by Ron Surz
2014 was a year of transition, marking the end of Quantitative Easing and the beginning of an investment consultant renaissance that could change the way we invest in the future. Consequently, 2015 promises to be a wild ride. Hot topics include the following. I’d be happy to discuss them with you. You can reach me at Ron@ppca-inc.com.
- Active investment managers failed miserably in 2014 so we’ve written a white paper to remedy this problem, and posted an Infographic. There are too many unskilled active managers that remain in business because obsolete performance evaluation approaches can’t differentiate good from bad. For example, most consultants use peer group comparisons but we know now that more than 80% of the managers in peer groups have failed. Consequently, investment managers are evaluated relative to a bunch of losers. Beating the losers is not a win.
- Smart beta indexes have attracted hundreds of $billions with their promise of outperforming traditional capitalization-weighted indexes by using computer algorithms to assign alternative weights. Before you buy, be sure your smart betas can pass a simple IQ test, and consider Smarter Betas to complement your active managers. Smart beta beats standard indexes beats active managers.
- Catapulted by the failure of active management and the success of smart betas, Robo advisors have amassed a venture capital war chest in the hundreds of $millions. Robos provide computerized advice with little or no human contact, at a very low price. As detailed in our e-book, investors can now choose among traditional financial advisors, Robos, and do-it-yourself. You can get profiles of Robo advisors at Paladin Registry.
- Target date funds, with their automated glide path allocations, continued their ascent into dominating market share of 401(k) plan assets, reaching 30%. Please see our book, e-book, InfoGraphic, and our new investable TDF Index Fund, currently the only investable TDF Index now that iShares terminated their TDF index ETF. TDFs failed the 2008 test, and they’ll fail the next test too, big time.
- The Federal Reserve has announced an end to Quantitative Easing, which will lead to higher interest rates. QE is a $3.5 trillion experiment that is not over yet. Its unwinding could have very serious repercussions for the economy and the markets. No one knows what the ultimate outcomes will be, but we do know that bond market yields have been manipulated and suppressed. At the same time, our national debt has grown to exceed $18 trillion with no ceiling in sight. Each taxpayer owes $154,000 which is about 3 years of the average person’s pay. The current hope is that a Republican House and Senate can reform America’s profligate ways. Voters need to express their concern. Most of us have grown numb to these exorbitant debts, whistling past the graveyard, so it just keeps getting worse.
Set against this backdrop, it was an interesting and surprising year for security market performance. In our end-of-year commentary, we review the current U.S. and foreign stock markets, examining the year 2014 and the past seven years, including the crash of 2008. This perspective serves as a launch point into the wild ride ahead, specifically 2015 and the remainder of this decade. I conclude with a review of the past 89 years of U.S. stock and bond markets. As usual, I welcome your feedback, and hope you find my comments helpful and insightful. Click here for more.
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