Russell Bailyn -

There has been much debate over the past decade about the value proposition of actively-managed mutual funds to the average investor. The potential advantage which you’re really paying for with mutual funds is the possibility of choosing a brilliant portfolio manager who can beat their benchmark year after year. I’ll only break out one statistic here among the many which convey the same unfortunate message about the mutual fund industry: six out of ten actively managed stock funds underperformed their indices in 2008, primarily due to fees, according to the Center for Institutional Investment Management at the University of Albany. Besides the fact that actively managed mutual funds, on average, cost investors more to own than index and exchange-traded funds, they are also generally less transparent than index and exchange-traded funds. This isn’t necessarily a criticism of mutual funds, but an inherent operational difference between two very different investment products: mutual funds and exchange-traded funds.

Continue reading " My Issue with Mutual Funds " »

Posted by Russell Bailyn at 04:26 PM | Permalink | Comments ( 2 ) | TrackBacks ( 0 )

When people refer to mutual funds they are most often referring to ‘open-end’ mutual funds in which investors buy and sell shares on a regular basis. Most mutual funds have active managers who, with their teams, make decisions as to the fund holdings which correspond to the fund’s stated objectives. These objectives are often growth, income, international exposure, etc. What many people don’t realize is that similar products exist which may be able to achieve a similar objective but at a lower cost. For example, closed-end funds are out there along with unit investment trusts.* Let me explain each:

Continue reading " Interesting Mutual Fund Alternatives " »

Posted by Russell Bailyn at 10:31 AM | Permalink | Comments ( 0 ) | TrackBacks ( 0 )

The craze of exchange-traded funds (ETFs) which employ leverage (the use of borrowed capital to increase the potential return of an investment) has been on a tear over the past year.* It makes sense that speculative investors would toy around with such vehicles given the extreme market volatility we’ve been experiencing of late. Combine that with the high level of conviction certain day traders have about which direction the markets will move in and when, and you can fully appreciate why the trading volume on these ETFs is so high. Leveraged ‘inverse’ ETFs are part of this craze as well, allowing investors to take bets against sectors of the market which they expect to decline. Just to be clear, these leveraged ETFs are designed principally for experienced investors who engage in market timing. They wouldn’t generally be suitable for an inexperienced investor or somebody who didn’t fully understand the characteristics, including the risks of the product. The financial advisor channel uses leveraged ETFs as well. In my practice their primary use is as a hedging tool to lock in gains or limit losses on certain positions at certain times. The function which they do not serve, and most advisors will agree on this, is as core portfolio holdings. More on that below:

Continue reading " On Leveraged ETFs: Investors & Advisors " »

Posted by Russell Bailyn at 12:29 PM | Permalink | Comments ( 0 ) | TrackBacks ( 0 )

Many of my clients and readers understand my general preference for exchange-traded funds (ETFs) over mutual funds.* It isn’t that I doubt the ability of any active mutual fund managers to outperform their benchmarks—plenty of them do. It’s just that if I have to pick an overall methodology to follow in my practice, I’d rather stick to the low-cost, transparent nature of ETF investing over buying actively-managed mutual funds. Back when I wrote my book in mid-2007, ETFs were graduating quickly from speculative tools to core holdings, a trend that really started in 2005. Nowadays, we can see in the constant release of fund flow data by companies like TrimTabs and Barclays that ETF investing is growing at a rapid pace while mutual fund outflows have been consistently heavy. Part of that is obviously due to investors sidelined by the recession, but the other part is the financial advisor channel quickly catching onto the benefits of ETF investing.

Continue reading " State of the Exchange-Traded Fund (ETF) Market " »

Posted by Russell Bailyn at 02:31 PM | Permalink | Comments ( 2 ) | TrackBacks ( 0 )

A good financial advisor will try to explain concepts in such a way that their clients can really grasp the knowledge. As obvious as that may sound, many people who work with financial advisors do not learn much about how to make financial decisions, they merely pay to have those decisions made for them. Mutual fund investing is one such financial concept that all investors should know about. If you haven’t already, you’ll likely encounter mutual funds at some point during your financial life, through either your individual savings, or a company retirement plan. According to the Investment Company Institute, which compiles statistics on various investment classes, currently over $9.5 trillion is invested through more than 10,000 mutual funds in the United States.* In fact, many retirement plans require their participants to use mutual funds rather than individual stocks to prevent them from taking on too much risk. Imagine if inexperienced investors decided to put the full balances of their 401(k) plans into the stock of a single company? What if the company became distressed or went bankrupt? They could say good-bye to their retirement nest eggs, possibly forever.

