The title is just a humor attempt and this picture seemed like a better choice than one from the movie; there was no wrath, just some good questions from Seeking Alpha contributor Richard Kang about the cornucopia of new ETFs listed or in the pipeline.
He asks for my opinion about WisdomTree method of dividend weighting compared to PowerShares RAFI funds which scores companies buy sales, income, book value and dividends. I just did a write up for TSCM about the Rydex equal weight sector ETFs. In the course of writing that article I saw that most of the RAFI sector funds look a lot like the Sector SPDRs in terms of weighting a $200 or $300 billion at 20% of the fund, or thereabouts. These lopsided funds are quickly fading as being the best choice.
The WisdomTree funds that are out so far offer a type of differentiation that I find useful in conjunction with other stocks and ETFs I use. If they are coming out with domestic sector funds, as appears to be the case, well I am initially skeptical that they can be different, but of course I will check them out. Whereas when I first heard about their foreign sector dividend ETFs I was immediately interested and sure enough I have used one of them in broad fashion for our clients.
Richard notes that both dividend weighting and RAFI weighting both lagged the SPX during the late 1990's.
I don't know that as fact but I will take Richard's word and say that intuitively I believe he is correct about that. The building of the bubble may not be the best time period to benchmark against. In all of my articles for TSCM about various products that aren't heavy in mega caps I caution that toward the end of most cycles it is the mega caps the lead. I heard something on CNBC about only 30% of SPX components beat SPX during the bubble years. This is only true for a short time during cycles so I put less weight on the importance of this tidbit.
Lastly he asks for my two cents on the increasing number of funds that do some sort of fundamental indexing.
I say bring it on. More choice is a win for investors. If a do-it-yourselfer needs an ETF for energy and financials they have maybe ten funds to look at for each. It does not seem like a stretch to think a Vanguard fund could be best for one sector while an iShares product is best for the other one. I have a couple ETFs for some clients that I will be swapping out of in favor of newer ones that do something similar but, IMO, better.
This is something I have written about for two years now; there will be better mousetraps. We have seen that recently and I think the statement is still true looking forward.
5 comments:
Seems to be an important phrase or sentence left out of skipped in 2nd paragraph. Could that be filled in? Thanks for the analysis.
Roger do you read Bill Cara? He has been accumulating hard information from brokerage houses about the "plight of the consumer". A bearish pic juxtaposed agains the "trend" and cnbc buzz. Is Bill a permabear type, or pretty good at leading fundamental indicators, not necessarily in tune with price action?
To the 8:39 comment, not sure what you mean exactly. What funds are better? Is that the question? Between the blog and my TSCM stuff (which is almost all free) i think it is clear where I am headed.
To the Bill Cara comment. His RSS feed is on MyYahoo, I see two or three posts a week that attract my attention to read. Candidly I do not read his posts on the topic you ask about.
I'm not even sure what the topic is? Brokerage firms hosing clients? Most of the products I have looked at have conflicts and structural flaws.
Obviously I think buyside is a better way to go than sellside. The focus of this site however and the other writing I do is to try to help do-it-yourselfers be more informed.
Roger, help me out with something. A consistent theme of your work is the desirability of accepting slightly less than market returns in return for reduced risk. But the market perform very well over rolling 10 yrs., and superbly over rolling 20 yrs. So, why settle for below-average returns, especially for well-diversified, long-term, do-it-yourself accounts, when volatility is actually working for you. This would apply to retirement accounts, except for the last few years before withdrawal, to prevent downside volatility on accumulated assets.
The one answer I can come up with is the need to tailor the account to the investor's risk tolerance, but that's really a personality consideration, not an investment issue. I'm sure I must be missing something here...
Choice is a good thing. Having transparent and coherant information for all investors is also a good thing. My reservation about the ETF revolution is that funds will not provide clear facts about marketing costs, trading expenses or perked compensation for portfolio inclusion of certain securities or indexes.I hope my reservation is unfounded.
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