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Some argue that lower stock correlations make a better environment for active managers. But Jim Rowley, a senior investment analyst in Vanguard Investment Strategy Group, doesn’t think this is necessarily the case for three key reasons.
1. “Correlation shows directional movement of stocks, not the magnitude of movement.”
2. “No matter the correlation environment, it’s still a zero-sum game.”
3. “Active management has the potential to add value in up or down markets.“
In the past year we’ve seen a rise in Strategy ETFs. These differ from others by offering “an alternative exposure that tries to beat the market or offer some kind of enhanced exposure,” according to Sam Lee, a strategist and also the editor of Morningstar ETFInvestor. So how do you know if these are right for you?
“I think it depends on how strongly you believe in these factor-tilt ETFs, or strategy ETFs, because if you are comfortable owning actively managed mutual funds in your portfolio as your core holdings, as many investors do, then there’s nothing that would prevent you from owning these factor or strategy ETFs as your core holdings,” says Lee.
“The way I think about it is many of these ETFs are dirt-cheap or the best ones are dirt-cheap. So, even if they don’t work out, so that is the supposed advantage isn’t realised going forward, you haven’t lost anything, if at all because these, especially iShares ETFs, charge close to passive management fees.”
The most basic measure of stock market value is the price-earnings multiple. And “market multiples rarely trade at average levels,” writes Morgan Stanley’s Adam Parker. This is crucial for anyone that looks at valuations before investing. The stock market rally in 2013 was largely driven by multiple expansion not earnings growth. So one shouldn’t short the market just because the multiple is above its mean or vice-versa.
Why A Blanket Ban On Commissions Won’t Empower Investors (CFA Institute)
70% of respondents of a new CFA Institute study said “inappropriate remuneration structures biased towards volume sales or specific products,” are the main cause of mis-selling. 46% said the main consequence of banning commissions is that distributors will shrink their pool of offerings to those that they continue to get fees for.
“Transparency should be part of any solution aimed at addressing mis-selling because simplified disclosures would give investors the information they need to make informed decisions,” Matt Orsagh, director of Capital Markets Policy at CFA Institute said. “It is also important to pursue uniformity in fee disclosures across jurisdictions to allow comparability of fees across markets, especially in the EU, where manufacturers can sell investment products across borders.”
“Our survey results indicate that CFA Institute members believe a ban on commissions will result in an investment landscape with less choice for investors and a market that under-serves, or does not serve, smaller clients.”
The Global Stock Market: 1899 Vs. 2013 (Credit Suisse)
The global economy and global stock markets have changed a lot in the last century. Credit Suisse is out with a chart that shows the relative market caps of global stock markets at the end of 1899, and at the end of 2013. “Markets that are not included in the Yearbook dataset are coloured black. As these pie charts show, the Yearbook covered 98% of the world equity market in 1900 and 91% at end-2013.”
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