November 29, 2013

On public television, WEALTHTRACK is revisiting our episode on Actively Managed Funds vs. Passive Index Funds. You can watch it here.

This week on we are offering a special extended interview with Christine Benz and Russel Kinnel, both from Morningstar.

We asked these two members of the WEALTHTRACK Brain Trust to discuss the positive and the negative changes they have seen in the mutual fund industry in the past 20 years.


Listen to the audio only version here:
Christine Benz & Russel Kinnel

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[wptabs mode=”horizontal”] [wptabtitle]Guest Info[/wptabtitle] [wptabcontent]CHRISTINE BENZ
Director of Personal Finance, Senior Columnist
Morningstar, Inc.

Director of Mutual Fund Research,  Editor of “Morningstar FundInvestor
Morningstar, Inc.[/wptabcontent] [wptabtitle] Newsletter[/wptabtitle] [wptabcontent]Consuelo Mack

We have so much to be thankful for in the WEALTHTRACK family this year. My son, a First Lieutenant in the Marine Corps, has returned safely, as has his entire platoon from a very active tour in Afghanistan. A close family member has recovered from a serious health issue. On the business front, the small WEALTHTRACK team is more creative and productive than ever. Show Producer Teresa Abbate and Managing Producer Susan Weaver have completely revamped our website, giving it a cleaner, updated look and making it much easier to navigate. We are now regularly adding new content to it from our top notch guests, especially in our EXTRA feature. This week for instance, we have an additional web-only interview with two Morningstar veterans who had joined us on WEALTHTRACK a  couple of weeks ago. We didn’t have time to ask Christine Benz and Russel Kinnel about the best and worst changes they have seen in the mutual fund industry over the last two decades of covering it. Near the top of their lists are the explosion of passive index funds and ETFs and the impact they have had on mutual fund costs  and investor behavior.

Another positive, despite widespread skepticism about the stock market earlier this year, the markets continue to set new records. Both the Dow and the S&P 500 reached new peaks on Wednesday. The S&P 500 has rallied 27% so far this year and advanced 167% since the 2009 bear market lows. It has paid to be an optimist, especially about the U.S. market.

This week, public television stations across the country will be holding their winter fundraising events so WEALTHTRACK might be pre-empted in your local market. As a result we are repeating one of our most popular programs of late- a debate on active vs. passive investing. It’s a topic both Christine Benz and Russel Kinnel will be discussing on our website as well.

What percentage of your investments  are in actively managed funds? What portion  are in passive index funds or ETFs? If you are like most investors the mix is pretty one sided. According to Vanguard, 74% of assets under management in domestic and international stock mutual funds are actively managed and only 26% are in passive funds, although that number is growing-  for a reason! The number of actively managed funds outperforming their market benchmarks has actually been declining over time.  A disappointing 24% did so over recent ten and fifteen year periods, only 23% did over the past 20 years and a paltry 18% did over the last quarter century.

Why have active managers done so poorly versus their benchmarks over the years? Is it possible to identify actively managed funds that will beat the markets over time? Would you be better off investing solely in passive index funds, or ETFs, or can you combine the two approaches and reach a better result? These are all questions we asked this week’s guests.

Daniel Wallick is a Principal in Vanguard’s Investment Strategy Group, where he is responsible for developing portfolio strategies. He is co-author of a fascinating  report titled: “The Case For Vanguard Active Management: Solving The Low Cost/Top Talent Paradox?”  We have a link to it on our website.  Surprisingly, Vanguard is the 3rd largest active equity manager in the U.S. with over $292 billion in actively managed stock funds.

Gregg Fisher is the Chief Investment Officer of Gerstein Fisher, an independent investment management and advisory firm that he founded in 1993. Gerstein Fisher was named to Barron’s list of Top 100 Financial Advisors in 2013 and its list of top 100 Independent Advisors.  In 2009 Fisher founded the Gerstein Fisher Research Center which partners with leading academics in finance, risk engineering, and economics to study and improve the investment process.

We hope you have a wonderful Thanksgiving Day and “Thanksgivukkah” for those of you celebrating Chanukah. Cherish your time with family and friends. Make the week ahead a profitable and a productive one.

Best regards,

Mathews Asia[/wptabcontent] [/wptabs]

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