Demographics Is Destiny: Top 10 Populations 1970 - 2050 [View article]
BFF, you're right: China's demographic outlook is one of the worst. It's interesting to see that this is already starting to have an impact - here's an excerpt from a recent NYT article (www.nytimes.com/2011/0...) on how rising inflation in China is reducing export growth:
"Cities and provinces across China have tried to cushion inflation’s effect on consumers by sharply raising minimum wages. Guangdong Province, the export heartland of light industry next to Hong Kong, announced two weeks ago that its cities were raising their minimum wages by an average of 18.6 percent, effective March 1.
That follows a similar increase that took effect in Guangdong around eight months ago. Many other provinces and cities have also sharply raised minimum wages recently.
The wage increases are also driven by a growing scarcity of factory workers. The number of Chinese in their 20s and early 30s, the traditional age bracket for factory labor, is slowly shrinking because of the introduction of the “one child system” a generation ago. And a rapidly expanding university system has produced waves of graduates with no interest in factory work.
Some companies have responded by moving factories deeper into China’s interior, said Stanley Lau, the deputy chairman of the Federation of Hong Kong Industries, which represents exporters employing 10 million mainland Chinese workers. But inland wages are starting to catch up with coastal pay rates, Mr. Lau said, while higher transportation costs frequently offset the wage savings from moving to the interior.
Coach, the American company that is one of the largest marketers of luxury handbags and other accessories, announced on Tuesday that it planned to reduce its reliance on China to less than half of its products, from more than 80 percent now. It will shift output to Vietnam and India, particularly for smaller, more labor-intensive leather goods."
Demographics Is Destiny: Top 10 Populations 1970 - 2050 [View article]
thecadean,
The issue isn't more people vs. fewer people, rather the impact of demographic changes on demand. Alicia Damley has a good series of articles on this, for example: seekingalpha.com/artic...
Buying Equities: Rethinking the ETF Frenzy [View article]
Elliot,
I apologize for offending you - that certainly wasn't my intention.
Seeking Alpha has no vested interest in the issue of ETFs vs. mutual funds, and we have made no decision in principle not to cover mutual funds. We don't have quote pages for mutual funds or publish mutual fund data, because:
1. We don't have a critical mass of articles to populate those pages, and we're not sure they are what our readers want in any case.
2. Covering mutual funds per se entails assessment of money managers. That's not the core competency of our contributors.
3. Even Morningstar, which specializes in assessing mutual funds, has failed to provide tools with meaningful predictive value. The head of research for Morningstar published an article in August 2010 in which he admitted that low expense ratios had better predictive value for mutual fund performance than Morningstar's own star ratings. Specifically, he wrote ""Overall, expense ratios outdid stars in 23 out of 40 (58%) observations", and "Investors should make expense ratios a primary test in fund selection." That, of course, is an admission that low-cost index funds (including ETFs) are better for investors than trying to pick winning mutual funds using Morningstar data.
But we're happy to publish articles like yours. We embrace open debate, and value the fact that Seeking Alpha exposes our readers to multiple viewpoints. We strive to treat our readers with respect, presenting them with multiple viewpoints and encouraging them to make up their own minds.
On the question of whether the ETF Investing Guide is a promo for ETFs: I wrote it before Seeking Alpha existed. It was originally advice sent to family and friends, and still reflects my opinions.
My point about the data was less rhetorical and more respectful than you perhaps realized. There's been much academic research on the question you are addressing, including careful adjustment for survivorship bias and other factors. It's important for readers to understand that the data on this issue is conclusive. That doesn't mean that a few talented people can't beat the averages. But on average, picking mutual funds is a poor proposition for most investors, just like a casino game where the odds are stacked in favor of the house. You can win in the short run, but over time it's a losing proposition.
I agreed with your point that in some areas, index funds are problematic, and in those cases actively managed mutual funds may be preferable.
You're right that investors are looking for alpha. But they will more easily find alpha by focusing on asset allocation than picking managers of expensive mutual funds. I wholeheartedly agreed with the core of your article - that investors should stop thinking only in terms of large cap US stocks, and instead should think about sectors, market caps and country exposure.
Finally, I wanted to let you know that you can reply directly to comments by clicking on the "reply" link below the comment.
I hope you'll view this comment for what it is - an honest expression of my views on the substantive issues.
