Fitch mantém rating de Portugal em A- mas sobe outlook para positivo

[LTCM]

ASSET ALLOCATION: WHAT HAVE YOU DONE FOR ME LATELY

[ghorez]

http://money.usnews.com/money/blogs/On- ... -portfolio

Below are 14 Reasons to add Index Funds:

1. Lower cost: Morningstar research has shown that "low-cost" is the best predictor of future returns. Index funds have much lower costs than most managed funds.

2. Higher returns: Index funds (on average) have higher returns than managed funds as this Standard & Poor's Study concluded.

3. Lower risk: The increased diversification of index funds results in lower risk. Baer & Ginsler did a study of Standard Deviation for actively managed funds vs. the total stock market over both 5 and 10-year periods. Their conclusion: "The returns of actively managed funds were 20 to 25% more volatile than the broad market."

4. Consistency: Vanguard's Total Stock Market Index Fund ranked among the top 25% of large-blend funds in just three of the past 10 years. Nevertheless, because of it's consistency, only once falling below average, it outpaced 88% of all large-blend stock funds after taxes. (8/31/2013)

5. Continuation: Of 355 actively managed equity mutual funds around in 1974, less than half survive today. Indexers do not have to worry that their fund will disappear.

6. No style drift: We know that asset allocation determines about 90% of portfolio performance. Managed fund allocations often change.

7. No overlap: It is almost inevitable that a portfolio of managed funds will have overlap. This is not a problem with index funds.

8. No manager changes: History tells us that the average manager leaves within five years. Index fund investors do not worry about manager changes.

9. "No asset bloat" which often causes large successful funds to underperform (Magellan, Leg Mason Value Trust, etc.).

10. Less cash dilution. Index funds hold less cash than active funds.

11. Under-performance: No worry that a manager has "lost his touch."

12. Tax-Efficiency: Index funds are significantly more tax-efficient than most managed funds. It is after-tax return that counts.

13. Low maintenance: Index funds are simple, predictible, and easy to understand, explain, and maintain.

14. Peace of mind: Indexers know the averages are always working for them. The index investor has much less worry and more free time to spend with family and other more enjoyable endeavors.

by Taylor Larimore (bogleheads)

[ruicarlov]

Este é o meu primeiro post no fórum. Tenho estado a acompanhar este tópico com particular atenção e também a ler o livro que dá o título ao tópico

Estou a planear iniciar o meu investimento dentro de cerca de 15 dias. Trata-se de um investimento a 10/12 anos, com reforços trimestrais de acordo com os critérios de rebalanceamento já abordados.
Assim, elaborei uma carteira, que teria gosto que analisassem do ponto de vista de alocação, diversificação, etc..
Cá vai:

15,0% ETF Ishares 20+ Year Treasury Bond
10,0% Fundo ES Obrigações Europa (taxa fixa pública+privada) [JÁ SUBSCRITO]
10,0% Fundo Powershares DB Commodity Index Tracking
10,0% ETF Ishares Silver Trust [JÁ ADQUIRIDOS]
15,0% ETF Vanguard REIT
15,0% ETF Ishares Russel 2000 (USA low-cap) [JÁ ADQUIRIDOS]
15,0% ETF Ishares EURO STOXX 50 UCITS
10,0% ETF Ishares MSCI Emergin MKT

Basicamente 25% obrigações, 20% matérias-primas, 15% imobiliário e 40% ações.

Obrigado, e parabéns aos intervenientes por este tópico

Eu franzo um bocado o nariz aos reforços trimestrais. Quando se lida só com mutual funds não há problema, mas com ETFs há sempre as comissões de transação a ter em conta. Quanto menor for o valor investido maior o impacto das comissões. Reforços anuais parecem-me mais indicados. Ou então usar a IB. Ao custo de $1 por transação no mercado americano, não deves pagar mais do que o mínimo de 120USD/ano exigido por eles, mesmo com os reforços todos. Consoante o valor em causa até pode compensar.

Por mim não ponho ainda de parte a ideia da IB mesmo para os reforços anuais. Vou ver quantas transações vou ter de fazer no BEST para o meu rebalanceamento anual daqui a meio ano. Ao fim ao cabo, 8 transações no BEST custam quase 120 USD. Desde Junho até agora já recebi paguei 66$ de impostos sobre dividendos nos EUA. Se permanecer no BEST implica não conseguir metade disto através do acordo de dupla tributação, então o mais provável é mesmo as comissões mínima da IB justificarem a transferência da carteira para lá.

[Automech]

Bom post LTCM. Nunca é demais recordar.

[LTCM]

When markets disappoint and passive market or beta exposure does not deliver, investors often seek portfolio managers to generate returns through active security selection. An active equity manager, for instance, selects stocks and aims to outsmart the broad equity market to generate superior or excess returns above those of the passive index. But can active portfolio management compensate for the lukewarm underlying market returns?

Firstly, even brilliant active managers have limited magic up their sleeves. When a manager outperforms the market by 5% and the market falls by 10%, the investor is still left with a loss of 5%. Alpha alone is insufficient to compensate investors for falling markets. Secondly, good active managers are scarce. The odds are stacked against them and on average they fail to deliver excess returns. Numerous academic studies and financial theories agree that on average active managers lag their benchmark. The house always wins and the market normally beats the managers, not the other way around.

Beating a passive benchmark requires luck and/or skill. Luck usually runs out at some point. Skill is both rare and expensive. Most investors who tap active managers end up with average managers who lag their benchmarks after costs and fees. As the competition among active managers becomes fiercer, as the number of smart managers (e.g. hedge funds) who compete for alpha opportunities increases and as markets become more efficient (more information flow, more sophisticated players), the active management game becomes even more difficult to win.

