Mutual Funds
Written by Dani, March 28th, 2012
Bonds around the world should be approached selectively, understanding where the bonds are coming from and what challenges your investment may face. We just read about the new 100-year bonds in the UK, a vote for stability that stands in stark contrast to the bond market troubles in the rest of Europe. Here in the U.S., bonds are still in a bull market and we expect them to continue to do well this year. However, we think that municipal bonds need to be monitored very closely, as there are some local governments which are having serious financial troubles.
Because the political landscape in the U.S. is so polarized, there is a couple of misconceptions about our current financial situation.
Here’s two reasons why American investors should not panic or assume that the U.S. is the next Greece:
- We have the largest economy in the world, which means we can grow our way out of debt.
- We have the largest navy and military in the world, so we control the world’s oceans, causing our bonds to be a safe haven when global financial stress hits.
The big question is, is any politician going to address the issues of deficit spending? If you’ve read this blog for any length of time, you know that we don’t have much faith in politicians, but this is an issue that will have to be addressed, hopefully by 2013.
In short, we are approaching the bond market selectively. We do believe in the bond bull market, and we think that bonds will continue to be a safe haven this year. If you have any questions about what bonds we are investing in and why, please give us a call at 800-391-1118
(If you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on this topic, and please share this information with others who might benefit from our perspective.)
Written by David, February 15th, 2012
“You have to make your money work for you.”
We’ve all heard this old adage, and to be certain, it is the key to income investing success. And while the truth of this statement can’t be argued, it’s definitely a lot easier to say than to actually do.
At Fabian Wealth Strategies, we take the concept of making your money work for you very seriously. But what does it actually mean to have your money working for you, and how can we help you achieve that noble goal?
Answering these questions is what our new report, The Ultimate Income Strategy, is all about.
As a fee-only investment advisor specializing in helping clients preserve their capital while also generating the income they need to live the life they desire, we take both of these objectives extremely seriously. However, conventional Wall Street wisdom usually pits the twin objectives of capital preservation and high income generation at odds.
According to the official party line, you can either A) preserve capital by sticking your money in “safe” investments that offer a pitifully low yield, or B) put your money at risk in dividend stocks and other high-yield equities and be willing to wait out the inevitable market declines that are inherent in these kinds of securities.
Well, we think this conventional wisdom is flawed, and we know there’s a better way to manage your income assets. You see, instead of the either-or choice of safety vs. yield, we’ve developed a strategy designed to maximize income while at the same time managing the various risks inherent whenever you put money to work in the market.
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Written by David, January 04th, 2012
Bill Gross’s PIMCO Total Return Fund is the world’s largest bond fund. But as the old adage goes, the bigger they are the harder they fall. That was certainly the case in 2011, and particularly in December. The fund saw $1.4 billion in outflows in during the month, according to fund analytics firm Morningstar. In 2011, the fund saw total redemptions of $5 billion.
Why the flight away from PIMCO? Simple, Gross failed to deliver. He woefully underperformed his benchmarks in 2011, primarily by betting heavily against U.S. Treasuries. As it turned out, Treasuries were one of the best-performing asset classes last year, and the move higher in Treasuries actually forced Mr. Gross to issue a “mea culpa” letter to his investors admitting he got it wrong.
The admission of a mistake in the investment industry isn’t very common, and I give Bill Gross a ton of credit for doing so. I think it’s admirable to admit when you get a call wrong, as it shows you’re someone who respects the truth and can trusted to pursue that truth. Of course, that is little consolation to the many investors who didn’t see much upside in the PIMCO Total Return Fund during a banner year for bonds.
The lessons here are many, but there are three that I really want you to take with you. First, respect the man of integrity who admits the error of his ways. Second, even the biggest names in the financial industry get it wrong from time to time. Finally, always remain the steward of your financial destiny. If you aren’t getting what you need from a fund, and advisor or a service, then simply change things up. You are responsible for your financial well being, and the only way to achieve the results you’re after is by proactively taking control of your own fiscal fate.