Buying Equities: Rethinking the ETF Frenzy [View article]
Elliot,
Re. "I find that good funds tend to remain good, as long as the manager is not changed." Do you remember the enormous fanfare when Bill Miller beat the S&P 500 for the 10th straight year? It was almost unheard of. (He then took such a beating in the downturn that he underperformed the S&P on a trailing 10 year basis by a wide margin).
If you're right that picking winning mutual funds is relatively easy, then most mutual fund investors should themselves beat the indexes over extended periods. But the data I cited in the link shows that's not the case.
You didn't address the point about survivorship bias. Many academics have done serious work on mutual fund returns. I'd respectfully submit that your quick Morningstar survey isn't a serious challenge to their findings.
Buying Equities: Rethinking the ETF Frenzy [View article]
Elliot,
1. Why would you compare a collection of large cap, mid cap and small cap mutual funds to a large cap index -- the S&P 500? You need to compare each fund to its correct benchmark index. So, for example, if you are evaluating a small cap mutual fund, compare its performance to the S&P small cap 600 index or the Russell 2000 index. Note also that you were evaluating the performance of domestic growth funds, so you should have been comparing them to the relevant growth index for their market cap.
2. Looking at the past 3 year performance of the mutual funds available in 2007 fails to adjust for survivorship bias. Mutual fund companies shut down or merge badly performing funds, so examining the performance of the survivors in 2007 fails to take account of those that were shut down because of their lousy performance. You'd need to look at all the funds in 2007 and see how they had performed vs. the indexes by 2010. You'd find that many of them no longer existed.
3. You're right to point out that ETFs are weaker alternatives when they have high expense ratios and there's a problem with the index they track. Single country fund ETFs, such as the Brazil and India funds, have relatively high expense ratios, and I can well imagine that there may be serious problems with the index of everything traded on the Chinese exchanges.
4. For most investors, the key issue isn't whether some mutual funds outperform their indexes each year. It's whether you as an investor can identify those funds in advance. If, on average, 20% of mutual funds outperform their indexes, but that 20% is basically random, and over longer periods (say 10 years) almost no mutual funds outperform their indexes, then it's extremely difficult for an investor to do best by picking mutual funds.
Much of the data on these issues is in the ETF Investment Guide - one page summary here: seekingalpha.com/artic...
Roger Nusbaum Positions for 2011: Sector Picking Less Important Than Country / Theme Selection [View article]
TWTFG, I have no idea what Roger's performance was in 2010. In the interview he made no claim about his past performance. However,
(1) If you're looking to follow a guru simply because his performance is amazing, then surely his reasoning shouldn't matter to you and you shouldn't be reading articles at all? You should just give him your money to manage. In contrast, shouldn't an article like this stand on its own merits? You should take what you agree with, and leave what you disagree with, irrespective of his past performance.
(2) I read Roger's articles because his focus is NOT on making predictions, but about risk management in the portfolios he manages. Managing risk is about making the right decisions based on the information available at the time, the probability of different outcomes, and the risks associated with them. Correct decisions can turn out badly; bad decisions can turn out well.
(3) The assumption behind your comment - that nobody has the right to discuss their approach to the market without a great track record - would stifle debate and the exchange of ideas on sites like Seeking Alpha. Sure, someone has more credibility if they have a great track record, but to say they have no right to express an opinion without a great track record? That seems extreme and threatening.
John, it will be fascinating to hear how this goes. There's a strong case for momentum based strategies versus more traditional risk management via diversification and rebalancing.
Did you back test the strategy? How did it do during the last meltdown?
Individual Country ETF Portfolio for August [View article]
This might also be useful -- an overview of the main country ETFs that shows real time updated performance for today, 3 months, 1 year, and year to date, and allows you to sort the columns to see the leaders: seekingalpha.com/data/...
New Brazil Mid Cap ETF Indicates It's Time to Short [View article]
Yup, that makes sense: by providing access to a broader range of investors, ETFs may exacerbate money flows and asset price movements due to sentiment - particularly because the investment decisions of retail investors may be more affected by sentiment.
One thing to look at, consistent with your thesis: maybe the closure of ETFs is a strong indicator for a bottom in sentiment. Again, you'd have to look closely at the asset class and why the ETF was being shut down.
New Brazil Mid Cap ETF Indicates It's Time to Short [View article]
Brett,
I love the contrarian thought process here. However, some ETFs (such as the first gold ETFs) generated significant inflows into the underlying asset class, to the point that they raised the price of the underlying assets, which made the success of the ETFs self-fulfilling.
