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Archive for the ‘Index Investments & ETFs’ Category

How robo-advisors can make ETF investors smarter

Friday, March 27th, 2015

/by Francis Groves, Senior Analyst/

MyPrivateBanking was very pleased to include a profile of Schwab Intelligent Portfolios in our latest report on robo-advisors, published last week, AFTER the launch of the new Schwab service and to be able to make a full assessment of it. Inevitably in such a fast changing area, fresh developments in the robo-advisor sector keep coming and this week we have seen the announcement of the acquisition of LearnVest by Northwestern Mutual. We cover LearnVest in our report, even though we don’t see LearnVest as a full robo-advisor (and neither do LearnVest). However, we do think that LearnVest has some important robo characteristics and its pricing and range of services make it a disruptive force in the industry in a very similar way to robo-advisors. The company’s acquisition by a major financial institution is another example of the way in which corporate strategy is now becoming a major motor of the robo-advisory revolution, a topic that we cover in detail in our latest robo report, which we sub-titled ‘How Automated Investing is Infiltrating the Weath Management Industry’.

John Bogle, the highly respected founder of Vanguard, recently repeated his skeptical views about exchange traded funds (ETFs), saying to FTfm that they were an encouragement for investors to use index tracking in a counter-productive manner. Bogle has been a committed opponent of market timing tactics either by private investors or mutual fund managers and at Vanguard he was a pioneer of index investing. Although many would consider ETFs to be index tracking instrument ‘par excellence’, he’s convinced that investors will be tempted to trade too frequently for their own good. Vanguard’s  own current CEO has come out against Bogle’s criticism in favor of ETFs as a healthy innovation that have lowered the costs of investing for millions of people.

In the light of this debate about the dangers of ETFs, the robo-advisor trend could be a godsend to the ETF industry. Not only are robo-advisors an effective way to encourage people to start investing, they are almost all proponents of planned investing as opposed to impulsive investment decisions. With the robo-advisors around, ETF sponsors can say ‘look, these new robo platforms depend on our products and demonstrate that it’s perfectly possible to use ETFs prudently for investors’ long-term gain.’

Of course, robo-advisors have yet to prove their index tracking commitment in a number of ways. Individual robo-advisors could stray off the path of passive or mainly passive investing and become too smart for their clients’ good. Also, as has often been said, we’ve yet to see how robo-advisor clients behave in a real panic in the financial markets. Finally, we don’t yet have data on how consistently robo-advisor clients are behaving. Are clients sticking with the plan or do they sign up with a robo in a burst of enthusiasm and then lose interest, leaving a perfectly proportioned ‘bonsai ‘ portfolio in their account rather than a full grown tree to provide shelter in retirement or adversity.

On this last point, our view is that some investors will be committed enough to enjoy real benefits and some won’t, but enough people will use their accounts in the way the robo-advisors intend for the robo model to count as a success and to be held up as an example to be followed in the retail investment market.


5 (bad) reasons why fund managers are not giving mobile apps to their clients

Friday, May 9th, 2014

For the upcoming report on Mobile Apps for Fund Management, which will be published within the next two weeks, MyPrivateBanking’s analysts evaluated 21 apps from 20 fund management companies worldwide. Surprisingly, the first difficulty came up right at the start of the evaluation process: finding a sufficient number of fund managers who provide an app for their own funds was hard. Most billion dollar fund firms don’t bother to provide mobile apps to the investors of their funds. But why is that the case?

· Fund managers feel that investors don’t need to check their funds frequently, so what’s the use of an app?

· The finance industry as a whole is not really known for its fast adaptation to digital trends – and fund managers are showing a particularly hesitant attitude.

· Fund managers believe that intermediaries are doing their jobs of promoting their funds anyway – so why bothering oneself with an ‘extra’ platform like an app?

· Fund managers think that their good ol’ websites are already sufficiently satisfying their customers’ informational needs.

· Fund managers fear that another communication channel makes their compliance situation even more complex. So why not skip the mobile channel completely?

Should these arguments and barriers be taken seriously or how strong is the case for fund managers’ mobile apps? Don’t miss our upcoming report….


Is Financial Education Bad for Private Investors?

Wednesday, June 8th, 2011

A recent article on MarketWatch claims that

“financial education, for some consumers, appears to increase confidence without improving ability, leading to worse decisions.”

The report goes on that it appears that investors need professional help because,

“… there are the expert skills, skills that are good to have but best left in the hands of a professional. With driver education, it’s changing brake pads; with money it’s asset allocation, risk management and security selection”

Great advice - give your wealth to a professional and join the 80% or so of actively managed portfolios that are underperforming their market benchmarks. There may be a lot wrong with personal finance education. One major reason probably being that its mostly in the hands of self-styled “experts” who are not aiming for education but who are trying to sell one or the other investment product using personal finance books and education as marketing tools.But true financial education for private investors should not be complex, difficult or confusing, and it should be definitely not done by those who have a clear conflict of interest.  It should be simple, straight-forward and independent from banks or other financial players who are following their own special interests.

Running your own portfolio is not difficult. In fact, it is quite simple - at least compared to the skills you need to drive a car: Have clear objectives, understand your risk profile and invest in simple, index-based products. But there are only very few professionals who want to teach this gospel. Probably, because the professionals won’t make a lot of money based on these simple but effective strategies.


