Mutual Funds

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Social Security Tilt

Economics of ETFs

An established ETF operator can make a small profit by offering a new ETF that brings in as little as $100,000 in annual revenue because those established firms can spread out a number of operating costs across many other funds. Companies just entering the business will need to generate at least $250,000 in annual fees.

 

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Long-Term Care Basics

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Dividend Taxes

Risk Parity Funds

The major selling point of “risk parity” funds is they are designed to make money in most environments. These funds typically have their assets evenly divided into three broad categories: stocks, bonds, and commodities. Risk parity funds use leverage to increase returns on bonds so that the bonds have returns similar to stocks.

 

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Oil Production

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VIX

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Problems With Wind Power

High-Yield CEFs vs. High-Yield Open-End Mutual Funds

Over the 30-day period May 23 through June 23, 2013, high-yield closed-end funds (CEFs) dropped 10.7% vs. 3.4% for its open-end counterpart (source: Morningstar). The primary reason for the large disparity is the use of leveraging by many high-yield bond CEFs. As interest rates rise, bond prices decline while the price of borrowing increases.

 

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Reconsidering Gold

Actively Managed Mutual Funds

Research by Sharpe in 1992 showed that style and size explain roughly 80-90% of mutual fund returns. A more recent study by Morningstar (domestic equity funds from 1/1991 to 12/2011) confirms Sharpe’s general analysis. According to the Morningstar study, the average correlation of the respective fund to its Russell index (either the Russell 1000, Russell Mid Cap, or Russell 2000) was 0.94; this translates into an R-squared (coefficient of determination) of 86%. However, the correlation has not been constant.

 

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Margin Debt

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Stock Buybacks

Chasing Mutual Fund Returns

According to Mark Hulbert, editor of the Hulbert Financial Digest, one of the best methods for picking mutual funds ignores long-term results and focuses only on returns over the previous 12 months, with an emphasis on one-, three-, and six-month trailing returns. In a April 2013 WSJ article, Hulbert Financial Digest stated that of the dozens of stock fund advisory services it tracks, this short-term strategy (used by No Load FundX) had the highest returns. Over the past two decades, No Load FundX, edited by Janet Brown, averaged 11.0% a year vs.

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S&P Dividend Aristocrats

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Roth 401(k)

Invest in Second Best

According to 2012 research by The Leuthold Group, investing in last year’s 2nd-best performing asset category is the “optimal price-based strategy, and has been over the last 40 years.” Based on this strategy, for 2013 advisors should be recommending the MSCI EAFE, which returned 18% in 2012 (vs. 20% for NAREIT Index). Looking at S&P 500 sectors, consumer discretionary stocks should be purchased for 2013 since they returned 24% (vs. 29% for financial stocks).

 

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Shift from Load Funds

Shift from Load Funds

In 2006, no load fund shares accounted for 63% of all fund sales recorded by advisors (source: Strategic Insight). By 2011, the figure was 80%. Today, load shares account for 50% of mutual fund sales at Edward Jones and 35% at Morgan Stanley Wealth Management. B shares represented 1% of advisor mutual fund sales in 2008, 2009, and 2011; the figure dropped to roughly 0% in 2011.

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