The Markets and More ... Monday February 27, 2017
Good morning @Ted and others.
Thought I'd piggyback Ted's opener (when I can write) since both are much along the same theme.
In checking the markets this morning as I write Asia-Pacific is down across the board while Europe trades mixed with Germany, Italy and the U K trading up. In the States stocks look to be down along with government bonds. The leading commodities this morning are lean hogs, lumber and gasoline.
http://markets.wsj.com/usoverview
http://finviz.com/futures.ashx
Old_Skeet's market barometer now reads 131 well into the overbought area for the S&P 500 Index. All the data feeds except the earnings feed indicate the Index is overbought. Since, the market appears extended I look for a near term pullback and/or some sideways range bound movement. This past week the defensive sectors of utilities, health care, consumer staples and real estate lead.
http://www.morningstar.com/market-valuation/market-fair-value-graph.aspx
So, what is driving this market? Most likely its earnings with a slew of companies reporting today.
https://biz.yahoo.com/research/earncal/today.html
http://fundamentalis.com/?p=6722
This Weeks Signal ... Small Caps
http://www.decisionmoose.com/Moosignal.html
StockTrader ... The Week That Was ... and, The Week Ahead
https://www.stocktrader.com/2017/02/26/weekly-market-recap-feb-26-2017/
Have a great day ... and, most of all I wish everyone "Good Investing."
Old_Skeet

"The bundle of hedge funds had compound annual returns of 2.2 percent in the nine years through 2016, compared with 7.1 percent for the index fund. The billionaire estimated that about 60 percent of the gains that the hedge funds produced during that period were eaten up by management fees."
Here's the arithmetic:
5.25% gross for the hedge funds.
2+20 in fees = 2% + 1.05% = 3.05% fees
5.25% - 3.05% = 2.2% net.
3.05% fees/5.25% gross is approximately 60%
If hedge fund managers underperformed the market (before fees), and index funds merely matched the market (before fees), then everyone else outperformed the market on average. That means individual investors and active mutual funds on (dollar-weighted) average beat the index funds.
This is just Sharpe's argument that you can't beat the market. In order for someone to outperform, there has to be someone who was underperforming. Fortunately, active investors had a bunch of losers they could take advantage of over the past nine years. Hedge funds.

@LewisBraham To a large degree, I agree with you. I do not want to be investing in companies that do bad things. Someone wrote, in another thread, that what Wells Fargo did was not out of the ordinary. (Everyone does it, so it's okay.) If this is indeed business as usual, then all businesses need to be prosecuted. I do not support ill-gotten gains.
(Withholding information can be addressed under products liability laws, e.g. defective products under the theory of failure to warn.)
But IMHO there's a difference between investing in what is legal and working toward changing those laws. I may advocate a $15 min wage, but I do not decline to do business with or invest in companies that don't meet that standard. Like Buffett, I may support politicians who would increase my taxes but I don't pay more in taxes than the current code requires me to pay.
I still feel that one can separate one's actions from one's advocacy.
Regarding hiring: Say I was opposed to virtually all government regulation (too oppressive), and I needed to contract a writer for a primer on "what is a stock". Should I refuse to consider hiring you, not because you would incorporate your views into that writing (I assume you would do an objective, professional job), but because you might spend some of your earnings supporting positions I disagreed with? That approach would make it hard to hire anyone.
If my assumption is wrong, and you're going to let your views affect your work, then clearly I should reconsider.

One can separate political views (and contributions) from investment practices. Over the past several years, what has served as a benchmark for me in measuring how much politics has swayed money managers is how loudly they decried the deficit after 2008.
For example: "With current government deficits and debt running amok expecting inflation rates to remain low is wishful thinking—indeed, given current trends, it is more likely that inflation will be significantly higher over the next ten to 20 years than it was from 1970 until now."
Running amok? Wasn't that a Star Trek episode?
That market commentary by a Mr. Jim O’Shaughnessy was dated September 2010. Things change. No reason to be concerned now about a projected $10T deficit over the next decade (just released by the CBO). Especially in an economy finally nearing full capacity.

Indexing versus Passive.
http://news.morningstar.com/articlenet/article.aspx?id=795718

EXTAX (Manning & Napier Tax Managed) was first suggested by board members and also favorably mentioned by Professor Snowball perhaps 8-9 years ago. ... (Apparently that fund no longer exists).

If it got your attention just 8-9 years ago, you may have wondered about the ticker. Manning & Napier funds were called Exeter funds until Sept. 26, 2006.
EXTAX was just (this month) liquidated. From the prospectus supplement:

The Board of Directors of the Manning & Napier Fund, Inc. (the “Fund”) has voted to terminate the offering of shares of the Tax Managed Series (the “Series”) ... Accordingly, ...The Series will redeem all of its outstanding shares on or about February 1, 2017

(I'm confident Shadow posted this at the time; now it was just easier to fetch the filing directly.)

