(New York)

Investors likely already know that low cost index funds tend to greatly outperform high fee actively managed funds (to the tune of 1.5% or more annually). That comes as no surprise. However, what was surprising to us is that in fixed income, the tables are greatly turned. While passive funds do have a slight edge over active ones on average (0.18% per year), in many cases high fee actively managed fixed income funds outperform passive ones. This holds true over long time periods, including ten-year horizons.


FINSUM: This is an interesting finding and one that makes intuitive sense. The bond market is vast, hard to access, and full of intricacies. That kind of environment lends itself to specialism in a way that large cap equities does not, and the performance metrics show it.

Published in Bonds: Total Market

(New York)
So across the wealth management industry there has been a gnawing and anxious debate that may be keeping advisors up at night—does the fiduciary rule mean that advisors need to always offer the lowest cost funds to clients? Well, one lawyer’s opinion is a resounding “no”. Citing the rule itself, the DOL says “Adviser and Financial Institution do not have to recommend the transaction that is the lowest cost or that generates the lowest fees without regard to other relevant factors”. That other relevant factor could be a myriad of things, such as the other holdings in a portfolio or whether one fund has higher performance than another or a different fee structure and so on.


FINSUM: We have personally seen a lot of debate on this issue, and while many do realize that they do not have to offer the lowest cost investments, fear of regulatory trouble pushes them to do so.

Published in Wealth Management
Thursday, 04 January 2018 11:22

US Investors are Avoiding American Stock Funds

(New York)

Anyone on the lookout for signs of a correction might want to pay attention to this. New data shows that US investors are avoiding US stock funds. Of the $4.1 bn poured into mutual funds and ETFs in the week ending December 27th, around 70% of the money flowed overseas. The trend is nothing new though, as US stock funds saw their third straight year of net outflows despite the market rising strongly. Taxable bond funds and international stock funds have seen 56 straight weeks of inflows.


FINSUM: We don’t think this is a warning sign of anything other than good times to come. US investors tend to put more money overseas when they are bullish, so this is not a negative sign.

Published in Eq: Large Cap
Wednesday, 25 October 2017 11:05

T.Rowe is Plowing into the Advisor Space

(New York)

T. Rowe Price, a big financial player primarily known for its funds business, is pushing hard into the advisor space. They are trying to wholesale their products through advisor channels. Unlike many rivals, T.Rowe is not trying to expand or sell passives, it is instead focused on quality and competitive pricing. Going after advisors is a big change for T. Rowe as they have historically shunned the group, making themselves famous for no load shares in the 80s and 90s. However, it has beefed up its wholesaling team and joined Schwab and Fidelity on their no-transaction-fee platforms, which are very popular with advisors.


FINSUM: The RIA market is growing quickly and firms are very fast realizing that there is a big opportunity in RIA distribution. Expect more of the same.

Published in Wealth Management

(New York)

Advisers look out! A change to the makeup of the S&P 500 may mean your clients see bigger tax bills. The change has to do with REITs becoming their own sector on the S&P 500. Because REITs are being decoupled from the financial services sector on the S&P 500, many funds may sell their REIT holdings to match the index. In doing so, those holding such funds could see unexpected taxes from the selling of positions. “The average investor has no idea what’s going on, but this is a big shift”, says a commentator in the piece. Investors may also see their exposure to REITs drop significantly, which could be a worry because the sector has historically performed well. REITs account for about 20% of the S&P 500 financial services sector.


FINSUM: This is something to start planning for. Nobody likes unexpected tax bills.

Source: Wall Street Journal

Published in Economy
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