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…

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.

Liechtenstein had net money outflow of CHF  7 bn (USD 6.5 bn) in the year 2009 (source in German). However, overall assets under management increased by 17% to USD 250 bn. The negative net new money is most likely a consequence of the actions against offshore tax shelters taken by EU countries and the US. Liechtenstein’s pro-active policy to work with EU governments and the US authorities on the revision of double taxation agreements is probably one factor that money outflows could be contained to less than 3% of total assets. MyPrivateBanking has found that the outflow of money from Switzerland has probably been more severe in 2009.

Which was the best performing ETF in 2009? Which ETF could generate the most wealth for investors? Which ETFs did tank in 2009 and lose investors’ money?

If you want the answers to these and scores of other questions about ETFs in 2009, check out Morningstar’s great feature about the topic.

By the way, the most successful fund was a coal ETF (+145%), the MSCI Emerging markets fund by iShares produced the most wealth (USD 15.5 bn) for investors and leveraged short funds lost tons of money. I guess 2009 was no good year for the ETF bears….

Today I read the following:

“The actively managed exchange-traded-fund market is expected to explode as top mutual fund companies, including Putnam Investments, John Hancock Funds LLC, T. Rowe Price Group Inc. and Pacific Investment Management Co. LLC, consider entering the business or expand their lineups.The number of actively managed ETFs is likely to rise from the current 15 to more than 40, while the number of providers offering such funds could go from seven to 15, according to Rob Ivanoff, an ETF analyst at Financial Research Corp.”

Hmmmm….I used to think that the big point of ETFs is the passive index tracking most of them are following resulting in very low fees for the investor and an index matching performance? It seems that some fund firms think that they can use the label “ETF” as a marketing tool to sell old wine in new skins. Would these “active ETFs” perform better than their active mutual fund clones? Certainly not. Would they be cheaper? We don’t think so. Probably the only plus for investors would be the stronger transparency as holdings have to be disclosed daily.

Well, one thing seems to be certain - the mutual fund industry never runs out of ideas to protect their hefty fees…

On the weekend I came across two very interesting pieces that fit right into our past discussions:

The Wallstreet Journal recommends to all investors to take off their “fee blinders” when it comes to mutual funds. Research shows that investors become less sensitive to fund fees when the market rises. The article makes two very good suggestions: 1) Monetarize the fees you pay in absolute USD terms (or Euro if you want). 2) Run a shadow portfolio with indexes or low-cost-index-funds that match your actual funds and watch the performance difference grow in favor of the indices (most likely due to higher fees of your funds).

Barrons reports that “total ETF assets across the universe of 768 funds reached $695 billion as of Sept. 30, up from a mere half-billion dollars in 1993, with most of that increase having come in the past five years“. Wow!

Alan Miller, the founder of New Star Asset Management, has attacked in the Telegraph the fund industry for hiding costs from investors. He described the practice as disgraceful and  called for the TER (Total Expense Ratio - an interesting case of misnaming) to be replaced with a calculation that includes all charges. We applaud! We also hope that Pictet’s Stephen Barber is a reader of the Telegraph.

That is the amount a 22 year old college graduate in the US will have to pay over his lifespan for the 2008/09 government bank bailout. The calculation seems quite reasonable, the results are very unpleasant. From an economic point of view it’s much better to be old these days…

Last Friday I promised to check through all the ETF tools listed here. I did. And here is my very subjective Top-3-list:

Nr. 3: The ETF-map by finviz.com. Looks extremely cool and is extremely informative. Though it is somewhat US-centric.

Nr.2: The ETF-screen by etfscreen.com. You can screen ETFs by an unmatched multitude of criteria (I counted 38!). Not extremely user friendly, however - you have to spend some time understanding all the acronyms.

Nr.1: The Bloomberg ETF screener. Relatively simple but includes ETFs listed in 20 countries. Great global reach!