Statistically, as the number of managers increases and fewer beat their benchmark, the chance of selecting an alpha producing manager decreases. This is one of the reasons that passive products which aim to track, not beat, benchmarks, have been gaining an increasing share of the asset pie.

[ghorez]

Este é o meu primeiro post no fórum. Tenho estado a acompanhar este tópico com particular atenção e também a ler o livro que dá o título ao tópico

Estou a planear iniciar o meu investimento dentro de cerca de 15 dias. Trata-se de um investimento a 10/12 anos, com reforços trimestrais de acordo com os critérios de rebalanceamento já abordados.
Assim, elaborei uma carteira, que teria gosto que analisassem do ponto de vista de alocação, diversificação, etc..
Cá vai:

15,0% ETF Ishares 20+ Year Treasury Bond
10,0% Fundo ES Obrigações Europa (taxa fixa pública+privada) [JÁ SUBSCRITO]
10,0% Fundo Powershares DB Commodity Index Tracking
10,0% ETF Ishares Silver Trust [JÁ ADQUIRIDOS]
15,0% ETF Vanguard REIT
15,0% ETF Ishares Russel 2000 (USA low-cap) [JÁ ADQUIRIDOS]
15,0% ETF Ishares EURO STOXX 50 UCITS
10,0% ETF Ishares MSCI Emergin MKT

Basicamente 25% obrigações, 20% matérias-primas, 15% imobiliário e 40% ações.

Obrigado, e parabéns aos intervenientes por este tópico

A tua alocação depende muito do teu conhecimento e do que pretendes exactamente. O que pode estar bem para mim, pode estar mal para ti.
Por exemplo:
(1) Obrigações: Prefiro Globais e de prazos mais curtos/intermédios. Logo o 1º ETF e o 2º Fundo não faria sentido para mim;
(2) Não aposto em matérias-primas. Mas se o fizesse, seria num ETF da DB x-trackers, que é mais barato (0,55%); O teu tem a vantagem de ser mais líquido;
(3) Quanto as acções prefiro ETF que já fazem diversificação global. Simples para mim é melhor.
(4) Se hipoteticamente comprasse algum ETF do Euro STOXX 50, seria o da db x-trackers. Custa 0,00%/ano.
(5) Cuidado que a iShares tem actualmente 2 ETF - que capitalizam dividendos - diferentes que seguem o MSCI Emerging Markets, dado que comprou o negócio de ETF da Credite Suisse. O ETF que era da Credite Suisse que segue o MSCI Emerging Markets é mais barato e mais líquido que o original da iShares.
(6) Não é claro se estás a apostar em ETF que distribuem dividendos ou não. A maior parte dos emissores de ETF na Europa têm dos 2 tipos: que distribuem ou capitalizam dividendos. Eu prefiro os que capitalizam.

Espero que tenha ajudado.

[FranzLiszt]

Este é o meu primeiro post no fórum. Tenho estado a acompanhar este tópico com particular atenção e também a ler o livro que dá o título ao tópico

Estou a planear iniciar o meu investimento dentro de cerca de 15 dias. Trata-se de um investimento a 10/12 anos, com reforços trimestrais de acordo com os critérios de rebalanceamento já abordados.
Assim, elaborei uma carteira, que teria gosto que analisassem do ponto de vista de alocação, diversificação, etc..
Cá vai:

15,0% ETF Ishares 20+ Year Treasury Bond
10,0% Fundo ES Obrigações Europa (taxa fixa pública+privada) [JÁ SUBSCRITO]
10,0% Fundo Powershares DB Commodity Index Tracking
10,0% ETF Ishares Silver Trust [JÁ ADQUIRIDOS]
15,0% ETF Vanguard REIT
15,0% ETF Ishares Russel 2000 (USA low-cap) [JÁ ADQUIRIDOS]
15,0% ETF Ishares EURO STOXX 50 UCITS
10,0% ETF Ishares MSCI Emergin MKT

Basicamente 25% obrigações, 20% matérias-primas, 15% imobiliário e 40% ações.

Obrigado, e parabéns aos intervenientes por este tópico

[Midas]

I was recently asked about the performance of funds run by Mark Mobius, who has been called a global pioneer by BusinessWeek. Mobius made his mark in emerging market funds, so it got me thinking about the performance of active emerging market funds as a whole. As it turns out, the picture isn't pretty.

First, let's see how Mobius has performed. Keep in mind that Asiamoney named him as one of the Top 100 Most Powerful and Influential People in 2006, stating that he "boasts one of the highest profiles of any investor in the region and is regarded by many in the financial industry as one of the most successful emerging markets investors over the last 20 years."

The first thing I did was to go back to an analysis I did on active management in emerging markets covering the 10-year period ending in 2006. For that period, Templeton Developed Markets (TEDMX) returned 8.7 percent per year. This compared with a 10.2 percent return per year for the DFA Emerging Markets Portfolio (DFEMX) and a 9.3 percent per year return for the Vanguard Emerging Markets Fund (VEIEX).

The next step was to update the data. The following are the returns for the 10-year period ending August 30, 2011.

Mobius also runs the Templeton Emerging Markets Small Cap Fund (TEMMX), which has an inception date of Oct. 2, 2006. For the three-year period ending August 30, 2011, the fund returned 9.1 percent. By comparison, the DFA Emerging Markets Small Cap Portfolio (DEMSX) returned 12.7 percent, outperforming TEMMX by 3.6 percent.

