Jeffrey Ptak
@syouth1
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Dad, CFA, obsessive type. Morningstar Research Services.
Joined October 2011
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Pretty wild, Invesco missed the rebalance of its equal-weighted S&P 500 index fund, so had to pony up $105MM to make up for the shortfall that resulted. Here's the 8-k. (h/t to investment news).
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ARK is amending prospectus language for its ETFs to:
- Specify risks of investing in SPACs
- Remove limit on ADRs, warrants, preferreds, etc
- Remove limit on investing 30+% of assets in single firm
- Remove limit on investing in 20+% of a firm's shares
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I *highly* recommend reading the SEC complaint against James Velissaris, mgr of Infinity Q Diversified Alpha Fund. I don't know if this would be the biggest fraud ever in a US mutual fund, but the brazenness and scale kind of puts it in a class of its own.
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Youngest gave me a parent eval during dinner. Harsh but fair.
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1) In today's WSJ, there's a lengthy story re how retail investors have missed out on equity bull market. The story seems to suffer from some pretty serious flaws, though. Bottom-line: Retail investors haven't missed out, as I'll try to illustrate.
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Interesting: Fidelity launched a suite of funds w/'loyalty' share classes. If you stay put for a year they convert you to 1st loyalty class, which is 25bps cheaper. Another 2 years, you go to next loyalty class, which knocks off another 0.25%.
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Warm congrats to
@christine_benz
, who has been named to
@barronsonline
list of the 100 Most Influential Women in US Finance. Christine genuinely cares about people and her wise, practical advice has made a big difference in their lives. She's so deserving!
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Filing for a biblically-themed ETF. Was curious about the manager, a financial advisor, so pulled up its ADV. Their fees are eye-popping and if I'm reading this right don't include cost of their ETFs (big weights in their models)
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I was lucky to have had the chance to meet Mr. Bogle. He was always gracious and insightful (and funny!). Vanguard stands as a monument to his ingenuity and grit-he was ahead of his time and never quit working on investors’ behalf, even in “retirement”. A true hero, I’ll miss him
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This intermediate-term bond ETF has apparently decided ‘BTC’ would be a better ticker than its current ‘PIFI’. Wonder why. 🤔
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Sofi replaced low-cost ETFs held by clients in its robo w/its own ETFs..triggering cap gains taxes in taxable accounts in the process. Gave clients minimal notice, informing them after trades were made. Unless I’m missing something this is *really* lame.
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My latest on fund investors’ success in hiring and firing fund managers. Inspired by influential ‘08 study that examined institutions’ hiring/firing skill, my analysis found ‘fired’ funds outperformed ‘hired’ funds subsequent to hiring/firing, on avg. ||
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But this is what makes $ARKK a unicorn: Assets *poured* in during the run-up and, remarkably, have largely stayed put since then, despite the brutal selloff. Take the two together, and it is maybe the biggest, fastest destruction of shareholder capital in fund history.
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1/ My latest takes a look at where active investing has had the largest potential payoff (and penalty), as measured by the dispersion of active funds' pre-fee results. Where has potential payoff been largest? Global small-cap. Smallest? Govt, muni bonds
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Wherein a fund, Highland Small Cap Equity, devotes a third of its net assets to shorting Zoom $ZM, only to see the stock rocket to an ~80% gain in 3Q. Thus, the fund skidded to a 30%+ loss in 3Q and had lost ~63% YTD through 9/30/20.
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Excited to share our new podcast series “The Long View”. In our first episode, my colleague
@christine_benz
and I interview noted author and financial advisor William Bernstein || “I Don't Think the System Needs Nudges. I Think the System Needs Dynamite”
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iShares MSCI BRIC is losing the ‘R’: Now to be called iShares MSCI BIC.
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As a rule, avoid funds w/word 'absolute' in name. They gain little, cost a lot, and lag 60/40 (rightmost column)
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Here are the fund families that have notched the largest net inflows of assets in any 12-mo. period since 1998. ARK's $28.8B net inflow over the year ended 1/31/21 ranked 15th all time. But when you rank these by organic growth (ie, flows/beginning AUM), ARK is off the charts.