Sure, Jim O'Shaughnessy ignores politics:
https://opensecrets.org/orgs/toprecips.php?id=D000054896&type=&sort=&cycle=2012

Haven't looked in a while, but I see SFGIX is now 15% in Latin America also. I'd like to say I wish Mr. Foster would lighten up on Asia, but what the heck do I know. I wouldn't trade this EM fund for any other.

@MFO Members: Here's Prudential's.
Regards,
Ted
https://investment.prudential.com/util/common/get?file=1D065355D2CC360385257B7D00536F8A

Hi @Mark,
I too am thinking a nearterm pullback is brewing. However, reported corporate earnings are improving along with full year forward estimates being raised. I have read of some being in the low $130's for the 500 Index. Should this come to be then the S&P 500 Index perhaps from an earnings perspective is not overvalued although all the others feeds in my market barometer reflect overbought conditions. Currently, about 80% of the stocks within the Index are above their 200 day moving average indicating this is a broad based rally not driven by a rally of few but many stocks. With this in thought stocks can and most likely will move higher through the year. At the beginning of the year I targeted the Index to reach 2475 at some point during the year. I am still with this thought and if it should surpass this mark ... Well, that's even better.
I have ample cash to do some equity buying should a nearterm stock market pullback come. Currently, I rate the market as a hold due to TTM earnings valuation. Forward estimates are just that ... estimates ... and, they usually get trimmed.
I watched the market trade down much of the day Friday; but, in its last minute of trading it closed up! Go figure! It takes big money to do that! So, it looks as though, for now, corporate America is backing Trump.

Hi @MikeM2,
I am not sure how you have your portfolio allocated now. Do you know?
If not, perhaps you can perform an Instant Xray on it? If so, this will tell you what you have along with how much of it. I use this tool often to check my own asset allocation by investment sleeve, by investment area and for the portfolio as a whole.
For me, I hold both emerging markets and small cap funds in the growth area of my portfolio. The growth area of the portfolio accounts for about 30% of my overall equity allocation. In the growth area I have five investment sleeves. I have a global sleeve, a large/mid cap sleeve, a small/mid cap sleeve, a specialty sleeve and a spiff sleeve for special investment positions when I wish to overweight equities.
Each sleeve in the growth area ranges from 20% to 35% in assets held with the exception being the spiff sleeve that can hold form 0% to no more than 10%. The small/mid cap sleeve currently has about a 25% weighting. My emerging markets fund is held in the specialty sleeve. The specialty sleeve comprises about 35% of the growth area with my emerging market fund having about a 40% weighting within its sleeve. I also hold a private equity fund and infrustructure fund in this sleeve as well with about a 30% weighting in each of these funds. Within the past couple of months the specialty sleeve has been one of my top performing sleeves, last year it lagged. In the third and fourth quarters of last year my small/mid cap sleeve was a top performer while it lags so far this year.
In addition, I have other funds that contain some emerging market and small cap positions. So, I feel it really important to know what I have overall to better determine if I should be considering adding funds designed to overweight certain themes.
I believe, that the TSP has five investment options. U. S. Small Caps being one of them.
Xray will help you in this review process and perhaps the table will help in finding the themes you might wish to overweight.
Good luck,
Old_Skeet

FYI: U.S. stocks have screamed to records since Election Day because investors are expecting Donald Trump’s White House to cut taxes for business, make regulations easier for them and goose more growth out of the economy. But investors around the world are questioning whether the rally is exhausting itself.
Regards,
Ted
https://www.washingtonpost.com/business/doubts-grow-over-stock-markets-trump-inspired-surge/2017/02/24/b22e1c02-fa87-11e6-aa1e-5f735ee31334_story.html?utm_term=.c283bbf2d199

One of @Scott's often mentioned EM funds, RIMIX has also had a good start YTD after a lackluster 2016.PRMSX probably helped by the analysts in the T R P Latin American office.PRLAX up near 47% last 52 weeks.RIMIX remains an emerging Asia-centric fund with low turnover /rotation.