Written by David, October 12th, 2011
Last Friday marked the end of the third quarter, and what a dismal quarter it was for the equity markets. Stocks in the Dow sank 12.09%, while the broader S&P 500 Index dropped 14.33%. The NASDAQ Composite finished the dreary Q3 with a 12.91% surrender of value.
The poor performance of the broad market in one quarter is bad enough, but just think about how badly you’d feel if a mutual fund you owned continually delivered poor performance relative to its benchmark? I suspect you wouldn’t be very happy, and that’s why I created the Fabian Lemon List.
The Lemon List is our inventory of mutual funds that have underperformed their one-, three-, and five-year benchmarks. This quarter, 1,786 mutual funds qualified as lemons, and those funds accounted for more than $1 trillion in assets.
If you want to rid yourself of the bitter taste of lemons in your portfolio, you must first find out if your fund(s) are on the list. If they are, it may be time to turn those mutual fund lemons into ETF lemonade. Get your complete copy of the Fabian Lemon List today.
Written by David, August 17th, 2011
On Tuesday, I attended an investment conference sponsored by Fidelity Investments intended specifically for financial advisors and money managers. There were several good presentations, including one from the very smart guys at Pimco. But the real takeaway for me from this conference wasn’t any single good idea. Rather, it was the chorus of trite bromides I heard from a panel of three mutual fund company representatives.
I am not going to name the companies here, and the reason why is that nearly all mutual fund companies have the same basic philosophy—and that philosophy is that whatever takes place in the market, investors should just buy and hold and wait for the market to inevitably move higher.
I was so disappointed with this advice that I just had to comment on it for my readers. You see, all three of these mutual fund reps admitted that they thought the market was in for a struggle over the next several months and beyond. All three agreed that the economy was slowing down, and that it was important for their fund managers to select the right stocks in a difficult market environment. Up until then, I agreed with them. Then they each rolled out the same old expired prescription for individual investors.
That prescription, of course, is to just buy and hold. There thesis was that in three to five years everything would be okay. Huh? I put that kind of inane advice along the same lines as telling someone they should buy low and sell high.
The fact is that a lot can happen in this market in three to five hours, let alone three to five years. I don’t know about you, but just sitting back and watching the value of my portfolio drop isn’t my idea of smart money management.
What was perhaps even more disappointing was the failure by this panel to address the potential of a new bear market. What if we were to fall into bear territory and stay there for a protracted period? Should investors just watch the value of their holdings evaporate, or should they go to cash or go short? Their answers were conspicuously absent.
This panel discussion just confirmed for me what I’ve always known, and that’s that mutual fund herd never changes its spots. These days there are just too many other good options for your money, and these are the options we use each day in our investment advisory services.
Written by David, July 20th, 2011
The action in the equity and bond markets so far in 2011 can be characterized by what I call a sort of “nervous uncertainty.” Let’s face it, we’ve had a lot of cause for worry, and we’ve had a lot of reasons to be encouraged. On the bond front, that nervous uncertainty has translated into a big surge in cash holdings among bond mutual funds. Apparently, bond fund managers aren’t in any hurry to purchase new debt, and that comes despite the fact that bond fund inflows are on the rise.
According to mutual fund research firm Morningstar, the average cash stake in the 1,623 funds that the company tracks rose to 9.8% at the end of June from 9.1% at the end of 2010. In dollar terms, that’s about $243 billion. The average bond fund’s cash position was at 10.2% at the end of 2007, and 10.1% at the end of 2008, according to the data.
Meanwhile, investors have been funneling money into bond funds in 2011, adding some $92.8 billion through June 30. That’s the biggest inflow seen in any of the fund categories that Morningstar tracks. In other words, bond fund managers are raking in the cash, and essentially hoarding it.
So, the logical question here is why aren’t bond fund managers investing in new debt right now?
Well, for starters, we can blame that debt-ceiling debate for at least some of the uncertainty. Although I am not sure how to quantify this, I suspect that no bond fund manager wants to get caught with his guard down if the unthinkable does happen, and if the powers that be in Washington drive the nation into default.
Another reason why bond fund managers aren’t gobbling up new debt is the possibility of a credit rating downgrade. Such a downgrade has been threatened by both Moody’s and Standard & Poor’s. Although I suspect that we are in no danger of a downgrade here, the mere discussion of such a negative turn of events for the bond market is understandably spooking bond fund managers.
