This interview from Forbes tries to make the case for 50% in emerging markets. One word from me; no.PowerShares is due to launch domestic small cap sector funds next week. There will be nine funds (in the mold of the SPDR Select Sector ETFs). I hope these gain traction. While we are not at a point where I think the best portfolio can be constructed with no stocks and all ETFs we are moving closer to that point.
Many specialty ETFs have weak volume but IMO this does not have to be priority one, or even priority two if the intention is to hold the fund. Limit orders would be the way to go with one of these funds but if you end up holding something for a couple of years or longer it doesn't really matter if it traded 20,000 shares a day while you held it. Well it wouldn't matter unless you are a 20,000 share buyer.
For those who are unsure if such a fund gets closed you don't lose your investment, you cash out at NAV if you don't sell ahead of the closing.
For the first quarter we lagged the market slightly. Most of the things I favor were up less than the 5ish percent of the S&P 500 so the small lag. But in second quarter we are ahead! Long term is for suckers. [/humor attempt]
Bernie Carbo hit a monumental pinch 3-run homer in game six of the 1975 World Series. This article about him is the latest thing moving around Red Sox Nation and is quite an eye opener.
Have a great long weekend.
11 comments:
From the Forbes article...
"You don't necessarily tell your board you want to do 30% in the emerging markets. You say, "Oh, this private equity bucket we've got here, private equity based on leverage, don't like that idea anymore. That's not coming back, so let's put it in emerging markets." And likewise with real estate. And likewise with public equity and with timber or whatever asset class you have"
1: I have a big problem with the encouragement of pension fund managers being sneaky and manipulative to their bosses.
2: Am I reading this correctly that he believes private equity, leverage, and real estate will not make a comeback... ever? Or is that just what you tell your boss?
Regardless of what he really meant, every way I read the comment it sounds skeevey, now that I think of it maybe it was an April fools joke?
Chasing junk yields and securities in a country with a sparse rule of law should be a rare exercise within one's portfolio.
The same probably holds true for countries with unsustainable debt, holding corporations to blame for speaking economic truth to power and bashing their citizens over the head with confiscatory, wealth redistribution tax policy.
One may be tempted to spend freely, hide earned treasure in portable assets and then hop on the government gravy train for largesse later in life.
Roger, the rush to emerging markets kind of reminds me of what goes on in our area as spring rolls around. A number of guys in the neighborhood take off and travel all the way to northern Ontario for fantastic fishing. After passing the 13,000 lakes in Wisconsin, they bypass most of the 130,000 lakes of Ontario before arriving at the "perfect" spot-allbeit one they have only heard about or imagined about. They then board a boat and travel to the other side of the lake and begin this wonderful experience. I on the other hand catch all the fish I need within about 1/2 mile of my house.
In the same vein, I believe I can safely and profitably invest my entire portfolio within the confines of a 100 mile radius of where I live. That would encompass Chicago, Milwaukee, Rockford. For me no thanks to those exotic travels to unknown destinations for fishing or investing.
The market weightings are totally wierd.
Currently ex-US by market cap weight is shockingly "regular":
25% Pacific
50% Europe
25% EM
The US is ~41 or 42%. Lets call it 40% so global market cap weight is:
40% US
15% Pacific
30$ Europe
15% EM
Pimco has a GDP weighted bond index and the weights they use from http://www.pimcoindex.com/
27.4% US
22.6% Eurozone
9.8% Japan
12.3% Other industrialized countries
27.9% EM
Going to GDP weighting if you want to overweight compared to market weighting almost doubles EM. This appears to account nicely for EM market float of maybe 50% versus 85% market float for developed nations.
I wish there were an etf that held only us stocks with 50% or more international revenues.
Steve Forbes, like John Edwards, falls under the category of "Boy, I'm sure glad he didn't become president". There have been plenty of yahoos running the race, but he seemed to have a legit chance. Thankfully it didn't last.
Anon at 12:39:
You can build your own etf with domestic companies that have a large dose of foreign revenue. Use a low-transaction cost, on-line brokerage account and gradually buy small numbers of shares in the companies that fit your criteria.
I look for companies with goodly foreign revenues, relatively low debt, decent dividends and a history of dividend increases. These days, share price is key, too. Of course, you're gonna end up with some of the usual suspects -- big pharma, Wally World, Mickey D, Coke, P&G, but you'll find something unexpected from time to time, too. So far, so good. Ask me in a few years how it worked out.
Meanwhile, I'm old enough to remember Bernie Carbo, unlike you young punks.
And the biggest think I ever caught on a lake in Ontario when we took a family vacation was my dad's nose when my cast, umm, went awry.
Bill66
Thanks Bill66. I am making a similar effort. I've tried to burn no more than 1% on commission - so at Scottrade, I'm at about $700 per stock.
The best cheeseburger I've ever had came from a stand by the side of the highway in Ontario. I have no idea what the place was called. It was about fifteen years ago. The place was just sitting there by itself in the trees. I've had alot of burgers, yet this memory persists, and I still think of that place, when I'm hungry.
Hi Roger,
You quoted the S&P 500 Q1 return. In general when you quote that, are you talking about the entire portfolio compared to the S&P 500 or just the money invested in equities? Both fixed-income and international underperformed in Q1 and so a diversified portfolio had 'factors' running against it in Q1.
In general, your regular high net worth client has no ideas on these kinds of things -- nor do they really care. But from a purist persepective, how do you handle this for official client reporting? Just present a number of indexes without actually calculating some kind of customized benchmark?
I use a different approach than Booth but my allocation to emerging markets is currently close to what he recommends. My global allocation model calls for 40% in emerging, with 40% in U.S. and 20% in EAFE.
My benchmark weighting to emerging is 20%, but relative strength and performance has pushed my model to over-weight to emerging significantly. If you believe in the momentum anomaly, and if you believe in trend persistence, it makes sense to be overweight in emerging. Btw, my global allocation model can change quite rapidly.
Here are some relative strength charts that serve as key inputs to my global allocation model:
U.S. vs. EAFE
http://stockcharts.com/h-sc/ui?s=$RUA:$IEE&p=D&yr=1&mn=0&dy=0&id=p57589815926
U.S. vs. Emerging
http://stockcharts.com/h-sc/ui?s=$RUA:$MSEMF&p=D&yr=1&mn=0&dy=0&id=p26446854573
EAFE vs. Emerging
http://stockcharts.com/h-sc/ui?s=$IEE:$MSEMF&p=D&yr=1&mn=0&dy=0&id=p47031113058
My take: Go with the flow.
Unfortunately the links I posted don't format the charts correctly. Try these:
http://stockcharts.com/h-sc/ui?s=$RUA:$IEE&p=D&yr=1&mn=0&dy=0&id=p57589815926
http://stockcharts.com/h-sc/ui?s=$RUA:$IEE&p=D&yr=1&mn=0&dy=0&id=p57589815926
http://stockcharts.com/h-sc/ui?s=$RUA:$IEE&p=D&yr=1&mn=0&dy=0&id=p57589815926
Also look at the relative momentum of each over 90, 180, and 250 days:
http://stockcharts.com/charts/performance/perf.html?$RUA,$IEE,$MSEMF
I prefer using the bar charts. U.S. leads in momentum over 90 days, and emerging leads over the past 180 days and past year.
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