ETF Exchange Traded Funds (ETFs) 2019

Geez I’m on the wrong forum.

 

The problem with ETFs.
For anyone interested

 

This was an awkwardly written article. Seems like the author is subliminally spruiking small caps - perhaps ones that he might be managing . The article felt a bit infomercial-ish.
The writer's site will give some insights into possible motive ABOUT & BENEFITS - Marcus Today

 

I'll resist reading it.

But thanks for posting as some may find value in it.

 

As soon as I see this author’s Name I never bother to read the article.

 

There are lots of bizarre numbers thrown about by this guy. I think potentially index funds may lead ot mis-pricing - but this will be balanced by active funds exploiting the errors and out-performing - until equilibrium is re-established. I think the answer to this guy is - if there is mis-prising and lack of price discovery - knock yourself out - profit by it.

I think index funds will however lead to less compensation for risk. Intsead of long range return of 5-7% abovie CPI markets will fall to 2-4%* (BS Numbers I made up) as people bid up stocks via ETFs as they become comfortable with indexing. It will be interesting to see if the new indexers can hack a 50% fall in the value of their funds when **** gets real sometime in the next five years - one accidental missile in the Soith China Sea might be all it would take. I also suspect that there will be days when the index funds fall up to 5% more than their baskets as people run to the exits.

 

Correct me if I am wrong. But would indexing not creating a calming affect in the market?
Think about this. With index investing the only way the market moves is money in or money out by the individuals who own that capital. so for a major drop many people in index funds would need to cash out.
Now on the active side, investors can opt to keep there money in the market. Though the active fund manager could decide its a good time to move a good chunk into cash and sell down large lots of shares. This results in major drops if done by the many active mangers out there.

So a future market held largely by index funds would mean share prices would be dictated by how much money enters or exits the market rather than the performance of any individual company.

 

I don’t think cycles will ever disappear hence I pay little attention to these types of stories. Personally being a buyer during distressed markets (never a seller) I will be thrilled if ETF index investors heading for the exits cause greater volatility. Don’t others here want the same?

 

Didn't read Padley's article but have read others on Blurry's email response to Bloomberg News questions

From what I've read Blurry see's value in value at present, as do others with a contrarian view or belief in reversion to the mean

Rob Arnott: Don't Sleep on Value Investing (Especially Emerging-Markets Value)

On Indexing Rob says

 

I don't doubt this article is more 'click bait' but guess that it's possibly referring to a lot of new investors entering the market via index ETF's as they're a great way for ease of investment & for many years now the only way for the market has been up. Many of these new investors have not experienced a GFC type of event so am assuming that the article is inferring that many would panic & sell, thus creating this panic enviornment. Still, these 'new' investors could only be small bikkies compared to more seasoned investor types, who knows. I wouldn't mind this panic type of thing as I'd then load up on index etf's ( I hope )

 

From the interweb

Michael Burry is a well-known value investor and the founder of Scion Asset Management. Scion Asset Management had more than $100 in AUM in 2016 and started filing 13Fs. Unfortunately, its AUM must have declined below the $100 million reporting threshold as the fund stopped disclosing its 13F holdings in 2017. Recently he started filing 13Fs again. In the latest 13F filing Burry revealed a portfolio of stocks valued at $93 million. Here is some background information on Michael Burry from Insider Monkey (you can see his latest holdings on the same page)

 

Debunking the Silly “Passive is a Bubble” Myth

by Ben Carlson

This stuff scares people because it’s coming from an intelligent investor who made a name for himself during one of the biggest market crashes of all-time.

Sometimes even the best investors are too smart for their own good when it comes to understanding the simpler parts of the investing world.

 

There was some very interesting and compelling arguments in this pod cast. However he seems a bit too confident in his own views or his research.
I can see from this why @Nodrog might be attracted to value contrarian position, but for me it feels a bit too active to do so. The usual questions arise like how long until value gets strong again, what are you missing out on in the meantime, will it be enough to compensate a long wait.
Plus importantly, the active purchase of 'value' implies you must be active again in 5, 10,15 years time after it's had it's run and before value drops out of favour again. Otherwise you would not take away any outperformance....?