A very persistent investing myth is that active management is the winning strategy in so-called inefficient markets (such as small-caps and emerging markets. As my colleague Vladimir Masek put it: "If the 'active camp' is right, and bright, experienced, hard-working managers like Mobius can take advantage of market inefficiencies, then we should see them outperform market benchmarks by wide margins in the most inefficient markets, for example in emerging markets."

The evidence presented can't tell us how bright or hard-working Mobius is, as we know he's both. Instead, it can tell us which camp is more likely to be right.

Por acaso, tocastes numa questão interessante, o Mobius, ele é considerado o EM guru, mas curiosamente, dos fundos de investimento comercializados no Banco Best geridos por ele, nenhum me chamou a atenção até ao momento, em algumas categorias, existem melhores alternativas aos fundos dele.


Como esses dados estão algo desactualizados, e para exemplificar o que falei anteriormente, usei os fundos mencionados e acrescentei 2 fundos da Aberdeen e 2 ETFs (como não encontrei 1 ETF de EM Small Cap da Vanguard, usei outro ETF passivo, da SPDR), cada 1 de sua categoria:

Retornos anualizados de 3 e 5 anos e taxa de custos:

Emerging Markets (EM):
Templeton Developed Markets (TEDMX) = +0.02% / +2.53% / 1.70%
DFA Emerging Markets Portfolio (DFEMX) = +1.09% / +4.29% / 0.61%
Vanguard Emerging Markets Fund (VEIEX) = -0.75% / +3.17% / 0.33%

Aberdeen Global - Emerging Markets Equity Fund (ABEFROA:LX) = +2.53% / +7.05% / 1.99%

ETF:
Vanguard FTSE Emerging Markets ETF (VWO) -0.77% / +3.16% / 0.18%


Emerging Markets Small Cap (EM SC):
Templeton Emerging Markets Small Cap Fund (TEMMX) = +0.43% / +7.05% / 2.10%
DFA Emerging Markets Small Cap Portfolio (DEMSX) = +0.82% / +8.51% / 0.82%

Aberdeen Global - Emerging Markets Smaller Companies Fund (AEMSAUA:LX) = +5.84% / +12.60% / 2.03%

ETF:
SPDR S&P Emerging Markets SmallCap ETF (EWX) = -1.50% / +5.67% / 0.66%

Fonte: Bloomberg




Chega-se a várias conclusões:

As taxas de custos nos ETFs é menor, e nos fundos, a DFA tem os menores custos.

Os fundos da DFA são realmente melhores do que os fundos da Franklin Templeton geridos pelo Mobius, o facto de a DFA cobrar menos menos custos, poderá ter efeito na diferença entre ambas gestoras.

Os fundos geridos de forma activa pela a DFA e a Franklin Templeton são melhores do que os ETFs de gestão passiva, apesar dos custos superiores dos fundos, excepto numa única situação, a 5 anos, o VWO bate o Templeton desta categoria.

Os fundos de gestão activa da Aberdeen batem indiscutivelmente os fundos e ETFs, em alguns casos de cerca do dobro. E estes fundos não são institucionais como alguns dos fundos mencionados, tendo por isso, performances mais reduzidas e maiores custos. Têm das taxas de custos mais elevadas entre os fundos e ETFs, sendo a maior diferença entre Aberdeen vs. ETF, nos EM, 1.99% vs. 0.18% e nos EM SC, 2.03% vs. 0.66%.

Aparentemente compensa pagar mais comissões nos fundos da Aberdeen para poder ter melhores retornos.


Talvez alguém consiga explicar melhor estas diferenças nos dados obtidos?

[ghorez]

Pois, já reparei. Pouco depois do meu último post lá descobri a secção onde falam disso....

Back to the drawing board....

Não fosse esses 10 USD, e também eu já tinha ido para lá..

[ruicarlov]

Pois, já reparei. Pouco depois do meu último post lá descobri a secção onde falam disso....

Back to the drawing board....

[Tridion]

A Interactive Brokers ainda tem a comissão mensal mínima de 10USD por mês?
Andei a ver o site deles e em termos de preços e não vejo nenhuma referência a esta comissão mínima. Bem sei que aquilo está um bocado mudado, com os diferentes tipos de preços (flat rate vs Cost Plus), mas mesmo assim...

Enquanto ando à espera de resposta de como é a fiscalidade do Best Trading Pro ando a ver algumas alternativas para transferir a minha carteira de ETFs caso não haja solução para a dupla tributação de dividendos. O que me mantinha afastado da IB era os 10USD mensais. Se isso já não existir, torna-se seriamente uma opção a considerar.

Os 10USD continuam em vigor, se não fizeres mais de 30USD em comissões mensalmente. Se fizeres só pagas as comissões...

[ruicarlov]

A Interactive Brokers ainda tem a comissão mensal mínima de 10USD por mês?
Andei a ver o site deles e em termos de preços e não vejo nenhuma referência a esta comissão mínima. Bem sei que aquilo está um bocado mudado, com os diferentes tipos de preços (flat rate vs Cost Plus), mas mesmo assim...

Enquanto ando à espera de resposta de como é a fiscalidade do Best Trading Pro ando a ver algumas alternativas para transferir a minha carteira de ETFs caso não haja solução para a dupla tributação de dividendos. O que me mantinha afastado da IB era os 10USD mensais. Se isso já não existir, torna-se seriamente uma opção a considerar.

[LTCM]

I was recently asked about the performance of funds run by Mark Mobius, who has been called a global pioneer by BusinessWeek. Mobius made his mark in emerging market funds, so it got me thinking about the performance of active emerging market funds as a whole. As it turns out, the picture isn't pretty.