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By popular demand (ok maybe not popular demand but
@alphaarchitect
asked), here's a thread on how active US stock funds have fared against their style-specific indexes (i.e., Russell index family) *before* fees over various rolling periods (i.e., 3, 5, 10 years) since 2003...
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Vanguard lowering inv minimum of index fund admiral shareclasses to $3k and will eventually merge the investor shareclass into the admiral shareclass. This will amount to meaningful fee reduction and is effectively a response to Fidelity Zero.
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Here are active-fund success rates for YTD and trailing, 1, 3, 5, 10yrs as of 7/31/20.
- YTD: 40.4% of all active funds beat their category benchmark index
- 1 yr: 37.9%
- 3 yr: 34.2%
- 5 yr: 29.2%
- 10 yr: 29.7%
Of note, bond fund success rates have slumped big time lately.
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Love this.
A moment those kids will never forget 🥰
Third grade teacher Ms. Fitz promised her class hot chocolate if she made this shot ☕️
Way to go, Ms. Fitz!
🎥: htsgeorgetown/IG
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On a personal note, I wanted to tip my cap to my dad, Frank, who will be attending his last BRK shareholder mtg as a manager tomorrow. From very humble beginnings he’s had a long and accomplished career.
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I took a look at the % of funds that didn't survive to the end of different event horizons begun on months between 1/1/78 and 4/30/20. Here are the average % of funds that died over these event horizons over last 30 years:
- 3yr: 12%
- 5yr: 19%
- 10yr: 34%
- 15yr: 45%
- 20yr: 53%
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In 2023, there were 56 funds that gained 100% or more. Going back to 1999, funds have gained 100%+ in a calendar year 447 times. The avg return in the three years following the 100%+ gain? -12.4% per year. 70%+ of these funds lost money or died in the ensuing three years.
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Just rewatched ‘Arrival’ and liked it even more the second time. One of the most thought-provoking sci-fi films in a long while; and it’s beautifully photographed and acted to boot (and not too long either!). Highly, highly recommend.
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Our guest in this week's episode of The Long View is GMO's James Montier. A brilliant writer and analyst, James shared his views on the dearth of value; forecasting and portfolio construction; fostering debate; alternatives investing; and more.
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ARK has registered an interval fund, ARK Venture, to invest in privately placed/restr. securities of firms 'capitalizing on disruptive innovation or...enabling the further development of a theme in the markets in which they operate'. Cathie Wood to manage.
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Today my colleague
@AmyCArnott1
published our annual study of fund investors’ average dollar-weighted returns, which we call ‘Mind the Gap’. All told, we found investors earned ~1.7% less per year than their fund investments over the 10 yrs ended 12/31/20.
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We try not to toot our own horn too much but
@christine_benz
and I are proud that The Long View logged its two millionth download this week. Sincere thanks to our terrific guests, who make the show, and our listeners who have kept us going week after week. Thanks a million (x2)!
This is one of my favorite conversations that
@syouth1
and I have had with any investment manager. It is so much fun to interview someone who is clearly, truly INTO his job like David Herro is. Hope you enjoy it!
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AQR has filed to:
- Liquidate Multi-strategy Alt, Risk Parity II HV, Style Premia Alt LV, Vol Risk Premium funds
- Liquidate EM Defensive Style fund
- Merge 7 'tax managed' funds into other AQR funds
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Bitcoin is down a further 56% since Thiel called Buffett a 'sociopathic grandpa from Omaha'
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So much for that: Wealthfront Risk Parity Fund has lost 30% over the past week. 😳
Wealthfront Risk Parity Fund is now outperforming S&P 500 and US 60/40 since inception. This after getting off to a dreadful start. Quite a reversal ||
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This is one of more entertaining enforcement actions I've read in a while: Airline baggage handler moonlights as unregistered advisor to colleagues. Calls his practice 'Bored at Work'. Amasses 900 clients w/$170MM+ in AUM before getting busted by SEC.
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Of the 403 distinct active large blend funds that existed as of 12/1/10:
- 166 did not survive to the end of the ensuing decade ended 11/30/20
- 216 survived but lagged the Russell 1000 Index
- 21 survived and beat the Russell 1000
That's a 5.2% success rate. Brutal.
