Articles (106)

Recently, we received a question from a client that we will paraphrase as follows: “While I know that the returns I have gotten from index funds have beaten the majority of active managers, would I not have been better off in funds like the Fairholme Fund (FAIRX) or the ...Read More

The Wall Street Journal recently published a series of articles under the title “The Passivists.” Highlighting the merits of a passive investment approach, authors tackle topics such as the fruitless endeavor of trying to pick winning stocks to the “Do Nothing ...Read More

Bill Miller is widely considered one of the most successful investors of all time. At the helm of the Legg Mason Value Trust Fund (LMVTX) for over three decades, he earned the title of legendary by beating the S&P 500 for 15 consecutive years from 1991 through 2005. But ...Read More

There is a common misconception about “alpha” in the small-cap market within the United States. Many professionals believe that once we step out of the mega-cap world of companies like Google, Wal-Mart, Coca-Cola, and Apple where there is an army of analysts digging ...Read More

Imagine after 40 years of being a professional money manager, you look back and say, “I was the chosen one.” Making it through events such as the Oil Crisis of 1973 and the stagflation of the 1970s, to the falling of the Soviet Union, globalization, and Back Friday ...Read More

The United Services Automobile Association (USAA) started during the roaring 20’s. Their story began with US Army officers who were refused insurance due to the risky nature of their careers (only 4 years removed from World War I). These men saw a ...Read More

Most of us are aware of the story of David and Goliath from the Holy Bible. According to the Books of Samuel, Goliath was a Philistine warrior of tremendous strength and size who was defeated by a much smaller, ...Read More

MFS Investment Management made very well scripted and produced commercials highlighting some of the typical selling points active managers like to make when speaking to investors. Let's take a deeper ...Read More

There has been a consistent theme within the financial services industry for far too long: conflicts of interest. What motivates your personal wealth advisor to give the advice that they give? It is sometimes not as clear-cut as some of us think. Ideally, it would be doing what ...Read More

We recently wrote an article that gave a high level overview of the performance of 64 different equity funds from Fidelity Investments. Our goal was to inform investors to be very careful when they hear “rumors” in the financial media about superior fund families. ...Read More

It is not uncommon for us to receive questions from clients and prospects about a particular family of mutual funds. The financial media is always quick to highlight top performing managers (here is an example from Money Magazine) to entice investors into hopping on board with a ...Read More

No this is not a political campaign slogan, but more of a realization. The Baltimore Sun recently published an article highlighting the recent popularity of passive investing and how some of the biggest Baltimore based money managers are dealing with the situation. T. Rowe Price ...Read More

The active fund industry is notorious for deceiving investors. We mean deceitful in terms of not giving investors the full-picture of their particular fund’s performance. To give an analogy, if we told you that we had magical powers that allowed us to make objects fall out ...Read More

What do you do when your entire active fund lineup is struggling? Well if you are the CEO of Blackrock, you invest hundred of millions of investors’ dollars and hire the more best and more brightest than you already have to try to fix it. According to a recent ...Read More

In our last piece, “Ignoring the Siren Song of Daily Market Pricing,” we explored how price-setting occurs in capital markets, and why investors should avoid reacting to breaking news. The cost and competition hurdles are just too tall. Today, we’ll explain why ...Read More

For those who have been investing for some time, you should be very familiar with the following statement: “past performance is no guarantee of future results.” This SEC mandated disclaimer when representing any past performance data is not without cause. Although ...Read More

We live in a world that is neither black nor white, but mostly grey. Uncertainty is among us in almost all of our daily actions and while we are constantly looking for order among the chaos, it is something that we just end up accepting. In a world of ...Read More

When discussing the risks of investing in actively managed funds, we have focused on issues related to timing and selection.  Recently, we had a chance to view a report from a prominent investment consultant that was prepared for a major institutional client in our very own ...Read More

You may recall that Bill Miller was the fund manager who enjoyed the unparalleled winning streak of beating the S&P 500 Index for fifteen consecutive years ending in 2005. Of course, investors who came late to this party severely regretted it as Miller’s ...Read More

“The only consistent data point we have observed over a five-year horizon is that a majority of active equity and bond managers in most categories lag comparable benchmark indices.”               ...Read More

