Shiller Says There Are No Genius Investors in the Long Run

While some investing approaches can work for long periods of time, over the long run, “without deep expertise, it makes little sense to veer much from a simple market portfolio—one that seeks to match the overall performance of the market, and not beat it.” This according to Yale professor Robert Shiller in a recent New York Times article. Using the example of Warren Buffett’s investing prowess, Shiller underscores that investors who have attempted to mirror his strategy don’t “understand exactly how he makes his decisions, they don’t have his edge,” and, he adds, “must come to the party late and […]

Vanguard Has Seen More Inflows than All Competitors Combined

In the last three calendar years, investors have poured $823 billion into low-cost index and ETF funds managed by Vanguard, about 8.5 times as much as all of its competitors combined, according to a recent New York Times article. The article quotes Morningstar’s Alina Lamy, who says this type of flow is unprecedented. “Since the crisis,” she says, “investors have been saying, ‘I may not be able to control the market, but I can control how much I pay in mutual fund expenses.’” The phenomenon, coined the “Vanguard effect,” has “come as an existential shock to a mutual industry that […]

Yale’s Actively Managed Fund Performance Waning

The majority of the Yale University endowment fund is invested with active managers but, if you compare its returns to low-cost active strategies rather than to passive indices, “Yale’s active managers don’t look so special,” writes Bloomberg’s Nir Kaissar. In its recently released 2016 annual report, the article says the esteemed university’s endowment rebutted “fee bashers” by arguing, “The important metric is net returns, not gross fees.” Kaissar points out, however, that Yale’s attempt to substantiate high fees in the name of net returns is no longer valid.  While low-cost “smart-beta” funds haven’t been around long enough to allow a […]

Does Passive Investing Resemble Marxism?

According to a team at Goldman Sachs, says an article in this month’s Bloomberg, the rise of passive investing has the effect of “rewarding corporate directors more equally than the fundamental performance of their respective businesses might warrant.” In other words, the move toward passive funds may be leading to a rise in increased correlation among share price movements which, in turn, makes it more difficult to establish to what extent returns are attributable to the fund management performance. The report claims: “Given the significantly lower turnover of passively-managed investments and the extent to which equity prices now also move […]

Active Investors Get a Chance to Shine

From the investor’s standpoint, a low level of unemployment isn’t necessarily good news, says a recent Bloomberg article. However, it can bode well for active versus passive investors. When more people are working, it says, “Wage growth can exceed economic growth, putting pressure on corporate profit margins. Interest rates can rise, tightening financial conditions. Inflation can rise, putting more pressure on central bankers to remove liquidity from the system.” For active investors, however, it presents the opportunity to outperform benchmarks, “which are much lower hurdles to beat than in the early investor-friendly stage of an expansion.” During the current, long-winded […]