Continue reading " How Do I Pick Mutual Funds? " »

Posted by Russell Bailyn at 04:30 PM | Permalink | Comments ( 4 ) | TrackBacks ( 0 )

An exchange-traded fund (ETF) is a basket of securities that trades on an exchange like a stock. In the event you don’t know how the stock market works, shares of public companies trade at various prices based on demand. The distinguishing factor with an ETF is that, rather than representing ownership in a single company, it tracks an index such as the S&P 500 or Dow Jones Industrial Average. The price of an ETF, similar to a basket of stocks in a mutual fund, will vary based on the performance of its underlying holdings. If an ETF represents an index with thirty different companies and all of them are trading up on a given day, the offering price of the ETF will move up accordingly.*

Continue reading " What Is An Exchange-Traded Fund? Should I Buy One? " »

Posted by Russell Bailyn at 04:01 PM | Permalink | Comments ( 3 ) | TrackBacks ( 0 )

Sometimes obvious economics can lead us to profitable investment strategies. I think a few such opportunities exist right now and I’d like to share them with my readers. If you have other ideas or comments on mine, please share. Why pass up a potential way to make money?

Continue reading " Investment Ideas for 2008 & 2009 " »

Posted by Russell Bailyn at 03:52 PM | Permalink | Comments ( 2 ) | TrackBacks ( 0 )

Recently I had a client call in to sell his position in a fertilizer stock in which he made a 20% profit. His reason for selling was that the stock showed signs of weakness and he thought the Federal Reserve speech might spook the market into a downtrend. Fair enough. A few hours later I had a different client call to buy the same stock, saying he saw signs of weakness and thought it might be a good time to buy the stock. Plus, he thought the Fed speech might be positive and give the markets a boost. Two smart guys with totally different opinions. The experience reinforced my belief that most investors don’t know a thing about the markets. Trying to guess the short-term direction of a stock is usually a losing proposition. I’ve been thinking for the last few hours about what strategy a moderately conservative investor could use to seek out some growth in their portfolio without taking on too much risk. The below strategies should help you mitigate risk and hopefully teach you a thing or two about the movement of stocks.

Continue reading " Simple Rules for Making Money with Stocks " »

Posted by Russell Bailyn at 05:09 PM | Permalink | Comments ( 2 ) | TrackBacks ( 0 )

WisdomTree Investments recently released earnings-based exchange-traded funds. This follows a pattern established by WisdomTree to market fundamentally-weighted ETFs which are unique and potentially valuable to a new generation of investors. Luciano Siracusano, director of research for WisdomTree, appeared on CNBC in late March to talk about the appeal of this unique product line. According to Siracusano, research has shown that creating indexes based on earnings and dividends can potentially increase dividend yields, lower P/E ratios, reduce overall volatility, and increase investment returns. Does this sound too good to be true? Visit the website or read up on Jeremy Siegel’s research which back-tests a multitude of corresponding data. You may also find this interview from Seeking Alpha with Siracusano interesting as well.

Continue reading " Update on WisdomTree Investments " »

Posted by Russell Bailyn at 12:31 PM | Permalink | Comments ( 0 ) | TrackBacks ( 0 )

The following is an exact transcript from my interview with Jeffrey Feldman, the founder and chairman of X-Shares Group, LLC. Jeff is an innovator in the ETF arena and his products are noteworthy. Below you can read an educated opinion about where exchange-traded funds stand in the investment arena along with information about the HealthShares product line. You also might learn something about the healthcare industry and the underlying problems which helped create the demand for these funds. As you'll see, X-shares plans to continue innovating on their unique indexing strategies and launch more ETF platforms in the coming months. Enjoy!

Continue reading " Interview with Jeffrey Feldman, Founder & Chairman, X-Shares Advisors, LLC " »

Posted by Russell Bailyn at 10:07 AM | Permalink | Comments ( 2 ) | TrackBacks ( 0 )

WisdomTree Investments plan to launch 20 exchange-traded funds. This is the largest daily release of ETFs to enter the market (June, 2006). The common characteristic of the WisdomTree family is dividends. Each of the 20 funds pays a dividend and the yields are fairly high compared with other equity-based ETFs. The fund family is also geared internationally with 14 non-US funds dominating the six US funds. Of the international funds, three track Europe, three track Japan, two track the broader Pacific and six are broad-based international funds.

Continue reading " WisdomTree Investments to launch 20 ETFs on Friday " »

Posted by Russell Bailyn at 01:17 PM | Permalink | Comments ( 0 ) | TrackBacks ( 0 )

Continue reading " PowerShares - A New Approach to Exchange-Traded Funds " »

Posted by Russell Bailyn at 01:00 PM | Permalink | Comments ( 1 )