Rick Ferri's Presentation About His Study Of Performance Of Actively Managed Fund Portfolios Versus Index-Fund Portfolios Gets Rave Reviews From Advisors
Monday, November 04, 2013 11:07

Rick Ferri's presentation last Friday provided hard evidemce about the supremacy of  all-index fund portfolios versus all-actively managed fund portfolios.

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The comments from advisors were very positive and Ferri is succeeding in an area of the RIA business that provides a clear path to a business model that many advisors can utilize.  By focusing on keeping clients' expenses low while providing the advice, rebalancing, and logistical services investors need, RIAs can create a strong business in their locales.

Here's what attendees saoid about the session:

  • Very Informative
  • Excellent. Would like to hear more from Rick with his research.
  • worthwhile
  • An excellent "under the hood" analysis of index versus active investing taken to a level rarely if ever discussed anywhere else. If today's webinar doesn't convince advisors of the technical long-term wealth accumulation merits of passive - index investing versus active investing - then really nothing ever will!
  • Well done
  • Fascinating in that we are working on a rules-based momentum strategy using ETF's across10 to 12 classes a la Israelson.
  • Awesome. Appreciated the robustness of his work.
  • Excellent webinar. I'd like to hear more from Rick in the future, perhaps on the role of nontraditional investments in a portfolio such as REITs, commodities, hedge funds, etc.
  • Great webinar, it has created a lot of fuel for thought.
  • Good presentation, straightforward, helpful background. Looking forward to seeing the slides for add'l review
  • Excellent presentation my Rick. thank you,
  • Excellent
  • enjoyed hearing his research on the various perspectives using different scenarios for comparison of active vs passive
  • Andy needs to wait until after the PowerPoint slide is shown before asking a poll question that is on that slide.
  • This presentation was very informative for advisors using either active management or passive management. Rick's delivery was very polished and easy to follow. Not overly technical and no jargon thrown in to confuse the listener. Also very plain talking, direct approach to this topic without any hidden agenda, therefore very objective viewpoint.
  • Great presentation!
  • Nice job, but no opportunity for rebuttal. A discussion with an opposing viewpoint would have been more helpful.
  • Very interesting and educational!
  • To me, randomly selecting active funds is pretty worthless because the majority of active funds are closet indexers. I also wonder why he did not do a study of how active funds with strong performance and momentum the past year compare to index funds. His presentation added nothing that hadn't been documented many times in the past.
  • Clearly presented and very interesting points. I appreciate the clarity of the sampling and the many scenarios as well as the follow-up questions.
  • One of my clients read about Rick in the "WSJ" (at least) three or four years ago. The client asked me to interview Rick (I did).
  • I thought it was a good session. Rick confused me at various times during his presentation but I was able to catch up. The pop up surveys for CPE can be disconcerting, you fight the urge to be memorizing dates, returns, etc. in anticipation of getting the question "right".


US Stock Market October Performance at a Glance
Monday, November 04, 2013 09:57

Tags: stocks

Here are the best & worst performing market segments last month.  The total market earned 4%, bringing the year to date to more than 26%.

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Large cap staples, industrials and utilities performed best, earning 7% on average.
Small cap growth stocks were flat for the month, with healthcare & utility stocks in this style losing more than 5%.   


Odds For Investment Success Worsen When Investors Select Two Or More Actively Managed Funds In An Asset Class
Thursday, October 31, 2013 09:59

Guest post from index fund expert Rick Ferri:  Portfolios holding only actively managed funds have a low probability of outperforming a comparable all-index-fund portfolio. In A Case for Index Fund Portfolios, a whitepaper I co-authored with Alex Benke, CFP© of Betterment, we show that portfolios of actively managed funds have a low probability of outperforming an all-index-fund portfolio.  (On Friday, I am speaking at an Advisors4Advisors webinar about the results of the study.)  
Our research shows that when investors select two or more actively managed funds in an asset class, they reduce the chances of outperforming an all–index fund portfolio.  Figure 1 illustrates the outcome of one scenario in our study. It covers three asset classes over the 16-year period from 1997 to 2012. The benchmark portfolio invested 40% of its assets in the Vanguard Total Bond Market Index (VBMFX), 40% in the Vanguard Total Stock Market Index (VTSMX), and 20% in the Vanguard Total International Stock Index (VGTSX).
Probability of an all-index-fund portfolio outperforming an all-actively-managed fund portfolio.
Figure 1: Probability of an all-index-fund portfolio outperforming an all-actively-managed fund portfolio.   

