WisdomTree announced its dividends and by and large they look pretty robust. They have had an issue with new assets coming in during the year and creating more shares to spread the dividends around to.In a down 40% year it makes sense that as the year ends there are not a lot of newly created shares in existence to collect the dividend. As a result the dividends of the funds are now in line with the indicated yields of the indexes that underlie the funds.
Other news from WisdomTree is that going forward a lot of their funds that had been paying annually will be paying quarterly. This stands to reduce the impact of the effect of share creations mentioned above but it should be understood that many foreign companies pay dividends once or twice a year as opposed to the four times that most US companies observe. The net effect could be a higher yield but I do not expect each of the four dividends to be the same.
I think this is great and fundholder friendly news, now we need WisdomTree to get cracking on some of those currency ETFs in the hopper.
Like many folks the Madoff incident is teaching me about the difference between feeder funds and funds of funds. Forgetting the Ponzi scheme for a moment the idea of collecting $1 billion to feed into a fund that someone else manages and still collect a percent or two on the billion sounds like a pretty sweet gig. Does a feeder person have to make any decisions at all? I'm being sarcastic, I have never understood the value of these sorts of middlemen.
I did a small trade yesterday for many clients. I added the PowerShares Agriculture Commodity ETF (DBA) for most clients. DBA plus GLD now takes most clients to a mid single digit weighting in commodities from low single digits. Quite simply the actions underway to fix the crisis are inflationary. For now asset prices have deflated (or maybe more correct to say are still deflating) but I believe that when the deflation ends we will see higher consumer prices, they have already increased the money supply and the path to higher prices is easy to see.
Mid single digits is hardly betting the farm but it made sense to me to increase the commodity exposure now before prices start to go up and while DBA is so far off of its high.
Roger McNamee was on Street Signs yesterday and he was given the chance to make some interesting comments but there was one in particular that struck a cord with me. He shared his belief about the infrastructure spending eventually improving people's quality of life by cutting commuting time. I realize not everyone can work from home but I am incredibly thankful for not having a daily commute.
Sticking with the network I was asked to appear on Closing Bell yesterday for a segment about investing in 2009. We are snowed in so I couldn't make it. The segment that I think it was became a discussion about dividends. One of the participants said he is a dividend investor and the other guest was not very focused on dividends.
I love dividends, they are important most of the time. The one time they are less important is when the market goes up a lot, like 1934 up a lot. After an historic decline the odds of a big move up (bear market rally or new bull market) increase. If you buy into that it might make sense to focus less on dividends for now. The last two equities I've added don't really pay any kind of meaningful dividend.
Have a great holiday!
23 comments:
Buying growth stocks and commodities, are you full of the Christmas (or should I say holiday) spirit, Roger?
Very thought-provoking post today for us dividend investors, Roger. Thanks and Merry Christmas.
6:47, we;ve had one type of market during the history of this blog and i've positioned accordingly. in another type of market i will position accordingly for that. pigeon-holing as a value investor or whatever makes no sense to me.
thank you 6:49.
oh and unlike Cozmo I like bagels.
Good one Roger, agricultural ETFs...betting the farm. Yuk,Yuk,Yuk.
Merry Christmas!
Roger, do many of your clients have taxable accounts and if they do, does tax efficiency vis-a-vis dividends factor into your allocations?
the way i view things tax considerations are never more important than portfolio construction considerations.
Where possible we are sensitive to tax issues ans we did do a couple of tax swaps but the idea of taxes being the first priority makes no sense to me.
Roger, does your comment apply to everything except fixed income, or do you subordinate tax effects when it comes to bonds as well?
I ask this, because a portfolio diversified with 10 year treasuries has performed better than one with munis even after taxes. Of course this only matters if the total value of a portfolio is important. It seems to me it would only be important if a client feels like they would have a need to liquidate in the near future. The the long term, history has shown that we will eventually see a reversion to mean returns.
I think after tax cash flows would be very important for most investors, especially those withdrawing from their portfolios.
Every position I have (which is not that many) has a nice dividend. I figure that since I'm such a lousy stock picker I might as well soften the blow.
Erin Burnett of CNBC ask a question this morning that gave pause...
Will the consumer no longer spend more than they earn?