 

I don’t pay much attention to that stuff. The main motivation for me is to simply have some diversification other than the same concentrated large caps that dominate the ASX index and large cap LICs.

Excluding International that means mid / small caps. I don’t like indexing for these sectors of the ASX. Favouring dividends I look for active mid / cap Mgrs who do same which means they tend to avoid the speculative, momentum / growth part of these sectors / index such as mining / tech. What’s left is likely more value focused Mgrs. Buy cheap, set & forget whilst enjoying the dividends. Who cares if the LIC stays out if favour for long periods if the investor is still getting paid.

Nothing difficult or requiring much activity on my part. Eg have money to invest, anything with an attractive discount? Yes, beauty buy. No, the index will do. We’re talking a few minutes occasionally not sitting in front of the computer all day trading and / or analysing company reports.

As for the LIC mgr’s future importantly first up buy at a discount. If over time the LIC struggles with ongoing NTA discount the barbarians may take control to liquidate the LIC at NTA. Likely most investors will make a profit. Not ideal but not the end of the world. Additionally these holdings are not the large core of the portfolio. For me the additional diversification is worth it.

 

You might be taking the view that long term (over full cycles) value investing will have a persistent advantage net of costs leading to out-performance even with the periods of under-performance. If that is your belief you only need to invest in value positions. If you also acknowledge you might be wrong then perhaps you only take up these positions when they appear relatively cheap to give a safety net. It is an active approach based on a known - value is currently under-performing and a thesis that long term value outperforms - so it is a good time to buy.
In this scenario you can simply sit on your hands whenever you choose to, no further active decisions needed.

I am in no way saying the above it correct, just looking at the decision in a slightly different way.

Anything other than pure indexing is in someway making an active decision, for/against emerging/aus/developed/etc etc.

 

Speaking of bubbles.

In years gone by, a manager would clip 1% p.a.+ from assets and spend it on yachts or whatever, but the money would leave the market. Increasingly investors are been savvy about fees and that 1% p.a. is staying IN the market. Is this long term going to compress returns as there will be more money seeking returns in the same pond? Some other effect?

 

Thank you for explaining your approach. This sits a bit better with me now I understand. Do the 'value' managers you describe will pay consistent dividends?

This is a good point. If you believe the thesis then it's good time to buy 'set and forget' type funds in this value space.
Only if you believe it all of course!!! I am sure there are compelling contrary arguments out there!

 

For more on whether “value” is worth investing in now start from around the 32 min mark in this podcast. It’s not a long discussion to have to sit through. @Bigchrisb (@dunno although I’m sure none of this is new) perhaps this might be of interest:

Episode 013: Bogleheads on Investing - guest Dr. Bill Bernstein, host Rick Ferri

Note though that I think Bernstein takes advantage of these factors through index product. VVLU is a global value ETF available locally which @dunno invests in.

 

Hi all
Was just wondering if anyone had more insight on how VVLU works. I've read PDS and fact sheets etc. @dunno do you have more?
Mainly wondering, if their proprietary quant system picks a big spread of the best value stocks regularly, I presume that when value comes into favour again the whole base of value stocks are lifted e.g. P/E goes up and/or growth stocks come down. So value performs better. At such a time, how do they make sure that they don't just rebalance into worse and worse stocks, chasing that fundamental measure of "value"?
Hope that question makes sense...

 

In case anyone is with me, I have found the European mgd fund version of VVLU with almost 4 years of performance history. Vanguard: Helping you reach your investing goals | Vanguard

Also did my own research on value indices and value investing. Cheers.

Also VVLU seems to go deeper into value than the global value benchmarks. If you compare the etf price to book etc etc vs index. Wonder if that is more risk, for long term more return...