Tag: behavioral-finance

Nearly a year and a half ago, we published an original piece entitled “An Alternative to Liquid Alternatives.” At the time, we wrote: “many of the currently investible vehicles have not been truly tested in a dramatic drawdown environment like 2008.” Since publication, the investing landscape has changed substantially; interest rates are rising, the S&P 500 has endured a 20% drawdown, and the yield curve has inverted, to name just a few of the many notable developments.

Given the path of global markets since Oct 2017, there has been ample opportunity for liquid alts to prove their mettle, so we thought it was time to update the data for one of our most popular blogs. Let’s look at the revised story…

“The three greatest risk to investors: Behavior biases; loss of compounding from large portfolio losses; and the opportunity cost of being too conservative.”

- Jon Robinson, Systematic Investing And The Rise Of Emotional Intelligence -

As most know, investors notoriously underperform the market by aggressively buying at the highs and selling at the lows. In fact, a DALBAR study released this week shows the average equity fund investor experienced twice the loss of the S&P in 2018.  However, it is possible to conquer this reactive fear and respond effectively to the inevitable presence of market volatility.

The race to zero in the ETF world has its first winner.  On February 25th, online personal financial services company Social Finance, Inc. (SoFi) announced the industry's first zero-fee ETFs. The filing consists of four ETFs in total, with two of the funds (SFY, SFYX) having fee waivers in place until at least March 27, 2020, effectively bringing their total fund expenses to zero for the first year of operation. But much like a buy one get one free offer, it is not immediately evident that a zero fee ETF is always a good value. We believe there is more to the story, and make the case below.

Here we go again. All the market analysts and prognosticators have been forced by convention to rub the old crystal ball and suggest they can predict the future for the next year.  They even make fun of themselves with clever art that illustrates the lunacy of the exercise – such as below. Given the fact that predictions are merely educated guesses, why does this ritual occur every year? Attention? Arrogance? Or is it a component of the human emotional bias that drives the markets overall?

The active vs. passive debate reached a fever pitch on Monday when Jeff Gundlach referred to passive investing as a ‘mania.’  As expected, Vanguard quickly defended passive index funds by saying that “the data simply does not support his claims.” There is certainly nothing new about this debate.  It’s been escalating since the first index funds were launched in the mid-70’s.  However, moments like this remind the Blueprint team why we utilize passive index funds in the first place –they are the tools we use to build portfolios on behalf of our clients.