I thought it was a great question. The Baby Boomer generation has enjoyed a lot of prosperity and for the most, have not really felt what going without is. Under the category of "things happen for reasons", I am going to contemplate on what's going on underneath the surface. Kind of like seeing the forest for the trees.
I have a feeling this is how Roger conducts himself.
Roger is there a sucession plan for those who invest at your firm. If you drive off a cliff on your way to work, who takes over deciding on important themes and such? This is intended to be a serious question.
Watch the ice up there in the mountains.
priority one for me is the bottom line number of the portfolio. as i raised a lot of cash a year ago i am not confronted with not enough cash for client withdrawals.
i like to think i am a forest for the trees person:>>
8;18, if you are a client, give us a call. if not then it probably s/n be a concern?
Hi Roger,
Happy holidays!
At Green Faucet you outlined some of the flaws of the leveraged ETF's. Please se the attached article as it confirms what you are saying. It appears the use of short options act as a better hedge for portfolio construction than SDS? Please advise if you ever consider short options versus SDS for portfolio construction? thanks
http://seekingalpha.com/article/112127-cramer-is-right-about-ultrashort-etfs
Roger,
When I read this article talking about absolute return it reminded me so much of some of your posts that I wondered if the author was you (I know it is not). Anyhow- you may find this interesting...
http://seekingalpha.com/article/112198-how-to-gain-equity-exposure-with-reduced-volatility
with options you pay an insurance premium that must be renewed. with SDS you do not plus you get a dividend payout. the tradeoff is a less than perfect hedge that at times could be unreliable over a longer period.
for my money SDS generally captured the effect in the many months I owned it for clients but it did what I hoped for which was that on nasty days it smoothed out the ride for clients.
I do not sucscribe to the anti levered ETF sentiment that has been making the rounds of late.
thanks for the link on absolute
Fund of funds? Bernie Cornfield? History doesn't repeat but it does Rhyme.
On that subject, I have said before on this post. Most of you will live to see the day of the $300,000 Chevy, the 4 million dollar house and your middle class children knocking down 500 grand a year. Now, let's see: 3% 30 year bonds-I don't think so.
The absolute return reference made me revisit something Roger has mentioned a few times: RYMFX.
Well, well. It's at a positive 13% so far this year. Assets have ballooned to over $1b, as one might guess.
Unfortunately I don't invest in things I don't understand. hah. but I've moved the subject to the top of my holiday reading list.
Roger- just curious if you have read Larry Swedroe and Jared Kizer's new book "The Only Guide to Alternative Investments You'll Ever Need"? In it he states the only alternative investments to consider are TIPS, commodities and REITS. The following are a few quotes:
In addition, I would appreciate your take on the book's attack on market timing. It is my understanding that Larry operates a huge DFA firm so he is abig advocate of strict buy hold investment strategies.
"The evidence from academic studies demonstrates that equity REITs, both domestic and international, offer an attractive risk/return trade-off" and provide meaningful diversification benefits to portfolios."
"Investors seeking to add real estate to their portfolio should consider an allocation of between 5 and 15 percent of the equity portion of the portfolio."
"TIPS are great equity and fixed-income diversification instruments."
"TIPS have provided their highest returns when equities have produced poor returns."
"TIPS, in general, should be held in tax-advantaged accounts."
"The bottom line is that investors should consider devoting at least some significant portion of their fixed-income allocation to inflation-protected securities."
"Commodities can reward the patient and disciplined investor."
"When adding a small allocation of an asset with negative correlation to a portfolio, high volatility can be a good thing."
"Only informed and disciplined investors should consider including commodities in their portfolio."
"The logic of diversifying economic and political risks is why investors should consider allocating at least 30%, and as much as 50%, of their equity holding to international equities."
"Modern portfolio theory tells us that sometimes we can add risky assets to a portfolio and actually reduce the risk of the overall portfolio."
"Despite its low correlation with other portfolio assets, high-yield debt provides almost no unique benefit in terms of portfolio diversification."
"Investors should never confuse yield with returns."
"Returns alone are an insufficient reason for considering any investment."
"After ten years the survival rate of private firms was only about 34%." (2002 study)
"Private equity investors forgo the benefits of liquidity, transparency, broad diversification, and the access to daily pricing that mutual fund investors enjoy."
"Understanding the difficulty of identifying superior hedge-fund, venture-capital, and leveraged-buyout investments leads to the conclusion that hurdles for casual investors stand insurmountably high."