For your contrarian strategy to work, you need to be sure that the ETF doesn't fall into this category. Perhaps the key factor is whether there is significant pent-up demand for the asset class that the ETF will unleash.
My guess is that the new Brazil ETF doesn't fall into this category.
Demographics Is Destiny: Top 10 Populations 1970 - 2050 [View article]
"Cities and provinces across China have tried to cushion inflation’s effect on consumers by sharply raising minimum wages. Guangdong Province, the export heartland of light industry next to Hong Kong, announced two weeks ago that its cities were raising their minimum wages by an average of 18.6 percent, effective March 1.
That follows a similar increase that took effect in Guangdong around eight months ago. Many other provinces and cities have also sharply raised minimum wages recently.
The wage increases are also driven by a growing scarcity of factory workers. The number of Chinese in their 20s and early 30s, the traditional age bracket for factory labor, is slowly shrinking because of the introduction of the “one child system” a generation ago. And a rapidly expanding university system has produced waves of graduates with no interest in factory work.
Some companies have responded by moving factories deeper into China’s interior, said Stanley Lau, the deputy chairman of the Federation of Hong Kong Industries, which represents exporters employing 10 million mainland Chinese workers. But inland wages are starting to catch up with coastal pay rates, Mr. Lau said, while higher transportation costs frequently offset the wage savings from moving to the interior.
Coach, the American company that is one of the largest marketers of luxury handbags and other accessories, announced on Tuesday that it planned to reduce its reliance on China to less than half of its products, from more than 80 percent now. It will shift output to Vietnam and India, particularly for smaller, more labor-intensive leather goods."
Demographics Is Destiny: Top 10 Populations 1970 - 2050 [View article]
The issue isn't more people vs. fewer people, rather the impact of demographic changes on demand. Alicia Damley has a
good series of articles on this, for example: seekingalpha.com/artic...
And there are some other good articles on the topic here: seekingalpha.com/tag/d...
Buying Equities: Rethinking the ETF Frenzy [View article]
I apologize for offending you - that certainly wasn't my intention.
Seeking Alpha has no vested interest in the issue of ETFs vs. mutual funds, and we have made no decision in principle not to cover mutual funds. We don't have quote pages for mutual funds or publish mutual fund data, because:
1. We don't have a critical mass of articles to populate those pages, and we're not sure they are what our readers want in any case.
2. Covering mutual funds per se entails assessment of money managers. That's not the core competency of our contributors.
3. Even Morningstar, which specializes in assessing mutual funds, has failed to provide tools with meaningful predictive value. The head of research for Morningstar published an article in August 2010 in which he admitted that low expense ratios had better predictive value for mutual fund performance than Morningstar's own star ratings. Specifically, he wrote ""Overall, expense ratios outdid stars in 23 out of 40 (58%) observations", and "Investors should make expense ratios a primary test in fund selection." That, of course, is an admission that low-cost index funds (including ETFs) are better for investors than trying to pick winning mutual funds using Morningstar data.
But we're happy to publish articles like yours. We embrace open debate, and value the fact that Seeking Alpha exposes our readers to multiple viewpoints. We strive to treat our readers with respect, presenting them with multiple viewpoints and encouraging them to make up their own minds.
On the question of whether the ETF Investing Guide is a promo for ETFs: I wrote it before Seeking Alpha existed. It was originally advice sent to family and friends, and still reflects my opinions.
My point about the data was less rhetorical and more respectful than you perhaps realized. There's been much academic research on the question you are addressing, including careful adjustment for survivorship bias and other factors. It's important for readers to understand that the data on this issue is conclusive. That doesn't mean that a few talented people can't beat the averages. But on average, picking mutual funds is a poor proposition for most investors, just like a casino game where the odds are stacked in favor of the house. You can win in the short run, but over time it's a losing proposition.
I agreed with your point that in some areas, index funds are problematic, and in those cases actively managed mutual funds may be preferable.
You're right that investors are looking for alpha. But they will more easily find alpha by focusing on asset allocation than picking managers of expensive mutual funds. I wholeheartedly agreed with the core of your article - that investors should stop thinking only in terms of large cap US stocks, and instead should think about sectors, market caps and country exposure.
Finally, I wanted to let you know that you can reply directly to comments by clicking on the "reply" link below the comment.