First, let's see how Mobius has performed. Keep in mind that Asiamoney named him as one of the Top 100 Most Powerful and Influential People in 2006, stating that he "boasts one of the highest profiles of any investor in the region and is regarded by many in the financial industry as one of the most successful emerging markets investors over the last 20 years."

The first thing I did was to go back to an analysis I did on active management in emerging markets covering the 10-year period ending in 2006. For that period, Templeton Developed Markets (TEDMX) returned 8.7 percent per year. This compared with a 10.2 percent return per year for the DFA Emerging Markets Portfolio (DFEMX) and a 9.3 percent per year return for the Vanguard Emerging Markets Fund (VEIEX).

The next step was to update the data. The following are the returns for the 10-year period ending August 30, 2011.

Mobius also runs the Templeton Emerging Markets Small Cap Fund (TEMMX), which has an inception date of Oct. 2, 2006. For the three-year period ending August 30, 2011, the fund returned 9.1 percent. By comparison, the DFA Emerging Markets Small Cap Portfolio (DEMSX) returned 12.7 percent, outperforming TEMMX by 3.6 percent.

A very persistent investing myth is that active management is the winning strategy in so-called inefficient markets (such as small-caps and emerging markets. As my colleague Vladimir Masek put it: "If the 'active camp' is right, and bright, experienced, hard-working managers like Mobius can take advantage of market inefficiencies, then we should see them outperform market benchmarks by wide margins in the most inefficient markets, for example in emerging markets."

The evidence presented can't tell us how bright or hard-working Mobius is, as we know he's both. Instead, it can tell us which camp is more likely to be right.

[LTCM]

If exchange traded funds had ears then they would definitely be burning right now.

A lot has been spoken about ETFs over the past few weeks and the bulk of it has not been very kind – at least that is what the proponents of the fund structure, once perceived as transparent and uncomplicated, would have you believe.

In fact, the cheerleaders of ETFs, which replicate the returns of different types of securities or indices while trading on exchanges just like stocks, believe the sector is under a sustained attack – and wrongly so.

That attack started at the turn of the summer when a spate of redemptions caused disruptions in the “plumbing” of several ETFs. That in turn caused many ETFs, which are able to create liquid funds out of potentially illiquid securities, to tumble below the value of their underlying assets.

Emerging-markets ETFs were among the worst affected as investors took fright that the end of Federal Reserve monetary easing would lead to outflows from developing countries.

Indeed, on one day at the end of June Citigroup stopped accepting orders to redeem underlying assets from ETF issuers after one trading desk reached its allocated risk limits. State Street also stopped accepting cash redemption orders for municipal bond products from dealers. Uproar ensued.

Tim Coyne, global head of ETF capital markets at State Street, told the FT that his company had contacted participants “to say we were not going to do any cash redemptions today”, adding that redemptions “in kind” were still taking place.

The tumble in asset prices had, however, unearthed cracks in the pipework.

Terry Smith, chief executive of Fundsmith and an ardent critic of ETFs, told FTfm: “Fairly obviously I regard the recent events as vindicating my stance. It is not just the plumbing that is at fault. These products are misunderstood and very probably mis-sold.” You cannot make an underlying illiquid asset liquid by putting it in a wrapper and simply calling it an ETF, he says.

Siu Kee Chan, an investment manager at ING Investment Management, adds that the “plumbing issues” should mark “the start of a move back to basics” for ETFs.

But are the problems overblown? “Yes,” according to Alan Miller, chief investment officer of SCM Private, an investment manager that builds portfolios using ETFs. “What other investment industry offers thousands of different products and yet none have gone bust, or even had to suspend its operations? Considering the amazing diversity of underlying assets offered, it is quite an accolade that investors have always been protected,” he says.

He believes providers of traditional mutual funds – which may view ETFs as a threat – are using the situation to their advantage. “Most commentators have failed to consider what would have happened if this situation was mirrored within a mutual fund with the same size and proportionate outflows – would it have met redemptions by the next day? Would the fund have been suspended?” No and yes, in that order, are his answers to his own questions.

Patrick Dunne, head of global markets and investments for iShares, the world’s largest provider of ETFs, adds: “At times of extreme market stress, any financial instrument can be affected by structural inefficiencies in the capital markets. However, ETFs continue to perform as they are designed to do, allowing investors to move quickly and efficiently in and out of investment exposures.”

ETF providers feel aggrieved but it is safe to assume the fund structure is no longer as simple as it was once claimed – the lead pipes have indeed become a little twisted.

“ETFs are not simple but I think they are as reasonably safe, or at least as safe, as the underlying assets. ETFs are like a glass bottles; they can contain water or they can contain nitroglycerine.

“They are as safe as the contents. If you buy junk bonds you should not expect something that is safer than junk bonds. You get what it says on the tin,” says a wise-sounding Peter Sleep, a senior portfolio manager at 7IM, who sounds as if he has the makings of a good plumber.

[LTCM]

Select a scenario and get the results

https://www.dws.com/Tools/Investment-Ca ... itteren.tw

[LTCM]

Do you think you can beat the market? Well, you probably can’t. That’s why, over time, I came to realize that my best answer when allocating assets is to be a passive investor and opt for index-tracking vehicles.

“Buy low and sell high.” That was my simple approach when I was a smart, young investment advisor. I poured over a company’s balance sheet, earnings statements and forecasted returns. Then I bought those companies that were bargains and waited for my gains to roll in. More times than not, they did – eventually.

The problem came with the “not" and “eventually.” A majority of my picks did go up in value, but the minority that were “nots” still lost enough to hurt my bottom line. Even more frustrating, some of my “nots” turned into gains “eventually” after I sold them.