"For investors who value the attributes of a covered-call strategy, there is a more efficient way of achieving the same objective."
"Our capitalist system excels at responding to the growing demand for customized approaches to investing."
"All things considered, we cannot identify a compelling reason to include PMEs in a well-diversified portfolio."
"While preferred stocks offer relatively high yields, in general, they possess enough negative attributes to make them inappropriate choices for individual investors."
"One of the rules of prudent investing is to avoid complex securities because the complexity is likely to favor the issuer."
"Low correlation is only a necessary but insufficient condition for considering an investment."
"Holding convertible bonds in a mutual fund, or a separate account, causes a loss of control over the risks and expected return of the overall portfolio."
"The inclusion of emerging market bonds in a portfolio is not recommended."
"Past turnover of actively managed funds may not be a good predictor of future turnover."
"Most investors (of hedge funds) don't understand what they are buying or what they are paying."
"Hedge funds have failed to deliver on their promise of superior risk-adjusted returns."
"From January 1995 through March 2006, the average hedge fund returned 8.98% per year, lagging the S&P 500 by 2.6% per year." (2006 study)
"Less than 25% of the hedge funds in existence in 1996 were still alive in 2004."
"When investors look at the performance of hedge funds, they need to be aware that the data are likely to be misleading."
"One of the more common mistakes investors make is that they are fooled by randomness, confusing skill and luck."
"The bottom line on hedge funds is this: They are 'sinkholes' for investors."
"In order to experience a good investment outcome, one does not need to purchase exotic instruments."
"Variable annuities are products that are sold, not bought."
"Variable annuities (VA) convert what would otherwise be long-term capital gains into ordinary income."
"Education, or a good fee-only advisor who is not influenced by commission-based compensation, can be the armor that protects investors."
"Fortunes are made on Wall Street by catering to your greed." (Gary Weiss quote)
"The following is a good rule of thumb: The larger the commission, the worse the investment."
"Equity indexed annuities are the poster children for products that are too good to be true."
"Wall Street's sales and marketing machine is continuously pumping out fairy tales--that rarely have happy endings.
"Many structured products torture investors with their fees in ways that would make the Inquisition proud"
"The overwhelming majority of individual investors aren't content to settle for market returns. Instead, they try to outperform the market through various methods such as stock picking, market timing, and fund selection. The unfortunate result for most investors has been below-benchmark returns."
3:43, you left the whole book, sweet.
I've actually got a couple of articles that touch on this vaguely and I believe the excerpt you left ties in.
I was going to have a post for friday and or sunday to address the others so i will tie your comment in.
Hi Roger - I've enjoyed reading your blog for the past few months and I've been pondering much about what you've said about portfolio construction because I think I've been a contrarian in some respects. Back around 2003, I paid a visit to a trustworthy financial planner (yes, very rare) that looked over my affairs and told me I've got too much money in stocks. So I diversified around half of my holdings into multi-family real estate and some vacant land. Up until this year, I whined within myself about the poor performance of my rental properties relative to equities. This year, it all changed. It's been the best year ever because of the subprime mess - all my buildings are full and the prices of the buildings have not been affected by the current economic mess. In the mean time, my equities have been crushed along with everybody else. So my diversification strategy worked. I also started dabbling in the art market for the past few years and I'm enthusiastically waiting for the spring auctions to add to my collection since prices there have been obliterated. Thanks for the great blog - Jeff
Roger,
Just wanted to wish you and your's a happy, safe holiday season. Keep up the great work.
Jan
Every bear market brings the siren-song of market-timing. This is because anyone who avoided stocks is (temporarily) outperforming buy-and-hold portfolios.
Buy and hold during market downturns is not intuitive. The majority of individual investors buy high and sell low--exactly the opposite of successful investing. A study by Ilia Dichev of the University of Michigan found that stocks on the Nasdaq gained an annualized 9.6% from 1973 to 2002-- but investors in those shares earned just 4.3% due to buying and selling at the wrong time.
