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Fee Based Compensation Aligns Interests, Steven D. Dolvin

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Retail financial professionals have increasingly moved away from commissions and to a standard fee-based structure. This change should better align the interests of clients and advisors. For example, there is less incentive to trade. Moreover, there is little need for advisors to select funds that charge a high load, as their compensation no longer depends on the "kickback" received from the fund companies. As a result, the fund flow to high load funds has turned negative. See article here, Investment News.

Vanguard Vs. The Industry, Steven D. Dolvin

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For years, Jack Bogle (the founder of Vanguard) has touted the benefit of passive investing, which is primarily driven by the relatively low fees they charge. Moreover, Bogle has highlighted the inability of active investors to outperform the market. Recent large investor flows into Vanguard products suggests that investors are increasingly agreeing with Bogle. See article here, WSJ.

Do Women Generate Better Returns?, Steven D. Dolvin

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Some prior research suggests that women make for better investors, primarily because they generally trade less than men (meaning lower transaction costs). However, a new fund aims to exploit the benefit women may provide as board members. The Barclays Women in Leadership ETN will invest in companies with a female CEO or a board that has a membership of at least 25% women. See here for an article that discusses the new fund (WSJ).

See previous post (ETFs vs. ETNs) for a discussion of the fund structure.

Fees Matter, Steven D. Dolvin

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A 1% annual fee doesn't sound like much, but when compounded, fees paid to advisors and managers can have a significant impact on an investor's ending portfolio value. For example, consider two investors who each invest $200,000 and earn 8%/year (before fees) for 30 years. The first investor uses an ETF that charges 0.04%/year in fees, while the second investor uses a mutual fund charging 1.25%/year. The first investor ends with roughly $2 million, while the second nets about $1.4 million. The difference is purely driven by fees -- this is a huge cost. (See article here, Wall Street …

Active Vs. Passive, Steven D. Dolvin

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Market efficiency suggests that passive funds are the way to go, and average returns tend to support this. However, other investors prefer active strategies. Maybe the answer is not "either....or." As a recent Wall Street Journal article reports, both may provide benefits. See article here.

Levered Etfs, Steven D. Dolvin

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Levered ETFs are designed to track a particular benchmark, but in an exaggerated fashion. For example, the Pro Shares Ultra S&P500 (SS0) is a 2X fund, meaning its performance should be twice the level of the index. However, this performance only matches short term. In particular, since volatility reduces compounded returns, levered funds "lose" performance through time. In fact, some funds may actually produce a negative buy-and-hold return during even if the underlying benchmark was positive. Unfortunately, many retail investors are flocking to these funds without understanding their risks. (See article here, Reuters.)