My investment returns were similar to findings from Dalbar, a financial services research firm. Dalbar's studies have shown that average active investors barely beat inflation over the long term. They significantly underperform investors who put their money in an index fund of stocks and leave it alone.

So much for my early investment brilliance. Over the past 40 years, I've learned that, with every passing year, I know less than I thought I did the year before. I’ve proven to myself I have no idea where any market is going tomorrow, next month, next year or in the next 10 years.

This awareness has led me to become increasingly passive in my investments. In passive investing, rather than trying to time the buying and selling of winners and losers, you instead buy a representative sample of the entire market. This is possible in any market: bonds, stocks, real estate investment trusts or commodities. You simply buy mutual funds and exchange-traded funds that follow indexes.

The two biggest benefits of passive investing are cost and diversification.

Cost. Most index funds have incredibly cheap costs, with annual fees as low as 0.1% of your assets. Contrast that with the average equity fund, which costs 1.5%, 15 times more. According to Standard & Poor’s, 75% of large-capitalization active mutual fund managers don’t beat the index over five years; for mid-caps, 90% fall short, and for small-caps, 83%. Even the minority of stock-picking funds that do outperform must beat the index by more than the 1.5% fee they charge for their investors to come out ahead.

Diversification. The smaller the number of stocks I own, the more my fortunes are tied to those few companies. It’s the adage, “Don’t put all your eggs in one basket.” By owning index funds, I own hundreds or thousands of securities. While I will never hit a home run, I also will never strike out. My returns will be “average.” Investing may be one of the few professions where being average puts you in the top percentile of all investment managers.

Not all of my peers agree with this philosophy. Many very smart investment advisors fled passive investing after 2008 and returned to tactical asset allocation, another name for timing the markets.

A noted investment advisor, Harold Evensky of Evensky & Katz in Coral Gables, Fla., addressed this issue at a conference last year. After the 2008 crisis, his firm hired researchers to evaluate whether they could find any tactical strategies that avoided the crisis. They found some that, in hindsight, worked. Yet he didn’t feel he could comfortably apply those strategies looking forward.

Instead, the firm decided to add a 20% allocation to non-correlated alternative investments – those that rise or fall independent of stocks – something I’ve done since the late 1990s. In other words, they increased their clients' diversification.

The bottom line is that passive investing actually gives you more control. It allows you to focus on reducing costs and taxes, the aspects of investing you can control. It frees you from trying to beat the market and worrying over what you can't control.

[LTCM]

Pacific Investment Management Co., the world's largest bond-fund manager by assets, wants to hang more with the hedge-fund crowd.

The firm, based in Newport Beach, Calif., is planning an expansion of its alternative-investments business in the coming months aimed at both individual and institutional clients, including potentially launching new funds invested in assets such as distressed debt in Europe.
Bloomberg News Pimco founder and bond-fund manager Bill Gross speaks in 2011.

Douglas Hodge, Pimco's chief operating officer, called alternative investments "a very important area for us" in an interview with The Wall Street Journal. He said the firm is responding to increased demand from investors of all types, as well as to changing regulations.

But the push into riskier, more-complex products marks a shift for the firm, whose bond funds have long been seen as some of the safest and most reliable on the market.

The SEC moved last month to lift a restriction prohibiting hedge funds, private-equity firms and other businesses from publicizing shares in private offerings as part of the Jumpstart Our Business Startups Act, effective Sept. 23. That allows Pimco and others to pitch alternative products more directly to institutional investors as well as wealthy individuals.

"The world is going to change here because of the JOBS Act," Mr. Hodge said.

While Pimco, a unit of Allianz SE, already has an alternatives business, it has been overshadowed by its large presence in bonds, including founder Bill Gross's $262 billion Pimco Total Return Fund. The expansion in alternatives, if successful, will provide Pimco solid footing in territory investors are flocking to in droves.

One of Pimco's largest and most well-known so-called liquid alternative funds is the Pimco Unconstrained Bond Fund, with about $29 billion of assets under management. The fund is "unconstrained" in that it has the ability to invest in a range of fixed-income investments. Last year, it returned 8.6% compared with 4.21% for its benchmark, the Barclays U.S. Aggregate Bond Index, according to research firm Morningstar Inc. The fund was down 2.04% this year through Aug. 27, compared with a decline of 2.74% for the benchmark.

Mr. Hodge says he is interested in investing in the distressed mortgages and commercial real-estate loans European banks are currently lopping off their balance sheets, either to add to an existing fund or to create new ones.

Pimco this month filed a preliminary prospectus for a new liquid alternative fund called the Pimco Trends Managed Futures Strategy Fund. The fund, available to all investors, will invest in derivative instruments linked to interest rates, currencies, mortgages, credit and commodities. Mr. Hodge declined to comment on the fund, citing a regulatory period of silence following the filing.

In a sign Pimco is targeting retail investors with these more complex products, one class of this new fund has a $1,000 minimum for investment and $50 minimum for subsequent investments, similar to many of the company's other liquid alternative funds.

Pimco, with about $2 trillion in assets under management, has been in the alternatives business for about a decade. The company has about $110 billion in assets under management in liquid alternative funds, as well as about $27 billion in private-equity and hedge-fund strategies.

Liquid alternative funds, or simply alternative funds, employ strategies outside of a traditional mutual fund or exchange-traded fund. Those strategies can include shorting, or betting against, stocks or bonds; investing in other asset classes, such as commodities; and using derivatives to hedge bets, according to experts. In some respects, they are similar to hedge funds and private-equity funds but are less exclusive and allow investors to buy and sell shares more quickly.

