The dangers of passive investing

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There is a lot to be said for passive investing.

Key Takeaways from Morningstar’s Active/Passive Barometer Report:

• Actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons.
• Failure tended to be positively correlated with fees.
• Fees matter. They are one of the only reliable predictors of success.

Prof. Burton Malkiel, author of A Random Walk Dow Wall Street, writes in the WSJ:

During 2016, two-thirds of active managers of large-capitalization U.S. stocks underperformed the S&P 500 large-capital index. When S&P measured performance over a longer period, the results got worse. More than 90% of active manager underperformed their benchmark indexes of a 15-year period.

…..In 2016 investors pulled $340 billion out of actively managed funds and invested more than $500 billion in index funds. The same trends continued in 2017, and index funds now account for about 35% of total equity fund investments.

Volatility is also near record lows as the market grows less reactive to short-term events.

Lower fees and lower volatility should both improve investment performance, so what could possibly go wrong?

Investors could stop thinking.

If passive funds are the investment of choice, then new money will unquestioningly flow to these funds. In turn the funds will purchase more of the stocks that make up the index.

Prices of investment-grade stocks that make up the major indices are being driven higher, without consideration as to whether earnings are growing apace.

And the higher index values climb, the more investment flows they will attract. Driving prices even higher in relation to earnings.

More adventurous (some would say foolhardy) investors may even start using leverage to enhance their returns, reasoning that low volatility reduces their risk.

The danger is that this becomes a self-reinforcing cycle, with higher prices attracting more investment. When that happens the market is in trouble. Headed for a blow-off.

Investing in passive funds doesn’t mean you can stop thinking.

Don’t lose sight of earnings.

When prices run ahead of earnings, don’t let your profits blind you to the risks.

And start thinking more about protecting your capital.

June 13, 2017 at 06:02AM

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from ColinTwiggs

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3 Must Read Asian Market Stories: China’s Central Bank Balance Sheet Won’t Shrink Soon, Bitcoin Soars Above $3,000, and Why SEA Ltd Is Planning An IPO In New York

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The pace at which the world’s leading central banks will shrink their balance sheets has come into sharpened focus, but it seems investors don’t have to worry yet about China pulling in the reins.

Bloomberg has an interesting story looking at the People’s Bank of China’s balance sheet and how many market experts reckon it could expand further. Here’s a little taste:

Whereas the Federal Reserve’s $4.5 trillion asset pile is set to be shrunk and the European Central Bank’s should stop growing by the end of this year as the outlook brightens, China’s $5 trillion hoard is here to stay for the time being — and could even still expand, according to the majority of respondents in a Bloomberg survey of People’s Bank of China watchers.

The PBOC balance sheet is a fundamentally different beast from its global peers — run up through capital inflows and trade surpluses rather than hoovering up government bonds — but it still matters for the global economy. Changes in the amount of base money in the world’s largest trading nation are having a bigger impact than ever, making the variable key for stability in a year when political transition in Beijing is in the cards.

“China is more than a couple of years away from balance-sheet contraction,” said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong, pointing out that the growth in the broad money supply is still behind the government’s target.

Bitcoin’s red-hot run continues, with the digital currency powering through $3,000. Here’s CNBC with the details:

Bitcoin traded above $3,000 for the first time on Sunday, continuing this year’s massive surge and helped by increased demand from Asia-based investors.

After trading in a range for the last week, bitcoin climbed to an all-time high Sunday of $3,012.05, according to CoinDesk.

On Chinese exchanges such as BTCC, the currency traded about $40 to $60 above that price. Last week, several major Chinese bitcoin exchanges allowed customers to resume withdrawals of the cryptocurrency, after halting withdrawals in early February amid scrutiny from the People’s Bank of China.

Asia’s e-commerce platforms were in the spotlight last week thanks to Alibaba’s two day investor meeting, but it won’t be long before U.S. investors will have another e-commerce play to focus on. The South China Morning Post has a story about how Southeast Asian e-commerce and gaming platform SEA Ltd, which is based in Singapore, is preparing for a $1 billion IPO in New York. Here’s a glimpse of the story:

Sea Ltd, Southeast Asia’s most valuable start-up, is prepping for a US$1 billion initial public offering in the United States, a move that would be a major pivot for Southeast Asia’s rapidly expanding tech industry.

The online gaming and e-commerce company, formerly known as Garena, has filed for a listing with the US Securities and Exchange Commission, according to a recent report by Bloomberg. The Singapore-based company has appointed Goldman Sachs to be its lead adviser and it could list as early as 2018. A representative with Sea declined to comment on the rumoured IPO.

Sea is one of the region’s few unicorns, a tech business valued over US$1 billion. It recently secured US$550 million in a new funding round from some of Asia’s biggest conglomerates.

