even point is about $4,000 for a fund/ETF held one year; that is, if you intend to invest more than $4,000 and hold it for more than one year, you lose money with C.F. ETFs.
Most absurd ETF trade of all argues that about one-quarter of ETFs charge, before commissions, as much as or more than the average active mutual fund. Some of the data struck me as interesting, though the conclusion didn't. It strikes me as silly to compare ETFs with niche missions (that's typical of the high cost ones) against mutual funds with non-niche missions. Still, the cost warning seems worth it.
For what interest that holds,
David

I'm always looking for yield, but I'm at my limit with respect to risk tolerance, where I'm at right now. I've held PREMX since 2010, and was late for the 2009 run-up. In the 5 years that have followed, it's paid me handsomely while I reinvest everything. Yes, that is EM, not HY. I read the article which included the reference to TRP HY fund and like the rest of you--- I did see--- divorced from the reference, further down, that the fund is closed. A global substitute was offered. Noted already, above, in this thread.
In my portf, PRSNX is 11.46% of total. PREMX = 14.43%. DLFNX = 2.7%...... Then, there are also bonds being held in my PRWCX and MAPOX. Just threw some money at MAPOX. (IRA.) I'll be throwing more money at MAPOX, soon, again.

Bloomberg has a decent article on the reasoning behind the SEC's liquidity management proposal.
When you sell your fund shares, you're supposed to get the day-end NAV and the fund's supposed to cut you a check within a week. In recent years, funds have seen the challenge of earning something as greater than the challenge of remaining fully liquid. As a result, more funds have moved into investments that might turn into roach motels: each to get into, impossible to get out of. Those include below investment grade debt, private placements, some derivatives and illiquid investments in general. That's compounded by the move to passive products that maintain near-zero cash levels.
The SEC research found that liquid alts funds face a greater prospect of a liquidity crunch than most, since their investors have a greater tendency to sell en masse. (Data's in the article.)
The SEC proposes requiring that each fund analyze its portfolio, determine the potential magnitude of quick outflows in a crisis and maintain enough "cash or cash-like investments that can be sold within three days" to be able to handle redemption demands without exacerbating a crisis by trying to sell illiquid positions into a market where everyone else is already trying to do the same.
The Investment Company Institute scoffs at the very idea of a challenge to the easy grandeur of the industry they're paid to represent.
Two interesting implications: (1) liquid alt funds might have to become dramatically more liquid but also (2) ETFs might no longer be able to remain fully invested. One additional implication: an ETF and an index fund mimicking the same index might not be permitted to carry the same cash level if the redemption patterns in the ETF don't mirror the redemption patterns in the fund.
Worth pondering, perhaps.
David

Daisy Maxey, writing for the online version of the WSJ, announced "Mutual fund's overhaul hits investors with a big tax bill." It's the same "F P A Perennial becomes F P A U.S. Value" story that we warned people about in June. Remember "F.P.A. Perennial: Time to Go"? Remember: "If you are a current Perennial shareholder, you should leave now"?
Highlights of the story:
Morningstar channeled Bernanke. Ben was adamant that there were no clear signs of trouble brewing in the years leading up to the 2007 implosion. Dan Culloton of Morningstar seemed equally surprised by Perennial's $39/share payout: “It’s certainly a big, shocking distribution. It exceeded my expectations."
Why? In the parallel case of F P A's conversion of Paramount from small growth to large value, virtually the entire portfolio was liquidated within a few months. Morningstar's own data back in June suggested a $36/share payout. The only reason you'd be surprised is if you weren't paying attention. How could Morningstar not ... oh, right. The fund only has $280 million in AUM!
Wall Street Journal practiced "safe" journalism. Two tenets of that strategy. Talk to Morningstar. Avoid hard questions.
"F P A declined comment". Yep. You could sort of feel the temperature drop after we complained about raising the management fee at Paramount when it was converted from a clone to Perennial to a global absolute value large cap. Since that change, perhaps coincidentally, assets are down nearly 50% and the fund is underwater.
(sigh)
David

Just some ramblings from perspective of a T. Rowe Price investor,
I owned PRHYX for many years. It's one of those conservative funds that are said to earn a "B" during up markets and an "A" on the way down. Vaselikov is good. He's been there nearly 20 years however - a long time by TRP standards. He also manages their new Global High Income Fund, RPHIX - in existence less than a year. I'd view that as a good alternative to PRHYX, which is closed, as long as Vaselikov stays.
Not very familiar with the HY sector since selling PRHYX couple years ago. But as one who sometimes likes to speculate on beaten up sectors, I'd urge caution. That's always the case with beaten up sectors. You just don't know how long and how far they'll tumble.
An outside-the-box thought is to consider Price's RPSIX (Spectrum Income) for some moderate growth potential. While not fond of the investment grade bond part, I like that the fund is experiencing a rare bad year and that approximately 50% of its holdings (owned through other funds) are having miserable years. These include high yield bonds, EM bonds and a dividend-paying stock fund (PRFDX). When these beaten up sectors turn, you'll get some nice payback out of stodgy RPSIX - without having undertaken a lot of risk.