Pimco isn't alone in expanding its alternatives business. Fidelity Investments, the country's second-largest mutual-fund company, has recently backed two liquid alternative funds. The company invested $1 billion of client funds in Blackstone Group LP's first mutual fund, which gives money to hedge-fund firms to invest. Fidelity also put investor money into a fund launched by Arden Capital Management in 2012. A Fidelity spokeswoman has said the funds will provide investors diversification and portfolio resilience.

Pimco has faced challenges as it has tried to complement its bond business, specifically in equities. The company brought in Neel Kashkari, who oversaw the U.S. Treasury's Troubled Asset Relief Program during the financial crisis, in 2009 to expand its equity business. But Mr. Kashkari left the firm in January to enter politics, and the six new stock funds he launched during his tenure had accrued just $10 billion in assets under management at that time, according to Pimco. Mr. Kashkari declined to comment.

Mr. Hodge said Pimco already has an alternatives business, so the new push isn't an attempt to diversify. The firm is still looking for a replacement for Mr. Kashkari.

Fund firms are expanding their alternative offerings in a bid to not only increase their asset bases but also to satisfy strong investor demand, says Andrew Clark, manager of alternative-investment research at fund-research firm Lipper. Investors poured a net $57.7 billion into alternative mutual funds this year through July 31, compared with $23.9 billion for all of 2012, according to Lipper.

Fund companies "are not seeing their traditional base grow as much as they want to," says Mr. Clark.

But regulators are beginning to take a closer look at alternative funds available to retail, or individual, investors, The Wall Street Journal reported earlier this month. The general concern is that brokers are selling them to people who may not understand the risks and complexities of the strategies involved.

Mr. Clark said at least some of those fears seem legitimate. "I don't think individual investors really understand them at all," he said.

Mr. Hodge of Pimco says the firm is conscious of providing investors with the proper disclosures in its funds' prospectuses and in marketing materials.

"We really want the people who invest in any of our products—and they range from very conservative to products that carry more risk—to understand what they're getting into," he said.

A Pimco spokesman added that the firm doesn't sell directly to individual investors, marketing instead through financial advisers, who are generally more knowledgeable about products.

Write to Kirsten Grind at kirsten.grind@wsj.com

[LTCM]

Three-quarters of a trillion dollars is enough to burn a hole in anybody’s pocket. And so it is proving in Norway where ahead of parliamentary elections on September 9 proposals are stacking up to reform the country’s $750bn oil fund, the largest sovereign wealth fund in the world.

Many of the suggestions on the face of it are sensible. But taken together they risk upsetting the delicate balance that has allowed the Norwegian fund to quadruple in size since 2005 and become one of the world’s most influential investors.


There is much that could be changed at the oil fund, set up to run the money extracted from Norway’s petroleum reserves for future generations of the Nordic country.

Nominal returns in the past decade have amounted to 6 per cent, slightly outstripping its benchmark equity and fixed-income indices. However, adjusted for inflation, its returns have lagged behind its 4 per cent target and are even further off the performance of rivals.

Temasek, Singapore’s sovereign wealth fund, has made a compounded nominal annual return of 13 per cent in the past decade while the Abu Dhabi Investment Authority has returned 7.6 per cent a year over the past 20 years, as Sony Kapoor, head of think-tank Re-Define, points out in a recent report on the oil fund.

For a long-term investor with no liabilities – its official name is the Government Pension Fund Global but it has no pensions to fund – the oil fund simply earns too little. It also has a glaring problem of which assets it is allowed to invest in.

Until recently, it could only invest in equities and bonds – and most of those were in big, developed countries such as the US, UK and Germany. That means it has a large part of its portfolio – almost a third – investing in western government debt that not only fails to yield very much but is almost certain to lose money in the coming years.

Much of its equity portfolio is invested in the oil and gas sector, a rather bizarre strategy for a fund meant in some ways to hedge Norway’s exposure to petroleum.

In 2010 it was allowed to invest in property, a good asset for such a long-term investor because returns tend to be earned over an extended timeframe. But the Norwegian ministry of finance and parliament, which together agree on the fund’s strategy in a remarkable attempt to create a cross-party consensus and keep the population onside, have resisted perhaps the most obvious asset class: infrastructure.

Investing in big power, rail and road projects has the benefit of being long-term investments and of generating decent returns. To be fair, Norway’s two main opposition parties – the Conservatives and Progress party – say they are willing to consider letting the fund invest in infrastructure.

But the thrust of their suggestions for the oil fund go in a different direction: breaking it up.
"The oil fund earns too little and also has a glaring problem of which assets it is allowed to invest in"

The Conservatives, the likely provider of Norway’s next prime minister, told the Financial Times they want to debate whether to split the fund up. Their exact motivation is unclear but some of their MPs seem uneasy with having such a powerful state organisation.

There has been talk of emulating Sweden, which has five separate pension funds, even though the prevailing sentiment in Stockholm is to combine them like Norway as competition has not helped returns.

The populist Progress party proposes to create three much smaller funds, using about 10 per cent of the fund’s assets. These new funds would invest in green energy, development aid to poorer countries and a more actively managed fund by external professionals in Norway’s provincial cities.

Mr Kapoor’s report comes up with a different variant on a split: he suggests setting up a GPF-Growth to make long-term investments in emerging markets, particularly in infrastructure, of about $30bn a year.

But Norway needs to tread very carefully when reforming the fund. There is some sense in many of the proposals: the idea that the fund should invest more than 10 per cent in emerging markets and infrastructure is a no-brainer.

Nonetheless, splitting up the fund – however noble the reasons behind it – would be too radical a move. Norway has trodden very carefully to build up a broad political consensus in the past 15 years and avoid the government forcing through its partisan suggestions.