These included GDP Venture, a venture capital firm in Jakarta founded by Martin Hartono, son of Indonesia’s richest tycoon R Budi Hartono.

June 12, 2017 at 06:07AM

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from Robert Guy

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Account and Records: Final GST Rules with Format of Forms

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Goods and Service Tax Council has approved Accounts and Records Rule and related format in its meeting held on 11th June 2017. Text of the Rules is as follows :-

June 12, 2017 at 06:07AM

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from admin

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Postman alleged to be behind online suicide game arrested in Russia

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June 11, 2017 at 06:02AM

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from David Millward

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Eindec *Official* (SGX: 42Z)

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Air purification firm sniffing out fresh opportunities abroad

In rebranding Eindec, CEO will aim for growth in every region it operates in

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Singapore-listed air purification firm Eindec aims to focus on growth for operations, not just here but also in China and South-east Asia, as it evolves its business model, said CEO Darran Lim.

Mr Lim, 43, was appointed to the top job at the firm last October.

He highlighted his mission to rebrand Eindec and lead the company towards achieving growth in every region in which it operates.

Eindec serves a diverse range of clients, including hotels, shopping malls, hospitals and schools.

It operates two manufacturing facilities, one in Singapore and the other in Malaysia. Singapore serves as its headquarters and research and development centre.

It also has offices in Malaysia and China.

“We are looking towards a business model where business growth in all countries is all aligned to each other. We replicate the same range of services and standards in each country,” Mr Lim told The Straits Times.

Eindec launched its corporate office in Pasir Panjang on Thursday. It had relocated from its industrial office in Pandan Crescent, which included a small production facility.

Production operations are now consolidated in Malaysia.

Eindec has reached several milestones in recent years.

In 2014, the firm completed the design and prototype of its own air purifier brand.

Last year, Eindec was listed on the Singapore Exchange’s Catalist board.

Eindec said yesterday it has clinched five new contract wins worth $3 million. These include three major contracts for clean room equipment – filtration and cleaning equipment to maintain an environment free from dust and other contaminants – in northern Malaysia.

The other two are to supply a range of heating, ventilation and air-conditioning equipment to a commercial tower in the central business district; and to supply air purification and ventilation systems for Luxus Hills, a luxury landed property project in Ang Mo Kio.

Mr Lim said: “We have been a recognised brand for the last 30 years. With a strong network and support, we look forward to expanding our presence beyond Singapore.

“We are focusing on overseas markets, including China and Malaysia, and we hope to expand into Indonesia, Vietnam and the Philippines.

“We also want to evolve in terms of operations, market approach and human resource. We are gearing up knowledge to sell our concept to future customers.”

Eindec has 200 staff in the three countries altogether and aims to increase its hiring by 10 per cent over the next two to three years.

June 11, 2017 at 06:04AM

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from mrclubbie

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About $PAYC, a slightly disingenuous growth story

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Financially, they are an excellent growth story. However, it’s not like they are being blatant about it, but they are presenting themselves as an HR software company. It sounds great and very encompassing, but most of their revenues are coming from the single source of payroll processing. This is an entirely different beast than all of the many other sources that they are touting. Perhaps this is an excusable case of “fake it till you make it”, but them having their revenues sourcing from payroll processing has an entire world of risks attached to it in an era of reduced taxes and regulations. Im not sure that the share price of 75x earnings is justified. Thoughts about this?

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May 08, 2017 at 06:02AM

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from /u/Voritos

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8k Filing Reddit Survey

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What are your favorite types of 8k filings that make stocks move? If you could choose keywords or phrases that come from your favorite 8k filings (“reverse merger”, “beat earnings”) what would they be?

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May 08, 2017 at 06:02AM

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from /u/OptimusPrimeTrader

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A North Korea conflict will be ‘credit negative’ for Seoul

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As Washington and Pyongyang ramp up aggressive rhetoric, the increased probability of conflict will be credit negative for Seoul, according to Moody’s.

May 04, 2017 at 05:49AM

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Trump is angry that people think he got ‘taken to the cleaners’ by Democrats in the shutdown deal

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President Donald Trump and his aides have sought to paint the deal to fund the government…

May 04, 2017 at 06:04AM

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EUR/USD Down After Fed & Set of Solid US Indicators

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EUR/USD dropped today as US economic indicators were rather solid for the most part, with employment rising in line with expectations and the services sector improving much more than experts had anticipated. The currency pair demonstrated an especially sharp drop after the Federal Open Market Committee decided to keep its monetary policy unchanged and issued a statement that was largely neutral but with some hawkish remarks.