Thanks Ted,
Scattered among the debris was this..."Emerging-markets funds were hammered, plummeting 16.02%. “The commodity-producing emerging markets are right in the eye of the storm,” says MKM’s Darda. “But even the commodity-importing markets have started to roll over.” Ablin sees a potential long-term opportunity. “Emerging markets, as lousy as they’ve been, are trading at the biggest valuation discount to the U.S. that I’ve seen since 2002—which was a year that ushered in 10 years of outperformance.”

@ Crash PRHYX is closed to new investors. Has been so for at least 3 years.
Geez - You'd think author would note that.

Central banks are still concerned with the nasty "deflation". Euroland just went negative for "inflation" from a report a few days ago.........correct me if I am wrong. South Korea reported today a +.6% inflation rate.
Lets see/think............Norway just cut rates again, yes? India did a rate cut the first part of this week, I recall. Although India is benefiting muchly from inexpensive crude pricing.
As a bond investor over the years, I remain concerned about the amount of issuance in high yield, corp. and gov't. bonds. HY in the energy sector is already getting wacked, the M&A issues bonds every which way on the cheap in order to buy "something", just "anything". And centrals banks worldwide have so many issues flowing around at really low yields............ I suspect the words "what the hell we gonna do when no one wants these anymore?" have been spoken at more than one meeting.
The intra-day low yield on the 10 year was 1.91%.
Holy crap........just a very large boat load of all flavors of bonds floating about.
To repeat, in spite of having been a bond person for a number of years; I really don't like the fast forward picture.
Hang in there.
Catch

FYI:
Regards,
Ted
October 1, 2015
Dear WEALTHTRACK Subscriber,
Today’s front page of “The Wall Street Journal” sums it up: “A Painful Quarter for Markets.” The third quarter, which just ended was the worst for stocks since 2011’s third quarter during the European debt crisis. In the three months ended yesterday, the S&P 500 lost 6.9% and the Dow Industrials dropped 7.6%. Concerns about a slowdown in global growth, especially in China and faltering corporate earnings contributed to the damage. According to the Journal, analysts are predicting third quarter profits for S&P 500 companies will decline 4.5% versus a year ago. They fell 0.7% in the second quarter. It will be the first time since 2009 that profits fall two quarters in a row. However, a big decline in energy company profits is responsible for most of the anticipated damage. Without the estimated 65% decline in energy operating profits the S&P’s earnings would be up 3.4%.
Another key contributor to the market’s malaise was the Federal Reserve’s decision not to raise interest rates in September. After nearly seven years of its unprecedented zero interest rate policy, or ZIRP as it’s known on Wall Street, the consensus was it was time to get interest rates out of emergency mode and back to some sort of normalcy.
It turns out Federal Reserve Chairwoman Janet Yellen agrees with the consensus. In a stunning speech the week after the Fed’s decision, Ms. Yellen made a lengthy case for a rate hike this year “…it will likely be appropriate to raise the target range for the federal-funds rate sometime later this year and to continue boosting short-term rates at a gradual pace thereafter as the labor market improves further and inflation moves back to our 2% objective.”
As veteran Fed watcher, Roberto Perli at Cornerstone Macro noted, after months of not knowing where Chairwoman Yellen stood on rate hikes, we now have clarity on her views at least.
This seemingly endless fixation on when and if the Fed will raise short term rates might seem overdone but the signals and actions of the world’s most influential central bank, of the world’s reserve currency country has huge implications and can steady or roil global markets.
This week’s guest, Kathleen Gaffney, is among those very concerned about recent Fed policy and its financial impact on markets and investors, but she is also more optimistic than most about the world’s growth prospects.
Gaffney is Co-Director of Diversified Fixed Income at Eaton Vance Investment Management. She is also lead portfolio manager of the Eaton Vance Bond Fund, which she launched in early 2013. Until 2012 Gaffney was Co-Portfolio Manager of the Loomis Sayles Bond Fund with legendary investor Dan Fuss where their team was named Morningstar’s Fixed Income Manager of the Year. In this week’s interview, I asked Gaffney why the Federal Reserve’s decision not to raise interest rates in September was a mistake and about the contrarian positions which have hurt her fund’s performance this year.
If you’d like to see the show before it airs, it is available to our PREMIUM subscribers right now. We also have an EXTRA interview with Gaffney, about bond market illiquidity and how she is handling it, available exclusively on our website.
As always, if you have comments or questions, we encourage you to connect with us via Facebook or Twitter.
Thank you for watching. Have a great weekend and make the week ahead a profitable and productive one.
Best Regards,
Consuelo