If a split were to happen, Norway would find the hole in its pocket burnt by the fund would become bigger and bigger.

[ghorez]

1) Different is better
The first is that in a world where there are no clear crystal balls, just uncertainty, diversification across asset classes is the only prudent strategy. With that in mind, we want a portfolio to be filled with assets that don't have very high correlations, and the lower the better. That means we actually want to see periods when assets are performing very differently. Thus, the fact that so far this year, the U.S. and developed markets have done well while emerging markets have done poorly should be viewed as a good, not a bad, thing. Believing otherwise is making the mistake I call: confusing strategy with outcome -- the strategy of diversification is either right or wrong before we know the outcome.

2) Things will get volatile
Second, emerging markets are highly volatile, and they tend to experience sharp sell offs that typically result from capital outflows. This time around has been no different as capital outflows were spurred by fears that the expected tapering of the Federal Reserve's easy monetary policy would negatively impact their economies. That's part of the risk of investing in emerging markets. And the greater risks are also why emerging markets have higher expected returns. Thus, volatility and periods of poor returns should be anticipated and built into plans, not lead to panicked selling after the prices have already fallen.

3) Take the good with the bad
Third, just as there will be unpredictable periods of poor relative performance, there will also be unpredictable periods of relatively good performance. For example, in 2003, VEIEX outperformed VFINX by 29 percent. In 2004, it outperformed by more than 15 percent. In 2005, it outperformed by more than 27 percent. In 2006, it outperformed by about 14 percent. In 2007, it outperformed by over 33 percent. And in 2009, it outperformed by almost 50 percent! On the other side of the coin, in 2008 when VEIEX lost almost 53 percent, VFINX lost "only" 37 percent, and in 2011 when VEIEX lost almost 19 percent, VFINX gained about 2 percent. As we said, this type of dispersion in returns is a good thing, as long as you can recognize and accept the fact that neither you nor anyone else can forecast them ahead of time.

4) Don't just dump
Fourth, investors dumping their emerging market holdings are probably unaware that they're doing so (as they typically do) at a time when they have much lower valuation metrics. For example, Morningstar shows that as of March 2013, the forward-looking price-to-earnings ratio for VFINX was 14.3, while it was just 11.8 for VEIEX. And VFINX price-to-book market ratio was also much higher than VEIEX's at 2.0 compared to 1.6. Dimensional Fund Advisors (DFA), which runs passively managed asset class funds, provides us with data that's more current, with valuations as of July 31. DFA's Large Company fund (DFUSX) has a P/E ratio of 15.5, compared to just 12.4 for its emerging markets fund (DFEMX). Similarly, DFUSX has a price-to-book ratio of about 2.2, compared to just 1.5 for DFEMX. These significantly lower valuation metrics translate into higher expected returns. [Disclosure: My firm uses DFA is building client portfolios.]

5) The holy grail
The bottom line is that whether we are talking about emerging markets or small-cap value stocks, you must accept that along with the higher expected returns comes increased volatility and lots of what is referred to as tracking error -- your portfolio's returns won't mirror the "market's" return. Thus, the key to getting the higher expected returns is sticking through periods when performance is ugly. Even better would be to rebalance the portfolio on regular basis, as your investment policy statement should require. By adhering to your plan, you would be selling at relatively high prices (when expected returns are lower) and buying at relatively low prices (when expected returns are higher) -- the "holy grail" of investing.

[LTCM]

Passive index funds are hardly popular with active fund managers. They are offended by the idea that if you pay less for investment management, you receive a larger share of stock market returns. Managers believe that they can, by dint of intelligence, street smarts, strategy, stock selection, etc, add value that will exceed the total management fees, portfolio turnover costs, and sales commissions that their investors pay.

Sometimes, for some managers, that proposition can be true. But it can never be true for all managers. Passive index funds typically own the shares of each stock in the market portfolio. Since active managers own all the shares that remain, they too, in aggregate, also own the market portfolio. Owning the same market portfolio, both active and passive managers earn the same gross return. Therefore, the group with the lower fees, lower transaction costs, lower administration costs, and lower marketing costs – namely, the passive index funds – will earn the higher net return. Every investor must keep in mind this elegantly simple formula: gross market return minus costs equals net investor return.

The cost matters hypothesis is all that is needed to explain why indexing works: gross return in the market as a whole, minus the costs of obtaining that return, equals the net return investors actually receive.

[LTCM]

Asset managers have different approaches, and I don’t wish to suggest there is only one way to run money. There are many ways one can attempt to reduce risk, improve performance, lower drawdowns and reduce volatility.

A better way to view the investing world, in my opinion, is to break it down to 15 broad asset classes and own all of them. These include stocks, bonds, real estate, commodities and cash. U.S stocks differ from emerging markets, which are not the same as Treasurys or foreign high-yield bonds, to name a few. You want to own all of these because from year to year, no one ever knows which asset class is going to perform the best. And no one can tell in advance which asset class is going to have a bad year. So you own them all, and you don’t worry about it. Much of what you own is going to be going up most of the time.

The beauty of diversification is it’s about as close as you can get to a free lunch in investing. The best part about modern investing is you can access these broad asset classes at very low costs — typically 15 to 50 basis points. And the cost of buying these now through an online broker is less than $10.

Today, a smorgasbord of ETFs offer investors direct access to these asset classes. Exotic instruments add little, if any, value to a properly diversified portfolio.

[LTCM]

Anyway, the other day, we received this inquiry in the office:

“I am interested in some alpha investing without excessive risk, perhaps looking for 4-5% greater than the averages.”