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Vanguard issued its 2019 market outlook today. Forecasting 4.5-6.5% p.a. global equity rtn over next 10 yrs; 2.5-4.5% p.a. for global bonds; 4-6% p.a. for global 60/40 portfolio. They think we’ll avoid recession next year.
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Congrats to all the talented women on this list, but especially
@christine_benz
who has made it her mission to help investors with practical, wise financial advice. Yay, CB!
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What would have happened if 10 years ago you bought all of the stocks in the S&P 500, mirroring their weights in the index, and then did nothing? You’d have achieved a feat nearly no other Large Blend fund did over the past decade: Add alpha. More here.
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Today we published a study that analyzes past safe retirement withdrawal rates and projects the future safe spending rate (~3.3% for a balanced portfolio). Lower expected mkt returns subdue the outlook, but we examine ways retirees can eke out more income.
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Interesting little study from Dimensional looking at excess returns of the top 10 names before and after they joined the top 10. It finds those stocks handily outperformed before joining and lagged after.
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Happy new year. To help us all sober up, here's prelim data on the % of active stock and bond mutual funds that beat their M* category index in 2020. All told, 37% of active funds did so (45% before fees), down slightly from 2019 when 40% succeeded (53% before fees). (1/6)
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Today The Long View podcast notched its 3 millionth download.
@christine_benz
and I are humbled by the response the podcast has gotten and feel so grateful to our listeners, podcast guests, and the wonderful production team behind the scenes that brings each episode to life 🙏
We try not to toot our own horn too much but
@christine_benz
and I are proud that The Long View logged its two millionth download this week. Sincere thanks to our terrific guests, who make the show, and our listeners who have kept us going week after week. Thanks a million (x2)!
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We published our annual U.S. fund fee study today. It finds that investors paid a record low 0.48% of each dollar they invested in 2018, down from 0.51% in 2017, for a cool $5.5B in fee savings. Hat’s off to my colleagues
@MstarETFUS
and
@AdamMcCull
||
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JPMorgan Equity Premium Income ETF gathered nearly $26 billion in net inflows over the first 36 months of its existence. That easily tops the charts, arguably making it the most successful launch of a U.S. ETF in history.
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Here’s a little study I did on how stock funds that gained 100%+ in a year fared afterward. Tldr: Most lost money in the 3 years that followed the year of their big gain || “What to Expect from Funds After They Gain 100% or More in a Year? Trouble, Mostly”
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There’s a stagflation ETF in the hopper: Merk Stagflation ETF will track an index split between TIPS (55-85%), REITs (5-15%), gold (5-15%), and oil (5-15%).
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On a recent Animal Spirits pod, I think
@awealthofcs
asked a question to the effect of whether ARK Innovation is one of biggest incinerators of shareholder capital in history. I wondered too and so ran the numbers. Here's a short thread--Ben I promise it's short--on what I found.
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But this is the passage that really stood out to me: When faced w/an avalanche of margin calls in 3/20, he massively mismarked several positions to the tune of a $400MM+ mis-valuation. Because this mis-mark boosted returns, it attracted new flows w/which to meet the margin calls.
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Which manager captured alpha (before fees) over the past two decades and beat 80% of other funds? *All* of us. My latest explains how the avg $ invested in US stock funds beat its index and the pack yet still fell short after fees.
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I guess I'll start this thread out by saying I respect you and the work you do. You've raised questions re the quant ratings so I'm going to try to respond as directly as possible to those questions.
These new Morningstar quantitative ratings are hot garbage.
I’m getting negative scores for managing 10 funds and having $0 invested in my own fund.
Neither of those are true.
The fact this was released tells me M* still doesn’t realize the influence it has on the industry.
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Fascinating conversation.
@patrick_oshag
is so darn good at interviewing and Will Thorndike is such a deep well of knowledge and wisdom. Really enjoyed this.
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AdvisorShares files to launch 'pure cannabis' ETF that will trade under ticker YOLO. Here's a live-look in from the product development dept... ||
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To put this in perspective:
- The smallest third of firms in the US MF/ETF industry account for 0.05% of assets
- The smallest two-thirds account for 0.56% of assets
- The top-10 firms account for 64.4% of assets
- There are 810 firms. The biggest 57 soak up 90% of the assets 😬
🚨 One Third of the Asset Management Industry Could Disappear in Next Five Years 🚨
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Today we began assigning Analyst Ratings to funds and ETFs under an enhanced methodology we unveiled over the summer. Hat’s off to our team, which worked long and hard on getting this out the door and into users’ hands.