Before engaging in any sort of market timing scheme, I urge all to follow the advice of investment experts:
Quote:
"The stock market will fluctuate, but you can't pinpoint when it will tumble or shoot up. If you have allocated your assets properly and have sufficient emergency money, you shouldn't need to worry." (AAII Guide to Mutual Funds)
"Endless tinkering is unlikely to improve performance, and chasing last period's stellar achiever is a losing strategy." (Frank Armstrong, author and adviser)
"It must be apparent to intelligent investors--if anyone possessed the ability to do so (market time) he would become a billionaire--quickly--." (David Babson, author, adviser)
"What it really takes to improve your returns and diminish your risks is a willingness to stop focusing exclusively on the movement of the markets." (Baer & Ginsler, The Great Mutual Fund Trap)
"If we haven't said it enough, we'll say it again: Market timing is dangerous." (Barron's Guide to Making Investment Decisions.)
"Only liars manage to always be "out" during bad times and "in' during good times. (Bernard Baruch, famed investor)
"You have to keep reminding yourself. We don't know what's going to happen with anything, ever." (Peter Bernstein)
"There are two kinds of investors, be thay large or small: those who don't know where the market is headed, and those who don't know that they don't know." (Wm Bernstein, author and adviser)
"I've said, 'Stay-the-course' a thousand times, and I meant it every time." (Jack Bogle, Vanguard founder)
The Boglehead (forecasting) Contest began in 2001. Of 99 Diehard guesses that year, only 11 even guessed the direction of the stock market.
"If you're determined to succeed at investing, make it your first priority to become a buy-and-hold investor." (Jack Brennan, Straight Talk on Investing)
"I never have the faintest idea what the stock market is going to do in the next six months, or the next year, or the next two." (Warren Buffet)
"Market timing is an ineffective strategy for mutual fund investors." (CDA/Wiesenberger)
"Any investment method that relies on predicting the future is doomed to fail." (Chandan & Sengupta, financial authors)
"A successful investor has a good knowledge base, a well-defined investment plan, and nerves of steel to stick with it." (Andrew Clarke, financial author)
"Most investors are unable to profitably time the market and are left with equity fund returns lower than inflation." (2003 Dalber Study)
"Take my word on it. Buy-and-hold is still your best long-run strategy." (Jonathan Clements, author & journalist)
"Market-timing is bunk." (Pat Dorsey, M* Director of Fund Analysis."
"The performance of 185 tactical asset allocation mutual funds was compared with buy-and-hold strategies and equity mutual funds over the years 1985-97. Over this period the S&P 500 Index increased 734%, average equity funds increased 598%, and tactical asset allocation funds increased 384%." (David Dreman, author)
"Market timing is a wicked idea. Don't try it-ever." (Charles Ellis author of The Loser's Game)
"Forget market timing in any form." (Paul Farrell, (CBS Marketwatch.com)
"The best practice for investors is to design a long-term globally diversified asset allocation based on present and future financial needs. Then follow that plan religiously, through all markets good and bad." (Rick Ferri, author and adviser)
"Benjamin Graham spent much of his career trying to devise a goodformula for when to get into--and out of--the stock market. All formulas, he concluded, failed." (Forbes, 12-27-99)
"Buy and hold. Diversify. But your money in index funds. Pay attention to to the one thing you can control--costs." (Fortune Investor's Guide 2003)
"Dont' sell out of fear or buy out of greed. Just keep making investments, and let the market take its course over the long-term." (Norman Fosback, author, researcher)
"The only function of economic forecastng is to make astrology look respectful." (John Kenneth Galbraith, Economist)
"I've learned that market timing can ruin you." (Elaine Garzarelli)
"Staying on course may be just as difficult in bull markets as in bear markets." (Good & Hermansen, Index Your Way to Investment Success)
"For most investors the odds favor a buy-and-hold strategy." (Carol Gould, author & financial columnist)
"If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting that's going to happen to the stock market." (Benjamin Graham)
"From June 1980 through December 1992, 94.5% of 237 market timing investment newsletters had gone of business." (Graham/Campbell Study)
"Your very refusal to be active, and your renunciation of any pretended ability to predict the future, can become your most powerful weapon." (Graham & Zweig, The Intelligent Investor)
"The best advice: buy and hold." (John Haslem, author and researcher)
"Even in a bear market, market-timing and actively managed mutual funds generally hurt investment performance more than they help it." (Mark Hulbert, N.Y.Times columnist)
"After receiving the Nobel Prize, Daniel Kahneman, was asked by a CNBC anchorman what investment tips he had for viewers. His answer: "Buy and hold."