Understand, that not every inquiry is a good fit for us. And what we do is not a good fit for every potential client. If we don’t think what we do will make the client happy — even if its the smart thing, the right thing for them to do over the long haul — we simply don’t take them on. This inquiry likely fell into that category.

But rather than just blow someone off, I always feel obligated to at least make some attempt to explain why he is unlikely to achieve happiness & wealth in his chase of Alpha. Call it tough love or the straight dope, but I have to at least try to help the guy get off his expensive, illusory alpha chasing hamster wheel.

Thus, I responded as follows:

Dear XXXXX

I wanted to follow up to the automated reply you received from me yesterday. You noted that you were looking for “perhaps looking for 4-5% greater than the averages.”

The best doctors I know never mince words, and I agree with that philosophy, so here goes: YOU ARE HURTING YOURSELF WITH THIS PURSUIT.

The data on this is overwhelming and incontrovertible. Nearly all investment managers underperform; of the ones that out-perform, few do it consistently year to year, and of those who do, once you take into account fees, they become average.

The takeaway is that the mad dash for out-performance almost always leads to UNDER-performance. The huge public pension funds and many of the large Foundations are slowly coming to realize the truth of this.

If you are looking for someone who is going to find you the magic hedge fund that turns dross into gold, we cannot help. What we can offer you is a way to figure out what your needs and goals are, along with the healthiest, lowest risk way to achieve those goals.

There are some people who have yet to pay their tuition to Wall Street University. They shall do that over the course of their investing lifetimes through high fees, unnecessary taxes, costs and expenses. And the vast majority of these folks will underperform the suitable benchmarks. Net net they better enjoy this pursuit, for it will be more expensive than any mid-life crisis expenditures they might incur.

Patients are advised to stop smoking, lose the weight, exercise, reduce stress, cut out sugar, etc. when their doctors observe conditions they KNOW will manifest as future health problems. To this doctor, I tried to identify the risks to his future financial health. Otherwise, he will eventually pay some hefty tuition bills if does not change his investing ways.

[LTCM]

A chimp can do it. A 4-year-old human too. Even a house cat has succeeded. There are anecdotes aplenty of creatures beating the stock market with darts (or a grab bag or a toy mouse), and that got physicist Alessandro Pluchino thinking: Maybe the success of these random investment “strategies” wasn’t so random after all. Pluchino teamed up with Alessio Biondo, an economist who worked with him at the University of Catania in Italy, to rigorously test the hypothesis that investing blind is a better strategy than hiring a financial adviser and ordering in a case of Pepto-Bismol. They took 15 years of data from four of the world’s biggest stock exchanges and pitted four top trading algorithms against one programmed to trade at random. The random algo did at least as well as the others—and it experienced a lot less day-to-day volatility. Why? Investors probably see patterns in random fluctuations or computer glitches and then pile on. This herding instinct amplifies mistakes. That’s partially how, for example, a single sale of 75,000 futures contracts by an institutional investor in May 2010 turned into a 9 percent drop in the Dow Jones Industrial Average. Biondo and Pluchino have made something of a career out of randomness—they previously used mathematical models to argue that corporate promotions and legislative appointments should be made at random as well. Nobody took their advice, but considering how dicey the economy has been lately, maybe the Fed should consider investing in darts.

[LTCM]

The mutual fund universe used in these reports comprises actively managed domestic U.S. equity funds. Index funds, sector funds and index-based dynamic (bull/bear) funds are excluded from the sample. To avoid double-counting multiple share classes, only the largest share class of a fund is used.

Very few funds can consistently stay at the top. Out of 703 funds that were in the top quartile as of March 2011, only 4.69% managed to stay in the top quartile over three consecutive 12-month periods at the end of March 2013. Further, 3.35% of the large-cap funds and 6.08% of the small-cap funds remain in the top quartile. It is worth noting that no mid-cap funds managed to remain in the top quartile.

For the three years ended March 2013, 16.57% of large-cap funds, 14.22% of mid-cap funds and 23.05% of small-cap funds maintained a top-half ranking over three consecutive 12-month periods. Random expectations would suggest a rate of 25%.

Looking at longer-term performance, only 2.41% of large-cap funds, 3.21% of mid-cap funds and 4.65% of small-cap funds maintained a top-half performance over five consecutive 12-month periods. Random expectations would suggest a repeat rate of 6.25%.

While top-quartile and top-half repeat rates have been at or below the levels one expects based on chance, there is consistency in the death rate of bottom-quartile funds. Across all market cap categories and all periods studied, fourth-quartile funds had a much higher rate of being merged and liquidated.

[LTCM]

Morningstar has been tracking and rating mutual-fund performance for over two decades. Funds are ranked from five-star to one-star based on past three-, five- and 10-year performance.

According to the Morningstar 2012: Annual Global Flows Report, only 10% of funds receive the coveted five-star rating, yet investors flocked to these funds. Net new assets into five-star funds overwhelmed the other four categories. There was some asset flow into four-star funds and net outflows from three-star, two-star and one-star funds.

Are investors setting themselves up for a fall by chasing top funds? They may well be, according to the newly released S&P Persistence Scorecard. Published twice per year, S&P tracks the performance consistency of mutual funds over consecutive 3- and 5-year periods.

The Scorecard released in July shows that a U.S. equity fund in the top quartile of performance three years ago had only a 24% chance of staying there over the next three years. Funds in the top half for five years ending in March 2008 had only a 46% chance of being in the top half for the five year period ending in March 2013. Past performance is not a good predictor of future return.

If past performance doesn't work, what does? Morningstar analyst Russel Kinnal wrote in How Expense Ratios and Star Ratings Predict Success, "If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision." Fees beat star ratings as a predictor of returns. And which funds have the lowest fee? Index funds.