ETFs

S&P 500: Bad Benchmark

The standard that the investment world most typically uses for the performance of mutual funds and other assets is the Standard & Poor’s 500 index. That usually is a bad idea because the S&P, which contains the largest valued stocks in the U.S., seldom reflects the investments you own.

Evaluating Active Mutual Funds

If you’re like many investors, mutual funds constitute a big part of your portfolio. But how do you assess them, beyond their returns? Here are four aspects of evaluating your actively managed mutual fund holdings.

Who runs the show? Management is a vital consideration when you evaluate an actively managed fund designed and invested to beat market benchmarks.

3 Truths in a Schizo Market

The stock market is choppy this year, rising and tumbling. After 2013’s big run-up, it slumped in January and April, and then fitfully edged up again. Despite the gyrations, what’s helpful is to realize that a few things hold true: lockup expirations can punish prices, merger stocks are chancy and – on the positive side – energy shares look good for the long term.

2 Cheers for Speedy Trading

Author Michael Lewis set off a firestorm of criticism against high-frequency trading, where stock transactions take place within millionths of a second. He may be right in arguing that HFT is a scheme designed to enrich its practitioners at the expense of everyone else. But lost in all the acrimony is that high-speed electronic trading brings two benefits for everyone: better execution and more accurate ETF pricing.

Funds: Investor Activists at Last

If you don’t like how a company is doing its business, then sell the stock. That was the longstanding advice to individual investors, because one shareholder is unlikely to change management’s course. Now, though, mutual fund companies increasingly are involved in activists’ struggles to overhaul errant companies.

This means that individual investors can be part of a collective effort to hold executives to account for underperformance, overly generous pay or other policies that deplete shareholders’ returns.

How to Manage Risk Now

Many investors have skewed ideas about risk. Even after 2013’s stock market run-up, they fear losing money more than they wish to make more. That could be a mistake. What’s the best way to handle risk?

Investment advisors and financial planners are getting more and more statements of this ilk: “I would like to invest to make more money but I don’t want to take a risk.” Or: “I want an investment more rewarding than a bank account but I want it to be safe.”

Bonds and Higher Rates

So where is the big, long-anticipated yield hike in the benchmark 10-year Treasury? It has yet to materialize. The outlook for bonds is that huge swings in their value are unlikely, regardless of what happens to interest rates.

How Smart Is Smart Beta?

New alternatives to conventional exchange-traded funds and mutual funds, which are weighted by their market value, have gotten a lot of attention lately. But are these so-called smart beta products any better? Maybe, maybe not. Here are a few caveats.

ETF Price Wars: A Good Thing?

The ETF price wars are heating up. This is good for investors in that it acts to keep fees down for exchange-traded funds. But simply because an ETF has a very low cost is not a sufficient reason for you to buy it.

Fidelity late last month fired the latest salvo in the ongoing price wars with the introduction of a number low cost sector ETFs. Charles Schwab, TD Ameritrade, Blackrock, Vanguard and others also participate in this price war in one form or another over the past couple of years.

Invest Actively or Passively?

One investing style seems all on-the-edge flash. The other is slow and steady. Both can win the stock market race, but history shows one wins a lot more often than the other. Here are ways to decide which is right for you.

Picture two cars driving down a three-lane highway. A red sports car darts between all three lanes trying to find the fastest possible way ahead. A gray sedan in the right lane steadily goes the speed limit. Suddenly a train whistle sounds and in the distance the barrier arm of the railroad crossing comes down.

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