Index Investing Gets Boost from Dying Banker

Monday, November 29th, 2010

The New York Times reports about Gordon Murray, a banker who has a deadly form of cancer who has written a book that “is itself a remarkable story of an almost willful ignorance of the futility of active money management - and [shows] how he finally stumbled upon a better way of investing. Mr. Murray now stands as one the highest-ranking Wall Street veterans to take back much of what he and his colleagues worked for during their careers”

It seems that the idea of passive, index-oriented money and wealth management is rapidly catching on. It is extraordinary that the New York Times runs such a prominent story promoting passive wealth management. It is another symptom of a changing investment paradigm. The wealth industry should listen to this dying man.


Weekend Tips: ETF Price War & Product Innovation

Friday, October 15th, 2010

As more and more traditional fund firms are entering the ETF market and issuing new products, the market is driving down prices. Vanguard has fueled a price war in the United States by issuing 20 new ETFs undercutting Black Rock and others, Bloomberg reports today:

“Vanguard’s U.S. ETFs pulled in a net $25.6 billion this year through Sept. 30, 26 percent more than BlackRock and State Street combined, according to Chicago-based Morningstar Inc. Vanguard last month offered 20 new ETFs, taking on the bigger companies for the first time with funds that track Standard & Poor’s and Russell indexes, including the S&P 500 Index.(…) Fees charged by BlackRock and Boston-based State Street, which oversees $216 billion in ETFs, are on average about double those of Vanguard and Schwab of San Francisco.”

But competition drives also innovation. The latest thing being bullet bond ETFs, as read in today’s Wall Street Journal:

“One of the exchange-traded-fund industry’s latest innovations aims to answer a longstanding criticism of bond mutual funds: that these investments never mature and so investors can’t lock in attractive yields as they can with individual bonds. Two ETF providers, BlackRock Inc.’s iShares unit and Guggenheim Partners LLC, have begun offering “end-date” or “bullet” bond ETFs in the past year. The new funds hold a portfolio of bonds all maturing in the same year.”

This seems to me among the more sensible innovations in the ETF market. It’s reassuring to see that in some areas of the financial services world market forces actually do work.


Are ETF-Investors At Risk to Lose Everything?

Tuesday, September 28th, 2010

About two weeks ago a small research firm in Boston, Bogan Associates, published a piece titled “Can an ETF Collapse?”. It basically argued that because some (US-based) ETFs are heavily shorted, in a market crisis the fund sponsors may stop redeeming fund shares as there have been many more ETF shares created through short selling than have been actually covered through underlying equities by the sponsor.

CNBC’s Herb Greenberg picked the story up and the report was also published on Seeking Alpha, an influential financial blog. Within hours a storm broke loose in the blogosphere but also mainstream media found themselves in heavy debate whether it was possible that the whole ETF market can face an Armageddon-like meltdown scenario. Morgan Stanley in London voiced that the Bogan report was actually bogus and IndexUniverse, an Internet platform mainly concerned with index investing, also criticized the doomsday scenario. Leading fund research firm Morningstar had to put out a long article that explained the mechanics of creating and shorting an ETF in order to highlight that it was impossible for an ETF to collapse via its short interest.

So what is our take? It seems that heavy short selling of ETFs is mainly a US problem and the severe cases are limited to a few specific funds. Also, given the market mechanics of shorting, that kind of scenario should mainly create problems for the shorters (”short squeeze”) but definitely not for the regular long-only retail investor. Yet, undoubtedly the whole debate shows that the rapid growth in ETFs has created some market practices that should be monitored very closely by market participants and financial authorities. We are convinced that ETF risks are  not in the shorting of an ETF but in various other market developments we have highlighted in a recent report on ETF risks.


Excellent Post on Buy & Hold & Rebalancing

Monday, September 13th, 2010

“But let’s not forget that there are no silver bullets in portfolio management. Instead, success comes only through diligent monitoring and managing of the asset allocation. That starts by diversifying widely and planning on routine rebalancing every, say, year or two, or more frequently if you’re opportunistically inclined. Yes, there’s more, much more to do, if you’re up to the task. But the thousand-mile journey still starts with the first two steps: asset allocation and rebalancing.”

Find the whole article here. Excellent and informative through-out.


Do-It-Yourself Passive Investing

Thursday, August 19th, 2010

The guys from Passive Investing in Geneva have just published a short but on-the-spot new DIY-guide to passive investing. It’s worth the read if you are toying with the idea to get into passive investing or if you would like to review your investment approach. Make also sure to read the MyPrivateBanking-Guide on ETF Risks. If you follow the advise of these two papers, your investment performance will probably beat 95% of conventional wealth managers…


Why Investing Has Become More Democratic Than Ever

Tuesday, July 20th, 2010

I am pondering one sentence I stumbled upon today:

“It is ironic that the markets are now at their most democratic at time when returns are at their nadir.”

This is from the blog abnormal returns, a great source of financial debate. Basically, indivividual investors today have all the tools and vehicles to free themselves from unhealthy advice and make their own decisions:

“The ironic thing is that at a time of poor returns, the information and tools available for investors have improved dramatically. This is largely a function of the rise of Internet. Abundant data, cheap trades and an explosion in investment vehicles, i.e. ETFs, have made it ever more possible for individuals to manage their portfolios how the largest institutions did just a few years prior.”

I still think that this investor heaven is a far cry from what most private investors do today. Most individuals are still entrusting their wealth to a bank or a wealth adviser who is not free of conflict of interest when picking investment products for their clients. Most private investors still believe their advisers when they tell them how to time the markets or pick individual stocks or bonds. And on top of everything, most investors still pay way too much money to their wealth managers. It will be a long time until the majority of private investors really takes investing in their own hands. But, in any case, the revolution has begun and it offers too many advantages to individual investors to be stopped. Particularly in times of low returns the weaknesses of trading-oriented and active stratgies of most wealth managers become very clear to investors.