Displaying items by tag: returns

(Shanghai)

If you or your clients own any Chinese focused ETFs, you will have noticed a glaring fact—they have hugely variant returns even when the underlying holdings don’t seem that obviously different. China is a study in how different index weightings and configurations can impact returns. For instance, Chinese stocks as a whole have fallen 21% this year, however the 40 or so Chinese focused ETFs in the US market have ranged from a 5% positive to negative 40% return. Even seemingly broad ETFs, like the iShares Large-Cap ETF, have very varying results, as despite the 21% fall, that ETF only dropped 13%. This is because it has a 50% weighting towards financial stocks, which were largely unscathed.

FINSUM: The key point here is to know what you are buying. Each of the indexes being tracked are quite unique, even if you think you are just buying a broad “China ETF”.

(New York)

Morgan Stanley has just put out a warning, or perhaps better stated, a notice to investors. The bank is reminding the market that this year will likely have the lowest returns in a decade. The bank’s strategists say that “2018 is on track to have the lowest share of positive returns adjusted for inflation across 17 major asset classes since 2008”. The poor returns have been particularly true for those holding globally diversified portfolios. What’s worse, Morgan Stanley thinks returns are going to get worse because of rising rates. According to the bank “We’re big believers that real rates matter most for risk markets, as it’s the rate over and above inflation that matters most for discounting future cash flows … As ‘invincible’ as the U.S. equity market has been, it hasn’t had to confront a different rate regime”.

FINSUM: If you look internationally, this has been a terrible year for markets, and it does seem true that rising rates won’t help anything in the coming year.

(New York)

One would think that with rates and yields rising, and set to continue doing so, dividend focused stock sectors might be suffering. Yet, the opposite is true in the last month, the biggest gainers in the S&P 500 have been the dividend stalwarts—utilities, consumer staples, and telecoms. The driver of the gains seems to be less about the returns provided by dividends, and more about the fact that these are defensive sectors that can protect against a downturn.

FINSUM: This development is a little confusing (but then again so is the whole market), as the defensive characteristics would seem to be somewhat offset by the downside of rising rates’ impact on these sectors.

(New York)

There has been a lot of media attention over the last year about the rise of faith-based and politics-based investing. New ETFs and advisors are currently cropping up to cater to investors who would like to invest based on these principles. However, Barry Ritholtz thinks the concepts may not be a good mix. The author looks at the returns of a popular biblical-based fund and finds that its performance lags broader indices significantly. Ritholtz argues that investors need to check their emotions at the door when investing, which is why this kind of philosophical investing may not create good returns. Ritzholtz says “Do your civic duty on Election Day and vote, go to church on Sundays, but always bring a cool unemotional detachment to investing on Mondays”.

FINSUM: The fees on these types of funds also tend to be much higher, which means that you are losing on both ends. That said, the peace of mind people get from investing in things they feel morally comfortable with may be greater than the expense.

(Washington)

Last week the DOL put out a warning to firms about launching and holding ESG investments. About the socially and environmentally conscious investments, the DOL reminded fund providers that fund performance needs to trump any social impact considerations of the funds. Despite the warnings, Bank of America has just launched five new model ESG portfolios.

FINSUM: What does this mean exactly? ESG portfolios have an explicit focus on social good, which at times could mean the funds either out- or under-perform. To us, this is an odd and pointless warning.