Mutual Funds

Risk-Parity Funds

Risk-parity, also known as balanced-risk funds, is a new category of asset allocation funds. Advocates of risk-parity funds take the position that a typical asset allocation fund with a 60/40 (stock/bond) mix really has about 90% of its risk coming from the stock portion—meaning the overall risk level is higher than most investors would suspect. In a risk-parity fund, 50% of the portfolio is in bonds, 33% is in cash and the remaining 17% is split between stocks and alternative assets such as commodities.

Previous Post
Active vs. Passive

Active vs. Passive

At the beginning of 2001, there were over 540 index funds; of those, over 130 (25% of the index funds) outperformed their peer group 10 years later. Another 245 (45% of the index funds) underperformed and the balance (30%) were either liquidated or merged during the 10-year period.

Previous Post
Share Class Fees

Share Class Fees

According to The Wall Street Journal, as recently as 1989, the total number of share classes matched the 2,262 mutual funds in the U.S. (excluding money market funds). By 2010, there were 6,928 U.S. funds available in 20,188 share classes (meaning each fund offered ~ 3 different share classes). A 1% difference in annual fees can have a significant impact over time.

Previous Post
Beating Benchmark

Next Post
Active vs. Passive

Year-End Window Dressing

Many stocks that have done well for the first 50 weeks of the year frequently trade even higher during the final 1-2 weeks of the year (e.g., Video Display +38% and another 4% during the 51st week of the year). Conversely, bad losers for year-to-date can take a final beating as the calendar year comes to a close (e.g., Salesforce.com -19% for the first 50 weeks and another 8% during the 51st week).

 

Previous Post
Mutual Fund Fees

Mutual Fund Fees

According to The Wall Street Journal (December 2011), Over 10 years, an investor with $200,000 already invested in mutual funds and adding another $20,000 a year, could end up with an extra $48,000 if he could save one percentage point in yearly fees. A study done by IndexUniverse for the WSJ looked at returns of five well-known U.S. stock funds (Dodge & Cox Stock, Windsor, ICA, Fundamental Investors and GFA)) showed that their active management was explained entirely by three factors—beta, size and style (traits that can easily be duplicated by an ETF).

Previous Post
ETF Taxation

ETF Taxation

The vast majority of ETFs are regulated as traditional mutual funds under the Investment Company Act of 1940. ETFs and index mutual funds, rarely make portfolio changes. A main difference between the two is how ETFs operate.

Previous Post
Stable-Value Funds

Next Post
Mutual Fund Fees

Stable-Value Funds

Stable-value funds are comprised of bundles of bonds coupled with an insurance policy and are found in some 401(k) plans. These funds have been around since the 1970s and oversee more than $600 billion. Investors in 401(k) plans have more money in stable-value than in bond funds. During 2008, these funds were up 2% for the year. DuPont has ~ 60% of its retirement plan assets in stable-value funds.

Previous Post
Mutual Fund Liaisons

Next Post
ETF Taxation

Previous Post
Morningstar

Next Post
Stable-Value Funds

Morningstar

Morningstar now has a “forward-looking ranking system to supplement the company’s 1-5 star ratings.” The new system classifies a fund as a gold, silver, bronze, neutral or negative ranking, based on Morningstar’s prediction as to whether or not the fund will outperform its peers in the future.

Previous Post
S&P 500 Returns

Next Post
2011 Index Returns

For Advisors by Advisors. Browse all Programs.