FYI: Billionaire investor Warren Buffett devoted a substantial portion of his annual letter to deepen his long-running critique of investment fees.
Regards,
Ted
https://www.bloomberg.com/news/articles/2017-02-25/buffett-says-100-billion-has-been-wasted-on-investment-fees

I've got to agree with our Professor. Without more information, naming funds is not particularly productive. (Even limited to blend/growth small cap, tossing out names without knowing the objective is hit or miss.) In addition, tossing up funds without any explanation of why you think it is a good suggestion isn't all that helpful.
Kudos to Crash for adding a little text (and for editing out the original suggestion of MSCFX). I'm curious - since Vanguard small cap index and Vanguard small cap growth are listed, but Vanguard small cap value (VSIAX / VSIVX) isn't, does this imply a suggestion that one lean toward growth, or at least away from value?
Regarding purchasing Vanguard index funds - there are few brokers where you can purchase Admiral class shares outside of Vanguard. (I used to say none, but someone posted otherwise, though I forget where.) So I'm skeptical that you can purchase them for under $10K even in an IRA.
However, you can purchase the ETF class shares with a minimum of one share. VB (for VSMAX) and VBK (for VSGAX). Same ERs, much easier access.
Since we're tossing out random funds, I'll play the game. ASVIX. (Lipper classifies this as small cap core.)
- Solid performance
- Truly small cap ($1.6B average, vs. $1.9B median for small cap funds per M*)
- Fairly diversified (21% in top 10 stocks; some may prefer concentrated funds)
- Stable management (since 2008/2010)
- Not too volatile, relatively speaking (which I consider important for small cap funds that can have wild rides)
- Respectable 2008 (-27.6% vs. -32% for peers, -37% for S&P 500) albeit under old management
- Soft close - the fund is fairly sizeable ($1.6B), but this is mitigated in part by a broad portfolio (100+ securities), and in part by closing the fund to some investors.

Hi @Old_Skeet
As to this article from Dr. Madell; I ask, "and the point is ???".
From the article: " So the data presented below are merely intended to show what might be able to be achieved with some luck, and perhaps, by investing going forward mainly in funds that appear to be undervalued at the time investments are initiated."
>>>A check of a most simple ETF, being VTI; indicates that during the same holding period noted in the article (using the 10-8-2010 start date for a few entries), that VTI had a total return of 128.8% or an annulized rate for this period of 11.25%. For this ETF, $10,000 became $22,880, during the time period in the article.
I didn't find anything in his write that was pointing or leading an investor into a conclusion of what he documented. Perhaps a buy and hold of certain equity/bond funds?
What would be the take away of learning for a new investor attempting to understand more about investing decisions from this article? OR perhaps to rely on "luck" and hoping to understand when an investment is "undervalued". Okay, good luck with all of that.....
My honest 2 cents worth.
Regards,
Catch

psuche98: From U.S. News & World Report here are 677 funds for you to review.
Regards,
Ted
1. Small Cap Growth Funds:
http://money.usnews.com/funds/mutual-funds/rankings/small-growth
2. Small Cap Value Funds:
http://money.usnews.com/funds/mutual-funds/rankings/small-value
3. Small Cap Blends Funds:
http://money.usnews.com/funds/mutual-funds/rankings/small-blend
4. Foreign Small/Mid Value Funds
http://money.usnews.com/funds/mutual-funds/rankings/foreign-small-mid-value
5. Foreign Small/ Mid Growth Funds:
http://money.usnews.com/funds/mutual-funds/rankings/foreign-small-mid-growth:
6. Foreign Small/Mid Blend Funds:
http://money.usnews.com/funds/mutual-funds/rankings/foreign-small-mid-blend

Thanks, johnN.
Not sure why you posted this or where you found it, but the M* ratings are generally positive (3****, 1 ***), and all seem to be above 30%tile over time. Since I have a residual 403b with TIAA , although the university (and business school, I suspect) extorted access to a selection of non-TIAA funds that seemed superior at the time, these do offer the relatively conservative approach that we geezerly baby boomers need with fairly modest expenses. (And, btw, I resent the comment posted a few days ago that "no one under 75 reads newspapers anymore", since i am under 75, and have been known to peruse newsprint relatively often.)
I'll compare the ERs with the non-TIAA funds, but there seem to be some relative winners here.

Just noticed. ON FIRE. +10.92, YTD, 2/23/2017. PRMSX. Don't own it. I do own SFGIX, and it lags PRMSX these days. But look back 5 years: SFGIX wins, hands-down. SFGIX is closed, anyhow. If you're not already in, I'd say PRMSX deserves a look. Eh?

Besides, I want Parnassus to buy small cap stocks for me assuming they are capable. That's what I meant by waiting for them to start one. I don't see one in their line up right now.

I wouldn't hold my breath. Dodson used to run a small cap fund, PARSX, which Parnassus merged out of existence (into PARMX) in 2015.
Another hat tip to Shadow for bringing that info to the board at the time ...