ADP employment demonstrated a growth by 177k in April from March, basically matching economists’ expectations. The March increase was revised from 263k down to 255k. (Event A on the chart.)

Markit services PMI advanced from 52.8 in March to 53.1 in April according to the final reading. Analysts expected the index to be the same as the preliminary estimate of 52.5. (Event B on the chart.)

ISM services PMI jumped from 55.2% in March to 57.5% in April, exceeding the specialists’ average estimate of 56.1%. (Event C on the chart.)

Crude oil inventories decreased by 0.9 million barrels last week, far less than experts had predicted (3.3 million), and were near the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 0.2 million barrels last week and also were near the upper limit of the average range. (Event D on the chart.)

FOMC left the federal funds rate unchanged at the 0.75%-1% range, surprising no one. (Event E on the chart.) The Committee made some hawkish remarks in its statement, using the word “solid” when describing job gains and growth and consumption. The statement also mentioned the slowing economic growth in the first three months of this year, saying that “the Committee views the slowing in growth during the first quarter as likely to be transitory.” The FOMC did not reveal anything new about its plans for the future, stating:

The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.

If you have any comments on the recent EUR/USD action, please reply using the form below.

Posted on Forex blog.

May 04, 2017 at 05:48AM

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from Vladimir Vyun

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A huge crack in a 1,000-foot-thick Antarctic ice block has taken an alarming turn

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A crack in Larsen C, one of Antarctica’s largest ice shelves, could shed a block of ice twice the…

May 04, 2017 at 06:04AM

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Forex – Dollar index pushes higher after strong ISM report – Nasdaq

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Nasdaq

Forex – Dollar index pushes higher after strong ISM report Nasdaq Investing.com – The dollar pushed higher against other major currencies on Wednesday, after the release of strong U.S. service sector activity and employment data, while investors awaited the Federal Reserve’s policy decision due later in the trading … Forex – Dollar holds onto gains after upbeat US jobs dataInvesting.com FOREX-Dollar inches up as Fed eyed for June rate hike steerReuters FOREX-Dollar steady with eyes on Fed for rate clues; kiwi firmerReuters UK Proshare Nigeria Limited (press release) (registration) –Forex Crunch all 471 news articles »

May 04, 2017 at 05:41AM

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We need to track more than GDP to understand how automation is transforming work

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Governments and business don’t have the right information to understand what the future of work really looks like

A new report by the US-based National Academies of Science Engineering and Medicine suggests that not only has the automation of work barely begun but that the ways in which we measure the effects of technology on employment are inadequate to the task.

The authors argue that to understand how automation is transforming our workplaces, we need better ways of tracking technological change. Put simply, they are saying that if we are what we measure – that is, if policy is driven by the information we collect – then we are collecting the wrong information.

Continue reading…

May 04, 2017 at 06:00AM

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from Tim Dunlop

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Oil slips, but CAD stays put – what’s next? – Forex Crunch

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Forex Crunch

Oil slips, but CAD stays put – what’s next? Forex Crunch After yet another disappointing inventory report for oil bulls, WTI is getting closer to the critical $47 support. However, USD/CAD is not reaching new highs. What’s next? Here are two opinions: Here is their view, courtesy of eFXnews: … Forex – USD/CAD edges higher, re-approaches 15-month peakInvesting.com Forex – USD/CAD hits fresh 15-month highs in early tradeNasdaq all 62 news articles »

May 04, 2017 at 05:41AM

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New Zealand regulators reject merger of newspaper publishers – Arizona Daily Star

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Arizona Daily Star

New Zealand regulators reject merger of newspaper publishers Arizona Daily Star In this May 3, 2016 photo, the exterior view of the NZME media building in central Auckland, New Zealand. Regulators have rejected a proposed merger between New Zealand’s two main newspaper publishers, NZME and Fairfax, saying the benefits of saving … NZME and Fairfax merger declinedNew Zealand Herald Fairfax-NZME merger a no go – Commerce CommissionNewshub Commerce Commission sinks Fairfax/NZME media merger​Waikato Times The Guardian –Radio New Zealand all 54 news articles »

May 03, 2017 at 06:05AM

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FBR initiates scrutiny of offshore transactions – The News International

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The News International

FBR initiates scrutiny of offshore transactions The News International KARACHI: The Federal Board of Revenue (FBR) has initiated audit of all those taxpayers who have made offshore transactions during the last six years, sources said on Tuesday. “All corporate and individual taxpayers, who have made offshore investments, …

May 03, 2017 at 06:09AM

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Space Industry Ready To Blast Off Fueled By Government Partnerships

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The exploitation of space is getting a big boost from public money to help bring private industry into the game.

May 01, 2017 at 04:31AM

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from David Schrieberg, Contributor

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