"Timing the market is for losers. Time IN the market will get you to the winner's circele, and you'll sleep better at night." (Michael Leboeuf, author)
"No one is smart enough to time the market's ups and downs." (Arthur Levitt, former SEC chairman)
"It never was my thinking that made the big money for me. It always was my sitting." (Jesse Livermore, author & famed investor)
"Nobody can predict interest rates, the future direction of the economy or the stock market." (Peter Lynch)
"Buying-and-holding a broad-based market index fund is still the only game in town." (Burton Malkiel, Random Walk Down Wall Street)
"At the peak of the bull market in March of 2000 only 0.7% of all recommendations on stocks issued by Wall Street brokerages and investment banks were to "Sell." (Miami Herald, 1-26-03)
"If you can't handle the short term, if the uncertainty is stressful and the headlines are unbearable, then the markets are too hot for you: get out of the kitchen." (Moshe Milevsky, author & researcher)
"We're not keen on market-timing. It just doesn't work." (Morningstar Course 106)
"We've yet to find anyone who can accurately and consistently predict the market's short-term moves." (Motley Fools)
"Odean and Barber tested over 66,400 investors between 1991 and 1997. Their findings: "The most active traders earned 7% less annually than buy-and-hold investors."
"Forget trying to time the market and do something productive instead." (Gerald Perritt, financial author)
"The market timer's Hall of Fame is an empty room." (Jane Bryant Quinn)
"Countless studies have proved that no one is able to time the market effectively." (Mary Roland, author & journalist)
"Trading is based on the rather arrogant belief that the trader knows more than the buyers and sellers with whom he is trading." (Ron Ross, The Unbeatable Market)
"In the long run it doesn't matter much whether your timing is great or lousy. What matters is that you stay invested." (Louis Rukeyser, TV host)
"For the 10 years that ended 12-31-2000, only one newsletter out of the 112 that Timers Digest follows managed to beat the S&P 500 Benchmark." (Jim Schmidt, editor)
"I have learned the hard way that market timing and trying to pick a fund that will out-perform the market are both losing strategies." (Larry Schultheis, author and advisor)
"I'm a strong advocate of buying and holding." (Charles Schwab)
"It turns out that I should have just bought them (securities), and thereafter I should have just sat on them like a fat, stupid peasant. A peasant however, who is rich beyond his limited dreams of avarice." (Fred Schwed Jr., 'Where are the Customers' Yachts?)
"If you are not going to stick to your chosen investment method through thick and thin, there is almost no chance of your succeeding as an investor. (Chandan Sengupta, financial author)
"Investors should look with a jaundiced eye at any market timing system being peddled by its guru-creator." (W. Scott Simon, financial author)
"Buying and holding a few broad market index funds is perhaps the most important move ordinary invests can make to supercharge their portfolios." (Stein & DeMuth, (authors & advisor)
"It's my belief that it's a waste of time to try to time any market decline, or try to pinpoint a market bottom." (James Stewart, Smart Money columnist)
"It's a staple of personal finance advice: Buy-and-hold, because trading the stock market is a sucker's bet." Larry Swedroe, author and adviser.
"People should stop chasing performance and just put together a sensible portfolio regardless of the ups and downs of the market." (David Swensen, Yale Investments)
"Trust in time and forget market timing. Allow time to work its compounding magic for you. Let market timing inflict its miseries on someone else." (Tweddell & Pierce, financial authors)
"Stay invested. Not only does buy-and-hold investing offer better returns, but it's also less work." (Eric Tyson, author, Mutual Funds for Dummies."
"Few if any investors manage to be consistently successful in timing markets." (Wall Street Journal Lifetime Guide to Money)
"If you're considering doing your own market timing, the best advice is this: Don't." (John Waggoner, USA Today financial columnist)
"If you buy, and then hold a total-stock-market index fund, it is mathematically certain that you will outperform the vast majority of all other investors in the long run." (Jason Zweig, author)
"The idea that a bell rings to signal when investors should get into or out of the stock market is simply not credible. After nearly fifty years in this business, I do not know of anybody who as done it successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently." Jack Bogle.
Thanks for all the quotes anon, but I know personally of three individuals who recommended to me I get out of the market last summer. Two were shorting the S&P.
Another individual was always only holding the top-performing indexes (the leaders over the last 6 months). In January he sold all stock-based equities (which were in resources companies) and put his money into bonds.
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