After becoming more caffeinated and a few hours later, I'll note:
Still have the same feelings on the MLP structure - that it isn't going away.
However,
Do I think the MLP sector is going to thrive in the years going forward? Probably not. It will remain something of a "niche" and I don't think that there's anything really wrong with that.
I do occasionally think that the structure has caused a significant disconnect between price and value, such as the instance of BPY, which I think is an instance where the MLP structure has resulted in people staying away from it (plus, it's not a REIT, so it's not bought up by REIT and probably many general RE funds, etc.) This has been mentioned by management. That said, I'm more than happy to sit on it and reinvest dividends in the meantime.
Excellent link from Mark- that's well worth a read.

Hope sellers don't have to pay a heavy toll...

That's their problem correct? Since I have been in the required distribution phase for over 10 years now and no earned income, it does cause a more careful attention to asset allocation.

If YAFFX (+12% distribution) is any indication, this year the tax man cometh.

Glad I bailed out of this fund earlier this year. Its supposed to do well in down years, but that hasn't been the case this year (-12% YTD). And now it's paying a hefty distribution? No, thanks.

There are so many stocks/funds in negative territory and getting worse. I've been through this a number of time in my 40-50 years as an investor. And you know what, I mostly held all the stocks/funds I had because they were some of the best. it was painful but profitable and I was never in a position where I had to sell so that's what I'm doing and so should you. Just keep the cash position available for your needs a year or so.

@rjb112
no, it was definitely not in the last 5 years...more like the '08-'09 bottom. I think the fund was probably bleeding assets and needed some inflows.

@scott: yes, I'm quite familiar with the history of the fund, and Buffett closing down his partnerships and recommending the investors go with Bill Ruane. I was referring to any recent recommendations of SEQUX by Buffett.......say in the past 5 years.....
@little5bee: "I just remembered seeing Uncle Warren on CNBC and recommending it. It was open then"
Do you recall approximately what year that was little5bee?
Thanks!

I remember Warren Buffett singing the praises of SEQUX during the recession...hmmm...interesting, considering he is a vocal proponenet of everyone paying his/her "fair share". Thanks for the background info @LewisBraham!

Buffett is a tremendous example of say one thing, do another. I believe Buffett has recommended Sequoia as a Berkshire alternative for quite some time.
Too bad some of the other Berkshire alternatives (Loews, Leucadia) have done poorly in recent years.

There are some, but we are batting around some ideas to do it more easily than in the past years.

Looks like SVOAX lines up very well with BPAIX (the shareclass of BPVAX with the same min). It's doing 3-6% better short term (YTD, 1 year), a bit less than 1% worse over 3 and 10 year spans, 1.25% better over 5 years.
Clearly doing better tha BPAIX in the 2015 down market, and held up nearly as well as BPAIX in 2008 (losing about 2% more, but still about 10% less than the market).
It did that as a midcap blend fund, and has been gradually drifting over to large, then value where it sits now. It's a minimum volatility fund (check its name); its low standard deviation and M* risk attest to that. On the other hand, that also means it is subject to higher turnover as noted in its prospectus: "Due to its investment strategy, the Fund may buy and sell securities frequently."
Overall, looks like an interesting fund, definitely worth consideration.
It's a little hard to get a handle on its management - three different management companies, each with several managers involved. Don't know whether each team is allocated a sleeve, or if there is dynamic allocation among teams.
SEI apparently has two different sets of funds with the same names, organized as series of SEI Institutional Managed Trust (including SVOAX), and as series of SEI Institutional Investment Trusts. There you'll find another SEI US US Managed Volatility Fund (SVYAX), managed with nearly the identical slew of managers, lower expenses and a similar but slightly better record (some of which may be attributable to a lower ER). Unfortunately, this appears to be a "true" institutional fund, sold only to institutions, 401k plans, etc.

RNDLX is a fine fund. It's had a bit of a down year because of the closed end allocation. The closed end space has been hurting this year. Expect out performance most years. And it is a "total return" fund, "The RiverNorth/DoubleLine Strategic Income Fund seeks to provide current income and overall total return."

I need a Large Cap Value fund for my IRA at Fidelity, preferably a NTF fund.
I was looking at BPAVX (Boston Partners All Cap Value Fund). It did quite well **comparitively*** in down market of 2008-09. Seems like it is one of those lesser known funds but has great performance for last 10 years.
Anyone heard of BPAVX?
My other Options are JVAAX, TWEIX, BRLVX.
Thoughts?