I hope you'll view this comment for what it is - an honest expression of my views on the substantive issues.
Buying Equities: Rethinking the ETF Frenzy [View article]
Re. "I find that good funds tend to remain good, as long as the manager is not changed." Do you remember the enormous fanfare when Bill Miller beat the S&P 500 for the 10th straight year? It was almost unheard of. (He then took such a beating in the downturn that he underperformed the S&P on a trailing 10 year basis by a wide margin).
If you're right that picking winning mutual funds is relatively easy, then most mutual fund investors should themselves beat the indexes over extended periods. But the data I cited in the link shows that's not the case.
You didn't address the point about survivorship bias. Many academics have done serious work on mutual fund returns. I'd respectfully submit that your quick Morningstar survey isn't a serious challenge to their findings.
Buying Equities: Rethinking the ETF Frenzy [View article]
1. Why would you compare a collection of large cap, mid cap and small cap mutual funds to a large cap index -- the S&P 500? You need to compare each fund to its correct benchmark index. So, for example, if you are evaluating a small cap mutual fund, compare its performance to the S&P small cap 600 index or the Russell 2000 index. Note also that you were evaluating the performance of domestic growth funds, so you should have been comparing them to the relevant growth index for their market cap.
2. Looking at the past 3 year performance of the mutual funds available in 2007 fails to adjust for survivorship bias. Mutual fund companies shut down or merge badly performing funds, so examining the performance of the survivors in 2007 fails to take account of those that were shut down because of their lousy performance. You'd need to look at all the funds in 2007 and see how they had performed vs. the indexes by 2010. You'd find that many of them no longer existed.
3. You're right to point out that ETFs are weaker alternatives when they have high expense ratios and there's a problem with the index they track. Single country fund ETFs, such as the Brazil and India funds, have relatively high expense ratios, and I can well imagine that there may be serious problems with the index of everything traded on the Chinese exchanges.
4. For most investors, the key issue isn't whether some mutual funds outperform their indexes each year. It's whether you as an investor can identify those funds in advance. If, on average, 20% of mutual funds outperform their indexes, but that 20% is basically random, and over longer periods (say 10 years) almost no mutual funds outperform their indexes, then it's extremely difficult for an investor to do best by picking mutual funds.
Much of the data on these issues is in the ETF Investment Guide - one page summary here: seekingalpha.com/artic...
Roger Nusbaum Positions for 2011: Sector Picking Less Important Than Country / Theme Selection [View article]
(1) If you're looking to follow a guru simply because his performance is amazing, then surely his reasoning shouldn't matter to you and you shouldn't be reading articles at all? You should just give him your money to manage. In contrast, shouldn't an article like this stand on its own merits? You should take what you agree with, and leave what you disagree with, irrespective of his past performance.
(2) I read Roger's articles because his focus is NOT on making predictions, but about risk management in the portfolios he manages. Managing risk is about making the right decisions based on the information available at the time, the probability of different outcomes, and the risks associated with them. Correct decisions can turn out badly; bad decisions can turn out well.
(3) The assumption behind your comment - that nobody has the right to discuss their approach to the market without a great track record - would stifle debate and the exchange of ideas on sites like Seeking Alpha. Sure, someone has more credibility if they have a great track record, but to say they have no right to express an opinion without a great track record? That seems extreme and threatening.
Introducing My ETF Portfolio [View article]
Did you back test the strategy? How did it do during the last meltdown?
Individual Country ETF Portfolio for August [View article]
seekingalpha.com/data/...
New Brazil Mid Cap ETF Indicates It's Time to Short [View article]
One thing to look at, consistent with your thesis: maybe the closure of ETFs is a strong indicator for a bottom in sentiment. Again, you'd have to look closely at the asset class and why the ETF was being shut down.
New Brazil Mid Cap ETF Indicates It's Time to Short [View article]
I love the contrarian thought process here. However, some ETFs (such as the first gold ETFs) generated significant inflows into the underlying asset class, to the point that they raised the price of the underlying assets, which made the success of the ETFs self-fulfilling.
For your contrarian strategy to work, you need to be sure that the ETF doesn't fall into this category. Perhaps the key factor is whether there is significant pent-up demand for the asset class that the ETF will unleash.
My guess is that the new Brazil ETF doesn't fall into this category.
700 ETFs and Counting: A Bird's-eye View [View article]