The three-index-fund portfolio outperformed the one actively managed fund portfolio 82.9% of the time. When two actively managed funds were selected in each of the three asset classes (a total of six funds), the odds in favor of the all-index-fund portfolio increased to 87.1%.  Finally, when three actively managed funds were selected in each asset class (a total of nine funds), the odds reached 91.0% in favor of the all-index-fund portfolio.  


This finding has meaningful implications for mutual fund investors, and should be of particular importance for participants in self-directed employer sponsored retirement plans.  An all-index fund portfolio has a high probability of outperforming actively managed funds. However, if actively managed funds are selected, it’s generally better to pick one fund per asset class and hope for the best.


Past performance does not guarantee of future results. Portfolio Solutions® will make a list of all recommendations within the immediately preceding period of at least one year available upon request.

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Retirement Experts Recommend Startling New Approach: Increase Equity Exposure After Retiring
Tuesday, October 29, 2013 11:03

Tags: asset allocation | retirement | retirement income | retirement planning | risk

Talk about turning conventional wisdom on its head: A new study advocates a U-shaped investment strategy through life, with high risk at a young age giving way to low risk near retirement, followed by increasing risk during retirement.

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Conventional wisdom on retirement glidepaths is to reduce exposure to risk continuously, starting with high risk at a young age and giving way to lower risk as retirement approaches and even lower risk post-retirement.
The provocatively titled study, “Reducing Retirement Risk with a Rising Equity Glidepath,” was published by Wade Pfau and Michael Kitces. Pfau is a professor of retirement income in the new Ph.D. program for financial and retirement planning at The American College in Bryn Mawr, Penn., and Kitces is an author and speaker.
“We find, surprisingly, that rising equity glide-paths in retirement – where the portfolio starts out conservative and becomes more aggressive through the retirement time horizon – have the potential to actually reduce both the probability of failure and the magnitude of failure for client portfolios,” the study’s synopsis reads. “This result may appear counter-intuitive from the traditional perspective, which is that equity exposure should decrease throughout retirement as the retiree’s time horizon (and life expectancy) shrinks and mortality looms. Yet the conclusion is actually entirely logical when viewed from the perspective of what scenarios cause a client’s retirement to ‘fail’ in the first place.”
Pfau and Kitces point out that an extended period of poor returns in the first half of retirement will lead a retiree to hold few stocks if and when higher returns come back. Conversely, when equity returns are good in the first half of retirement, the retiree gets ahead of their income goals so that later asset allocation choices have little impact, even if returns fall off.
I agree with this advice up to a point. However, I believe that retirement years are too complex to offer a generalized, one-size-fits-all solution. For example, academics recommend a “pockets of money” approach in retirement, while others advocate a mix of annuities and self-insurance (personal investing). And now we have Pfau and Kitces recommending a pattern of increasing risk.
My research and experience shows that investors are best served by a glidepath that actually reaches the point of transition from the accumulation phase
to the distribution phase with all of the investor’s accumulated savings intact, plus reasonable growth in those savings. Only then, at entry into retirement, should investors plan how they will secure the remainder of their lifetimes with dignity. It is only at this point of transition that enough information is available (e.g., amount of accumulated savings, health status, amount of debt) to properly construct an investment plan for the third stage of the U-shape.
For a more detailed explanation, see my 2012 article, “The 3 Stages of Individual Investing are like a Journey into Space.”
You can be the judge of the best course of action for you and your clients.
Placemark Investments Launches New Integration of Research and Analytics Available Through UMA Marketplace
Monday, October 21, 2013 13:38

Placemark Investments announced today that it is launching a new integration with AdvisoryWorld Financial Technologyanabling advisors to build portfolio solutions using AdvisoryWorld research and analytics.

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Within Placemark's UMA Marketplace platform, an advisor can directly access hypothetical illustrations and detailed analytics from AdvisoryWorld.  For advanced and custom analytical reports, advisors can also access client portfolios from UMA Marketplace on AdvisoryWorld's platform. UMA Marketplace has over 500 SMA managers offering more than 1,800 strategies.

Placemark, which manages more than $12 billion in assets, develops wealth management solutions including Unified Managed Account programs and other portfolio management outsourcing solutions, enabling Registered Investment Advisors to scale their business and focus on growth objectives. AdvisoryWorld is a data and analytics tool.   


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