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Yikes--LJM Preservation and Growth Fund appears to have lost ~56% yesterday. It was a ~$772MM fund. They had delay in striking NAV--updated NAV isn't in our DB yet so here it is on Bloomberg:
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Might get dragged for this…but does seem worth mentioning that despite this year’s poor return, the US 60/40 had gained ~7.7% p.a. over 10 yrs ended 10/31/22. Doesn’t mean it will work going forward but that allocation has largely done its job over time.
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A few stats on funds that gain 100%+ in a calendar year:
- This has happened 129 times over past 30 years, 15 in 2020. Very rare. Amounts to ~0.20% of all rtns reported
- Subsequent avg. annl. returns of these funds are as follows:
t+1yr: -12.2%
t+2yr: -18.6%
t+3yr: -18.3%
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If an active fund manager creates an ETF version of a strategy, I am having a hard time seeing how that is not tantamount to them saying ‘capacity management is not a priority’. I’m open to contras but ETFs can’t be closed to new money to throttle asset growth, hence my question.
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ARK Innovation had one of the most blistering hot streaks we've ever seen, notching a 365% gain off the Covid bottom to Feb. 13, 2021, when it peaked. But the selloff since then has wiped out ~87% of the gains it had amassed during the 3/20-2/21 run-up. It's a study in extremes.
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Compiling data on mutual fund flows by family, like any normal person would on a Saturday night. That said, I have Sabbath cranked, so bit of a barbell.
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Some book recommendations from our analysts and yours truly. Happy to give shout outs to
@EricBalchunas
,
@mjmauboussin
, and Dr. Andrew Lo for their excellent work. There are lots of great entries on the list. Thanks to
@jyangrohr
for pulling it together.
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We’ve published our annual study of the difference between the est. avg returns that investors realize on their fund investments and the avg returns of the funds themselves. We call it ‘Mind the Gap’ and
@RussKinnel
has been running it for years.
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First screencap shows language that was removed re ownership of ADRs, warrants, etc. (in red). Second shows language removed re limits on investing 30%+ of assets in a single firm and investing in 20+% of firm's shares (also encircled in red). Source:
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This week on The Long View podcast,
@christine_benz
and I have a fascinating chat with advisor Lawrence Hamtil
@lhamtil
We delve into his provocative research on the influence of sector weightings on stock returns, value's slump, and the low-vol phenomenon
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This piece harshes on target-date funds, which is kind of unfortunate. TDFs aren't *perfect* products, but why should perfect be the enemy of good when good is an excellent outcome for defined-contribution investors?
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Excellent NYT analysis of change in baseball pitch spin-rate since the MLB crack down began. Includes very cool tool that allows you to input name of any pitcher to see how their spin rate has changed.
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I wrote a short piece on GameStop and why it’s ok to feel bored, lonely, and confused while investing ||
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The 1Q '18 edition of the popular "Morningstar Markets Observer" report is out. The report is packed w/really good data and insights, a nice example of which--the 'Factor Quilt'--is shown. Hat's off to the M* quant research team that puts it together ||
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Robo-transcriber just mistook 'asset allocator' for 'acid alligator', which yeah 🤘
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This will be his last time on that scroll but I’m so glad that he was able to have the experience he had working at BRK, which I lived vicariously just a little bit through him. I know it was a thrill for my dad and I couldn’t be prouder. Ok I’m done! ;)
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Missed this yesterday: Third Avenue slashed Focused Credit's NAV by almost 60%. So that's going to go down as one of the most complete destructions of shareholder capital in history.
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A thread on what we're seeing with ARK Innovation. It soared and now it's tumbling lower. How unusual is what we're seeing? To examine that, I calculated the rolling 12-mo. excess returns (vs. their prospectus benchmark) of 6,800+ equity funds from 1/1/96-12/31/21.