A little more than a year ago, we reported on how the stewards of the pension fund for Montgomery County, Pennsylvania came to the wise decision of moving away from high-cost actively managed funds in favor of low-cost index funds from Vanguard, whose founder Jack Bogle played a ...Read More

Since the departure of Bill Gross from Pimco on September 26th, its flagship Total Return fund has suffered investor withdrawals of $51 billion, according to this excellent Wall Street Journal article by Kirsten Grind. For the month of October, $27.5 billion departed, and it ...Read More

Your mother may have taught you that cheaters never prosper, but what about copycats? When it comes to mutual fund managers, the answer is sometimes, but not for long, at least according to three researchers from the US and the UK who released this paper quantifying the ...Read More

Those of us who follow the financial media have been treated to a verbal slugfest featuring the Father of Retail Index Funds, Jack Bogle, going against Pimco Managing Director James Moore. It began with Mr. Bogle stating that Pimco investors who had chosen to withdraw their ...Read More

About a month ago, we published this article about the $300 billion California Public Employees’ Retirement System (CalPERS) deciding to terminate its $4 billion hedge fund program. Today, we were pleased to see this article in the Wall Street Journal indicating that other ...Read More

What can’t Google do? Free email, customized searches, maps, apps, browsers, video—the list goes on. Now researchers claim to have found a link between Google searches and future stock market movements.Researchers at Warwick Business School in the UK and Boston ...Read More

The surprise exit of Bill Gross from PIMCO likely has scores of investment committee members scratching their heads, wondering how to handle their fixed income mandates. Gross had fostered a stunning reputation for active bond management, racking up more than 26 years at the ...Read More

About eight months ago, one of our contacts in India (Jatin Visaria) sent us an analysis of fifty of the largest mutual funds domiciled in India that had at least fourteen years of returns data. We published this article discussing the results of that analysis. Recently, Jatin ...Read More

We were as shocked as everyone else when we learned that Bill Gross had resigned from PIMCO, and we were doubly shocked to learn that he was going to Janus Capital, a company not known for its bond funds. In prior articles such as this one, we have discussed ...Read More

According to this press release, the $300 billion California Public Employees’ Retirement System (CalPERS) will eliminate its hedge fund program which currently consists of $4 billion spread over 24 hedge funds and six hedge fund-of-funds. For the fiscal year ending ...Read More

“The debate about whether you should hire an “active” fund manager who tries to beat the market by buying the best stocks and avoiding the worst — or a “passive” index fund that simply matches the market by holding all the stocks — is ...Read More

When we hear about someone being charged with insider trading, the first thought that usually comes to mind is that of company executives or hedge fund sharpies that illegally profited from their access to private information like the folks portrayed in this insider trading ...Read More

For many years now, IFA has called attention to the dismal performance of individual investors. The chart below shows the results of the DALBAR study which details how the average individual fund investor has severely lagged the S&P 500 Index. Insert most recent DALBAR chart ...Read More

The recent good news from the Wall Street Journal (summarized here) is that the California Public Employees’ Retirement System (CALPERS) is planning to drop the level of its hedge fund investments this year by 40% to $3 billion. This retreat comes in the aftermath of many ...Read More

Index Fund Advisors expended a large amount of time and effort in putting together the data that reveals the failure of active management for state pension systems. As of now, there is no central repository of information on state pension performance, so each state’s ...Read More

You may think that college endowments, with all their access to academic knowledge and brainpower, would regularly hit home runs. You would be ...Read More

Since IFA began operations in 1999, we have published articles detailing how incredibly stacked the odds are against successfully picking a manager who will beat his benchmark (i.e., deliver alpha). See here and here for recent examples. However, as we like to say at IFA, a good ...Read More

At Index Fund Advisors, we are extremely pleased with the continued success of passive over active. According to a recent Vanguard Research Note1, for the six years ending 12/31/2013, passively managed funds including index mutual funds and exchange-traded funds (ETFs) ...Read More

The search for investment managers who will deliver alpha is an activity that accounts for billions of dollars that is spent by foundations, endowments, pension plans, and other institutional investors. To determine if these dollars are well-spent, it is fair to ask how ...Read More

