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The American Funds Advantage?

I was forwarded an article that American Funds published touting the superiority of its funds relative to index strategies. The piece contains statements like this: “Some investment managers, American Funds among them, have distinguished themselves with a proven track record of consistently outpacing broad market returns.” And other fabulous statements like this: “Obviously, some are playing at a higher level, and using the averag....

Is DFA’s New Research Flawed?

Folks have been lighting up my inbox with questions and comments about an Advisor Perspectives piece by Michael Edesess (link included for the three of you who may not have seen the piece … you three may also not be aware that Miley Cyrus appeared on the MTV Video Music Awards … link not included).

The article is critical of DFA’s recent work on profitability. ....

What Are Fixed Income Markets Now Telling Us?

Fixed income markets have experienced a fairly substantial shift in 2013. In particular, we’ve seen a strong shift since Federal Reserve Chairman Ben Bernanke indicated that the Fed might tighten monetary policy earlier than originally expected. I thought it would be worth examining what fixed income markets were projecting at the end of 2012 relative to what they’re projecting now. While acting on personal (or expert) predictions of market movements usually leads to trouble, I think it can be useful to understand what....

How “Moneyball” and Investing Are Related

Michael Lewis authored “Moneyball” back in 2003, and it seems like it immediately captured the attention of baseball fans and insiders everywhere. Since that time, its concepts have been applied to numerous areas including basketball, which is in the midst of a seismic shift in how basketball is evaluated and what skills and actions contribute th....

Is High Inflation All But Guaranteed?
Many pundits (and a good number of individual investors) have been predicting high inflation as a result of the Federal Reserve’s monetary policy. Over the four years ending 2012, inflation has averaged just 2.2 percent per year, and currently the market expects inflation over the next five years to be just 2.1 percent per year. Clearly, realized inflation has been low and the market expects inflation to be low in the future, which can hardly be interpreted as signs that high inflation is a foregone conclusion. This ....
What Should We Expect from Stocks?
The past year or so has provided a vibrant debate about the long-term returns stock market investors should expect. Part of this discussion has been driven by the long-term return assumptions used by public pension plans in the U.S. It’s also been driven by the great stock market performance of the past few years and how that should impact long-term expected returns. Further, some investors seem to be worri....
The SPIVA Scorecard and Investing in Money-Losing Funds
Late in 2012, I reviewed the mid-year 2012 Standard & Poor’s Indices Versus Active scorecard. S&P has since updated the scorecard through year-end 2012, and I wanted to quickly hit on some of its findings. I’ll focus on the five-year results since those are long enough to actually begin drawing mea....
Do Sectors Matter?
As the number of exchange-traded funds (ETFs) has multiplied, the number of sector ETFs has exploded. There are now ETFs that cover every sector of the U.S. stock market imaginable (health care, telecommunications, consumer discretionary, etc.) and even international and emerging markets sector ETFs. Lost in all this is the general finding that sectors really aren’t that important, particularly over longer periods of time.
 
The long-term returns of most....
Examining Bond Market Risk
With interest rates on intermediate- and long-term bonds ticking up a good bit over the beginning of the year, many investors are refocusing on the potential risk within bond portfolios. (As one data point iShares 20+ Treasury ETF is down about 1.8 percent year-to-date.) For many bond portfolios, that risk can come from either interest rate risk or credit risk. Here I’ll focus on interest rate risk.

The potential interest rate risk in a bond or bond fund portfolio is largely determ....
Finding Good Yield Data on Bond Funds
You might think finding accurate bond fund yield information would be simple. From my experience, you’d be wrong. It’s incredibly difficult to sort through the myriad of yield measures published by the fund companies themselves or third parties like Morningstar, or even dictated by regulatory bodies like the SEC.

The Gold Standard: Yield-to-Maturity

A good rule of thumb is to ignore any yield measure other than yield-to-maturity (and possibly yield-....
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