Then there’s the issue of the Federal Reserve’s follow-up policy to quantitative easing, part 2, or QE2. Will we see another round of money creation in some form or another and, if so, what will be the impact on the U.S. dollar and U.S. Treasury bonds? Nobody knows for certain, and this uncertainty is keeping cash on bond fund books.
Written by David, July 21st, 2010
It’s summer, and the weather is heating up all across America. To cool off, many people will pour themselves a tall glass of ice-cold lemonade. Hey, I think it’s fine if your lemons get squeezed into lemonade, but what isn’t fine is if you have lemons in your investment portfolio.
The lemons I’m talking about here are underperforming mutual funds, funds that have earned a spot on the infamous Mutual Fund Lemon List, the list of the worst-performing mutual funds. To be classified as a lemon, the fund must pass strict screening criteria: it must underperform its peer group average for the last 12 months, as well as for the last three and five year periods.
This quarter’s Lemon List includes 1,584 mutual funds totaling $715 billion in assets, and if one of the funds you own is on the list, you need to squeeze that lemon from your holdings.
To see the latest edition of the Lemon List, and to get your FREE update each quarter, just go to the Mutual Fund Lemon List website today.
Hey, all you have to lose is that sour taste in your portfolio.
Written by David, June 09th, 2010
I recently read an article in The Wall Street Journal that proffered the theory that there are seven reasons why investors shouldn’t dump international equity funds. Some of the key points in the article are that the euro has already fallen way off its highs, and therefore cannot go down much more. The piece also argues that Europe will maintain its common currency, and that a weaker euro will bolster exports, which is good for European-based companies.
I think there is one huge reason why you should dump these funds, and that is the Fabian Plan recently issued an international equity sell signal. But I thought that I would reply to this article directly, and address some of the common misperceptions about why things are going to be okay with international equities going forward. So, here are my seven reasons why you should dump your international equity funds.
Reason 1) The U.S. dollar is in a strong uptrend vs. the euro and other rival currencies. If the euro continues flailing, the flight of capital out of the eurozone will continue pounding stocks, and by extension your international equity funds.
Reason 2) Europe is cutting spending, and her economies are floundering in a no-growth soup of their own making. One reason why stocks in Europe are falling is due to a coming recession precipitated by the painful debt situation in Greece, Portugal and Spain. Simply put, the age of austerity is coming to all of Europe.
Reason 3) Europe has a huge debt problem. They have too many social programs, and they’ve made too many fiscal promises. Somewhere in Europe there is going to be a massive debt default, and/or the servicing of existing debt will become such a burden that economic growth becomes virtually non-existent.
Reason 4) Mutual fund managers stay fully invested in down markets (they have to by charter), and that means they cannot manage risk. This holds true for international fund managers, who are essentially obligated to go down with the ship regardless of market conditions.
Reason 5) Nearly every major broad-based international mutual fund now trades well below its respective long-term moving average. The Dow Jones World Stock Index also trades below its 200-day moving average, meaning that continue risk is high, and a new international bear market is on the precipice of becoming reality.
Reason 6) The slowing in the eurozone nations could begin threatening global economic growth, and it could even cause a double-dip recession. China has already voiced concerns that its largest trading region is slowing rapidly, and this could be the economic “contagion” that many investors and economist fear.
Reason 7) Europe is raising taxes. From Greece to the UK, eurozone governments are trying to raise revenues in order to salvage their social programs and to service their debt. What’s really scary is that Europe could be a proxy for the U.S. in years to come.
These are just my top seven reasons why you should dump international equity funds, but the list is by no means complete. Suffice it to say I am an international equity fund bear right now, so please don’t fall for the rosy proclamations in the financial press.
The worst is yet to come for Europe, and that means there will likely be much more pain in international stocks going forward.
If you’d like to find out more about the Fabian Plan and how it generates buy and sell signals that have beat the market for over three decades, then I invite you to click on my latest presentation.