At Index Fund Advisors, we are always gratified to read articles such as this one which give a good airing of the arguments in favor of indexing pension funds for public employees. One fund that would clearly benefit is the $27 billion Iowa Public Employees’ Retirement ...Read More

In the investment industry, the term “white paper” carries a lot of currency. As for what distinguishes an ordinary article from a full-fledged white paper, it is usually just a matter of length or the number of charts included. It is important to bear in mind that ...Read More

One of the problems with commonly cited mutual fund returns data is that it ignores the issue of survivorship bias, the tendency for mutual funds with poor performance to be merged into other funds or shut down. Specifically, if we look at the ten-year average returns of all ...Read More

A recent edition of the Rekenthaler Report from Morningstar would have us believe that American Funds have suffered investor withdrawals due to a guilt-by-association with active management which has increasingly come under fire from both academia and from key players in the ...Read More

At Index Fund Advisors, we often hear from people all over the world who express an interest in the investment principles that we espouse. This pleases us greatly, as we have always felt that the benefits of index investing should not be limited to American investors. Recently, ...Read More

Can you hear it? That is the sound of millions of index fund investors yawning in response to Morningstar’s announcement of its Fund Managers of the Year for 2013. That recent performance weighs very heavily in the awarding of this distinction is evidenced by the fact that ...Read More

“We active folks have done a horrible job of beating the benchmarks.” So says Bob Doll of Nuveen Investments who was recently interviewed by Jeff Macke of Yahoo! Finance’s Breakout. For 2013, there is one group of active managers for whom this was especially ...Read More

The following is a comment submitted by mclaren855 in response to this IFA.tv video.) I want you to put a chart of Buffett, Peter Lynch, Walter Schloss, Liz Cheval or David Tepper, Mario Gabelli, ...Read More

At least 80% of actively managed funds underperform the S&P 500 in any 10 year period—and there are indexes that perform better than the S&P 500. If risk-adjusted returns are taken into account, funds lose out even ...Read More

In Bill Gross’s December 2013 Investment Outlook letter, he joined the ranks of Warren Buffett and Peter Lynch in giving a solid endorsement to indexing while reminiscing about his younger days when Jack Bogle introduced the first index fund available to retail investors: ...Read More

The answer to that question is quite a bit actually, at least according to Nobel Laureate Eugene Fama1 and Ken French. Contrary to the protestations of Robert Olstein as featured in this New York Times article, Fama and French demonstrated that luck plays a very large role in ...Read More

You don’t have to dig too deeply into IFA’s Website to realize that in our opinion, the pursuit of alpha is a fool’s errand that suckers investors into paying the high costs of active management while potentially causing them to miss out on the real source of ...Read More

All too often, we hear the refrain that yes, index funds are great for bull markets, but when the next bear market rears its ugly head, you will want to be in active funds because the manager can anticipate the downturn and move at least some of the fund’s ...Read More

For at least the past two decades, we have been hearing about an approaching day of reckoning for the stock market prompted by retiring baby boomers selling their equities to fund their retirement needs. Recall that the baby boomers are defined as those born between 1946 and ...Read More

Three months ago, we wrote about the unprecedented indictment of SAC Capital, and a few months before that, we wrote about SAC’s record-setting $616 million settlement for insider trading. Today’s guilty plea combined with an additional $1.2 billion of fines was ...Read More

At Index Fund Advisors, one of the things that we like to keep an eye on is the emergence of indexing in other countries. As the second most populous of the four “BRIC” countries (Brazil, Russia, India, and China), India is expected to become a leading economy of the ...Read More

So says the Financial Industry Regulatory Authority (FINRA) in a recent press release and investor alert. A private placement is an offering of a company’s securities that is not registered with the Securities and Exchange Commission (SEC) and is not offered to the public ...Read More

Numerous studies have shown that actively managed investments generally carry more risk and lower returns than globally diversified, risk-calibrated index ...Read More

Markets can make a money manager look good or bad — a factor that’s independent of their “skillful” stock picking or market-timing ...Read More

IFA performed its own study of the persistence of manager performance using Morningstar data. The numbers could not be more clear—past performance is no guarantee of future ...Read More

Like stock and time picking, manager picking is usually a worthless endeavor; however, there are still investors out there who believe they can select an all-star manager or financial guru who can beat the ...Read More