Tags: alternative investments | asset allocation | commodities | diversification | gold

For years, investing in natural diamonds was inaccessible to nearly all individual investors. The technical expertise needed as well as the historic lack of transparency in the diamond industry were all major deterrents for individuals attempting to diversify their portfolios with investment grade diamonds. But things have changed, says the Investment Diamond Exchange (IDX), which announced the launch of its unique trading platform which allows investors to buy, take physical delivery, and track real-time prices of investment grade diamonds.

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"For years, the diamond market was monopolized by DeBeers," says press release from IDX. "However, that all changed in 2001, when DeBeers was privatized. By 2004, the DeBeers diamond stockpile was depleted, allowing diamond prices to trade on supply and demand, just like any other commodity.”

Chris Duffield, co-founder of Investment Diamond Exchange says investors never had the ability to invest in diamonds without paying the retail mark-up, but IDx's trading platform offers price transparency and liquidity. "Our investors will be able to take physical delivery of GIA certified investment diamonds, track the value of their position, and effortlessly liquidate their diamonds whenever they desire,” Duffield says in the release.

Tags: competitors | custodians | ETFs | Fidelity

Fidelity Investments and BlackRock Inc. today announced a long-term strategic alliance that provides extensive collaboration across Fidelity’s distribution and asset management organizations with BlackRock and its leading ETF provider, iShares.

Fidelity says the deal will more than double its current successful online commission-free ETF offerings and will create new ETF portfolio strategies using iShares as components within its direct-to-investor managed account offering (Portfolio Advisory Services). The partnership will enable Fidelity to off more investments using passively managed ETFs for self-directed investors.

Fidelity is increasing the number of iShares ETFs that can be traded commission-free on Fidelity.com from 30 to 65, according to a press release from Fidelity. The new list includes all 10 iShares Core ETFs as well as a diverse selection of international, domestic, and specialized equity; fixed income; and commodities. The 65 commission-free ETFs  complement more than 1,100 other ETFs available at Fidelity.com for a commission of only $7.95 per trade, says the press release.

In addition, customers and non-customers can access ETF research and analysis tools at Fidelity’s ETF Research Center. The research sites provides do-it-yourself investors to use an ETF screener with more than 100 screening criteria, a color-coded ETF Market Tracker to easily discover what ETFs are moving in the market, and download independent experts’ timely commentary, investing ideas and pre-defined strategies. In the past year, customer activity on Fidelity’s ETF Research Center increased 28%, says Fidelity.

The alliance between the two financial serviecs giants also enhances Fidelity's Portfolio Advisory Services solution, a managed account offering for retail DIY customers. Currently, PAS offers professional money management and access to proprietary research through model portfolios of mutual funds and personalized portfolios using mutual funds, ETFs, and separate accounts. Fidelity says assets have increased in Fidelity managed accounts products by 73% in the past three years. "Fidelity and BlackRock will jointly focus on providing innovative ETF-based solutions on an ongoing basis as part of this partnership," according to the press release.

Registered Investment Advisors (RIAs) on the Fidelity Institutional Wealth Services platform will also benefit from the expanded line-up of 65 commission-free ETFs, Fidleity says, but the announcement was light on details about exaclty how RIAs will benefit. “RIAs are increasingly using ETFs in their investing strategies,” said Michael R. Durbin, president of Fidelity’s RIA custody unit. “We look forward to building a strong partnership with BlackRock to give RIAs on our platform new research tools and access to commission-free trading to help them more easily integrate ETFs in their clients’ portfolios.”

Unlike the information in the press release about how retail clients will benefit, there were no details about how RIAs will benefit. However, with customer activity on Fidelity's ETF site up 28% and managed accounts sold direct to retail investors up 73% in three years, you can't blam Fidelity (or any of the other custodians that serve retail as well as RIAs) for improving retail invetsment solutions for DIY investors. 

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Tags: active management | ETFs | index investing | mutual funds | passive investing

Money management firms are increasingly starting to launch actively managed ETFs.

In recent weeks, BlackRock, Fidelity Investments, PIMCO, and John Hancock have launched or plan to launch actively managed ETFs. See my MarketWatch column on the subject.

But those firms will have to work hard to convince advisors to use these funds which are presumed to offer low-cost, intra-day trading, and a chance to beat the indexes. Indeed, not one advisor who responded to my informal survey uses or plans to use actively managed ETFs with their client’s portfolios.

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The reasons vary. For instance, some advisors don’t see any advantages to adding either actively managed fund ETFs or mutual funds for that matter to their clients’ portfolios.

Larry Luxenberg, a portfolio manager with Lexington Avenue Capital Management, says his firm doesn’t use actively managed funds be they ETFs or open-ended mutual funds. “Academic research consistently shows that index or passive vehicles outperform the majority of actively managed funds while lowering risk,” says Luxenberg. “That has been borne out by experience over the last few decades. While an ETF might be a more tax-efficient vehicle, the underlying investment results don’t change from switching vehicles.”

Other advisors, including Karl Frank CFP, MA, MBA, MSF, president of A&I Financial Services, say there are no actively managed ETFs that are better than what is currently available with other products. “Our investments due diligence process hasn't turned up an active ETF that we like better than the traditional mutual funds we recommend,” says Frank. “To make a change, we also have to look at the tax implications for selling and buying.”

Another advisor prefers using passive investments to actively managed investments. “I do not use actively managed ETFs,” says Robin Tan, Ph.D., CFP with KMS Financial Services. “I prefer index-based ETFs due to lower expense ratios. For active funds I still prefer mutual funds at this time due to better historical data.”

And still other advisors don’t use actively managed ETFs in part because the tracking errors are too great to consider. Thomas E Murphy, CFP, a registered principal and partner with Murphy & Sylvest, offers this tale:

“We started using ETFs in 1996 and had great success with them until about 2005. At that point ETF investing had become so popular that they began to stop working well. This means the tracking error to their respective indices became unacceptably wide. 2007, 2008 and 2009 showed huge daily tracking errors which created significant cognitive dissonance for clients. (What they read in the paper did not match their investment performance.)

“Consequently, we moved away from ETF investing back to the more traditional purchasing of individual stock and bond positions. We continue to use certain country specific ETFs in areas where individual issue purchases would be problematic.

 “Our review of actively managed ETFs is that their tracking errors are even larger than passive ETFs. They are also often thinly traded, sometimes very thinly traded which runs the risk of “moving the market” if we purchase large positions. The tax advantage of active ETF investing is not enough to overcome their additional costs given these tracking and trading issues leaving passive index mutual fund investing as superior for smaller accounts and individual positions superior for larger accounts.”

And still others are taking a wait-and-see approach given the newness of the product. “While we’re monitoring the performance of actively managed ETFs, we don’t currently use any in our clients’ portfolios,” says Dan Forbes, CFP of Forbes Financial Planning. “The strategy is relatively new. We like our investments to have a proven track record in terms of performance and transparency before incorporating them into our portfolio mix. We do agree that the mixture of tax efficiency and low expense make them worth considering, and it’s possible that we’ll use them in the future.”

 Other advisors, meanwhile, say they would use an actively managed ETF if it proves to be the best product for the client. “We’re agnostic in this office on the form in which we own client investments (open-ended or closed-end mutual fund, actively managed or indexed ETFs, and the like),” says Tim Knotts, CFP, of the Hogan-Knotts Financial Group. “We want the best (as determined by a set number of filters/benchmarks) managed accounts we can find for our clients.”

Bottom line: It would appear firms that want to get advisors to use actively managed ETFs in their client’s portfolio have a very, very long row to hoe.