Written by David, February 12th, 2010
As of yesterday we’ve seen the U.S. equity markets drop more than 7% from their January highs, and this kind of sharp pullback has me proceeding with extreme caution. But it’s not just the domestic market that’s been hit with a selling wave. International markets have retreated even further off their highs, with several major global stock indices now trading below their long-term support levels.
It seems that wherever you look, risk in the financial markets is rising—and that’s why it’s time for you to take action.
At Fabian Wealth Strategies, we’ve already begun pairing down both our domestic and international stock holdings to protect our clients from the ravages of a global sell off. Because our philosophy of active portfolio management includes a strong sell discipline, we are able to preserve investment capital whenever the bears start flexing their muscles.
Recently, I’ve been offering a FREE mutual fund portfolio assessment on my radio show, Doug Fabian’s Wealth Strategies. In my review of countless investor portfolios, I have found that way too many people are unaware of the lackluster performance of their mutual funds, and the high fees they’re being charged for those anemic results.
When I evaluate your portfolio, I’ll let you know the exact short- and long-term performance of your mutual funds, the total expenses you’re being charged—and of course, my opinion on every one of your holdings. I also can help you establish a sell discipline on your investments, and determine if your portfolio is property aligned with your financial goals.
I will also show you the benefits of switching from high-fee mutual funds to low-cost exchange-traded funds (ETFs). I love ETFs, as they allow you to save money while also providing you greater flexibility to adjust your portfolio to the prevailing market conditions.
Now more than ever, it’s important for you to understand what you own, why you own it, and what your game plan is if we see the return of another wealth-destroying bear market.
To schedule your FREE mutual fund assessment, just give us a call at (800) 391-1118.
This offer is available to goal-oriented investors with more than $250,000 in their investment portfolios. Contact us today for a brief introduction, and to schedule your complimentary mutual fund assessment.
Sincerely,
Doug Fabian
President, Fabian Wealth Strategies
Host, Doug Fabian’s Wealth Strategies Radio Show
Fabian Wealth Strategies, Inc. is a registered investment advisor with the U.S. Securities and Exchange Commission. Doug Fabian is a registered investment advisor representative. The information expressed by Fabian Wealth Strategies is for informational purposes only and should not be construed as a recommendation to buy, sell, or hold any specific security.
Written by David, January 25th, 2010
Most investors sustained serious damage to their wealth in 2008 – damage that, in many cases, will be difficult to recover from. Certainly Wall Street titans, reckless lenders and irresponsible home buyers all deserve their share of the blame.
But one part of the financial world has not received much scrutiny for its role in the evaporation of investor wealth, and that is the mutual fund industry.
Mutual funds control the majority of Americans’ retirement assets through 401(k)s, IRAs and annuities. Sadly, a gullible public has bought into the idea that steady investments in mutual funds, regardless of market conditions, is the way to make their financial dreams come true. This is one of the biggest fallacies of investing, and why mutual funds are hazardous to your wealth.
In my latest special report entitled, Mutual Funds are Hazardous To Your Wealth, I expose the five serious flaws of these investment vehicles and talk about how exchange traded funds are a far superior alternative.
Why? Because ETFs are less expensive to own than mutual funds and more diversified than individual stocks. For most people looking to grow their serious money over the long term, ETFs are quite simply the best investment vehicles available today.
Click here to download this free special report as a PDF.
As a bonus to this report I would like to offer you a free Mutual Fund Assessment – this includes an in-depth review of your investment goals and analysis of all the funds in your portfolio.
This offer is available for goal-oriented investors with more than $250,000 in their investment portfolios. Contact us for a brief introduction and to schedule a phone call time with you to get some help.
To schedule your free Portfolio Review, call us at 800-391-1118.
Sincerely,
Doug Fabian
President, Fabian Wealth Strategies &
Host, Doug Fabian’s Wealth Strategies Radio Show
Note: Fabian Wealth Strategies, Inc. is a registered investment advisor with the U.S. Securities and Exchange Commission. Doug Fabian is a registered investment advisor representative. The information expressed by Fabian Wealth Strategies is for informational purposes only and should not be construed as a recommendation to buy, sell, or hold any specific security.