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One aspect of good financial decisions is whether that decision will lessen need for other decisions in future. Yes we want to make best decisions possible when faced with them; but it’s a good decision to try to minimize future decisions, esp those we’d have to make under duress
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What prob needs to happen:
- Nationwide lockdown
- You leave your house, you're wearing a mask
- Bars/restaurants--takeout only (duh)
- Gatherings of any kind? Nope.
- Schools' plan A is remote learning to start year.
Sorry, but we blew it and have to start over, but stricter
US daily numbers via
@COVID19Tracking
.
Awful day.
Newly reported deaths
Today: 897
Yesterday: 922
One week ago (7/1): 701
Newly reported cases
T: 62K*
Y: 52K
7/1: 53K
Newly reported tests
T: 666K
Y: 641K
7/1: 633K
Positive test rate
T: 9.3%
Y: 8.1%
7/1: 8.4%
* record
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This week on The Long View,
@christine_benz
and I sit down for an enlightening discussion w/Morgan Stanley portfolio mgr Dennis Lynch. Lynch is an accomplished growth investor but not given to the usual tropes of that style (ie fixating on short term, etc)
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Here’s ETF that’s separate shareclass of bond MF. So it’s different access point to same basket of securities. What I see is a NAV whose movements correspond to price but price moves *much* bigger. Price discovery could explain some but most? Seems doubtful. Liquidity surcharge.
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Rare night it’s just me and the dog and she promptly gets sprayed in the face by a 🦨
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First 4 episodes of True Detective ssn 1 are about as sensationally entertaining as any serial can be. ‘Who Goes There’ is the apex (Hoston project sequence in particular) but god the whole 4 episode arc is just fantastic.
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Good study on active-fund performance and the inevitability of slumps. We should remember this demands patience of investors and managers alike--if either blinks that can cost the fund || 'Patience with Active Performance Cyclicality: It's Harder Than You Think' (h/t
@SylFlood
)
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This is my 17th Morningstar Investment Conference. At my first, I watched in amazement as Jeremy Grantham *shredded* a go-go growth mgr he was debating on stage. The memories have only grown from there. Looking forward to forming new ones over the next few days.
#MICUS
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My latest takes a look at how active funds fared in 2019 (~40% beat their benchmarks after fees; however only ~29% of active US stock funds did so) and puts those results in a broader historical context.
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Small value beat the S&P this week. Not by much but you gotta' start somewhere, right?
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11) Overall, the WSJ story unfortunately seems to perpetuate notion that retail investors are dumb money. That narrative misses a lot of nuance, notwithstanding the many testimonials/horror stories the WSJ included in its piece. I hope this is received constructively, as intended
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Here's a thread on the history of funds that have gained 40%+ per year over a five-year period. To begin with, I tallied up the rolling five-year returns of all unleveraged OE funds and ETFs from 12/1/91-11/30/21. There were 10,538 funds that had at least one five-year return.
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Pretty brutal decade for active US equity managers: 84% of active US stock funds lagged the index, or died, over the trailing decade ended 11/30/17. It's a little better if you limit it to inst shareclasses only (h/t
@Nonrelatedsense
and
@EconomPic
)--80% lagged.
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Always an honor to interview Mr. Bogle, which I had a chance to do yesterday for our upcoming investment conference which will be held in Mumbai next week. He was generous with his time and insights as usual.
Earlier today
@syouth1
, global director, manager research, met up with John Bogle,
@Vanguard_Group
founder, and former CEO, to film Bogle’s session for
#MICIN
in Mumbai. There's still time to register here
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Has active share predicted future excess returns over last year among US stock funds? No. I looked at AS as of 12/31/20, then compared to subsequent exc return (vs prospectus BM) and it's noise, more or less. Short period so take it fwiw/with a grain of salt.
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Once an expense ratio gets set, it tends not to budge much: I examined the annual fee levied by 44,434 open-end funds over all 10-yr rolling periods between 7/98 and 6/18 (120 rolls in all) and found the average standard deviation of fees was a scant 4 basis points.
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My latest piece offers an overview of changes we'll be making in how we assign "Analyst Ratings" to funds we cover. Those changes will begin to take effect later this year. Feedback welcome.
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This is a very different picture than a decade ago, when one would have found nearly the mirror image--smaller-cap and value styles leading at that time, with large-cap and growth lagging. What a difference a decade makes. And so it goes.
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