George Morgan's Blog, page 15

Smart Beta? Maybe?

About a month ago, I read an article in the Wall Street Journal about some newfangled index funds called smart beta funds. At first I thought the concept was just a Wall Street marketing gimmick, but I am beginning to think differently about the concept if were applied to a portfolio of individual stocks. The argument states that if you have an index fund that mimics a market cap weighted index such as the S&P 500, the big cap stocks will have more influence on the movement of the market...

Alarming Trend

While there are some green sprouts in the CBO report on fiscal 2013, there are also some alarming trends. Because of the sequester and spending caps actual government spending declined from $3,454 trillion from the previous year’s $3,538 trillion. Partially because of the elimination of the payroll tax holiday, Federal revenue increased from $2,449 trillion in 2013 to $2,774 trillion. What remains frightening is that these slight improvements resulted in no measurable impact on the Federal de...

How Did That Happen?

Last week the Congressional Budget Office released its annual report on the fiscal year ended September 30, 2013. The report showed that the 2013 budget deficit was $680 billion or 4.1% of GDP, as compared to a $1.1 trillion deficit representing 6.8% of GDP from the previous year.  Does this mean that Congress and the Obama Administration have finally gotten their fiscal act together? I will give you some details and then let you decide. Two factors leading to the spending reduction that...

Mom And Pop Are Back?

There is an article on the front page of this morning’s Wall Street Journal that I feel compelled to comment on. The theme of the article is that now that the market has had four winning years and stands at record levels, mom and pop investors are beginning to feel comfortable with equities and are putting their money back into stocks. I feel there is an element of truth to this proposition, but I also feel that the evidence is anecdotal and mom and pops impact on the broad market is negligib...

Keynes And The Mixed Economic News

There is an article on the Opinion page of today’s Wall Street Journal that has an interesting perspective on the recent economic growth numbers. The 2.8% third quarter GDP growth number came during a period in which we had a sequester on government spending, a shutdown of nonessential government activity and a slight reduction in the current deficit. From this the author concluded that the reduction in government spending and activity did not negatively impact the economy. Then, the article...

Mixed Economic News

Yesterday, the Bureau of Labor Statistics reported that in the third quarter the economy grew at an annualized rate of 2.8%, however, when this figure is adjusted for the changes in inventories, the real economy growth number is a tepid 2%. Today’s job figures indicated that the economy added 204,000 jobs last month, a slight uptick from the last several months, but nowhere near the number needed to get back to normal levels. While private sector hiring went up, so did the unemployment rate,...

New Index Giant

According to data just released by Morningstar, the Vanguard Total Stock Market Index Fund has displaced the Pimco Total Return Fund as the world’s largest fund. The Vanguard fund has grown to $287 billion in assets under management and the Pimco fund stands at $247 billion. The Pimco Total Return fund is a hybrid that stresses income and does so by relying heavily on bonds and dividend paying stocks. The objective of the Vanguard Total Market fund is to produce the same return that investors...

International Investing

Several people have asked me what percentage of their 401(k) assets should be in international markets. My initial response is it depends on what you’re trying to accomplish. The basic logic behind international investing is that some of the international economics tend to grow faster than the American economy, hence the potential for better growth. Secondly, if the American markets take a tumble, you have the protection of diversification. There is an element of truth to these arguments, but...

Dumb Beta

Beta is a measure of how closely the movement of an individual stock tracks the movement of the overall market. If a stock has a beta of 1 that means that it moves exactly as the market moves. A beta of 0.5 would mean that the stock moves with the market about 50% of the time. Index funds are designed to have a beta of 1, but, humans think that they are smarter in the market and can build an index fund that outperforms the indexes. The industry calls these funds smart beta funds. They use the...

More Investor Underperformance

Morningstar, a mutual fund research company, studied 47 funds with assets of more than $1 billion and found that for last 12 months, their investors underperformed the funds by at least 3%. Many of these funds were formerly in a hot category’s that suddenly turned cold. Morningstar also reported that for the last five years, investor in all funds had underperformed the funds by an average of 1.17%. Vanguard has conducted similar research and found that the more narrowly defined the fund and t...