Tag: stock market

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Risks and Opportunities in Fixed-Income ETFs

Fixed-income ETFs (also known as bond ETFs) continue to grow at a rapid pace. Bond ETFs now exist across a wide spectrum of characteristics. Looking for shorter or longer maturity? Or, how about higher yield (aka junk bonds) versus investment grade or Treasury bonds? ETFs even cover the bond markets in both emerging and developed economies worldwide.

At this rate, State Street Global Advisers predicts that assets in bond ETFs could reach $1 trillion by the end of 2019.

What is driving demand?

Like stock-based ETFs, low cost is a big driver. Greater tax efficiency, as we discussed in detail in a post earlier this year, over bond mutual funds helps too. But, the biggest demand could be simply choice.

“Investors really have a lot of choices — more than they’ve had in the past five years. “

Noel Archard, State Street Global Advisors

Liquidity concerns?

Our opinion at ETFMathGuy is that liquidity concerns are minimal. In fact, real-time ETF price availability helps the price discovery process, and should improve liquidity.

“Fixed-income ETFs have been tested more than once over the past 10-11 years, without any major issues. “

Rich Powers, Vanguard

The current focus of fixed-income ETFs

The current focus of fixed-income ETFs is now in portfolio construction. Here at ETFMathGuy, we are helping to lead this initiative by building portfolios to take full advantage of what fixed-income ETFs have to offer. For instance, in the May taxable conservative portfolio for Vanguard, we show a portfolio with a a variety of fixed-income ETFs in it. We also seek to include higher volume alternative ETFs, to mitigate any possible liquidity issues and minimize the bid-ask spread trading costs.

May 2019 taxable optimal portfolio for risk conservative investors, by ETFMathGuy.
May 2019 taxable optimal portfolio for risk conservative investors, by ETFMathGuy

In conclusion, fixed-income ETFs are in important core component of an optimally diversified portfolio. We invite you to browse through the current month optimal portfolios to see the importance of bond ETFs.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
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Passive investment funds aren’t guaranteed to beat their active counterparts

In this week’s WSJ article, an excellent discussion on was given on active versus passive fund performance around the world. Fund performance over 5 and 10 year periods show that, while passive investments are superior in most of the world, there are some pockets where active management did better.

Excess performance is country specific.

As I’ve highlighted in this table, U.S. stock funds investing in small, medium and large companies consistently underperformed their passive counterparts. These results help explain why index funds, and ETFs in particular, have become so popular in recent years.

The article also highlights another sad reality of active fund investing.

“…most active managers exhibit little ability to consistently beat their peers over time. “

Derek Horstmeyer, Wall Street Journal, March 3, 2019

So, what can we learn from this article?

Passive investments using ETFs don’t guarantee excess performance over their active counterparts. But, more times than not, passive investing will outperform active investing. This fact may not always be true outside the U.S., but for investors that primarily consume with U.S. dollars, passive investments in ETFs appear to be a clear winner.

Thanks for reading!

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ETF Math Guy reaching out for the week: Thoughts on ETFs, markets and investing.

A Weekly Newsletter that gives you brief recommendations on ETFs, markets, and investing philosophy. Anything we are enjoying or thinking about is also fair game.

Links on ETFs this week…

This years Inside ETFs conference, is in Hollywood, Florida this week, and includes Hall of Famer Joe Montana. Not sure what Joe knows about ETFs but he knows about winning so cannot hurt to hear him speak.


Delusional ETF Trading with Sarah Newton


This podcast on Bloomberg



The number of ETF’s is extraordinary. One of the reasons we focus on the commission-free ETF’s (besides the free) is that they are also the most liquid ones. Liquidity is an issue not only for your trades but for the ETFs own survival. Legg Mason is closing 3 ETFs this week and analysts believe the number of ETF liquidations could top 1,000 in 2019.

What I’m reading (listening) to this week

The invisible Hands by Stephen Drobny

In the same format as Market Wizards by Jack Schwager, but the interviewee is anonymous. Some of the interviews are more academic in nature as compared to the Market Wizards genre which tends to be more focused on trading. The book is almost 10 years old, so some of the subjects on current events (2011 copyright) are not that relevant. The thought process is what is most relevant. How do these money managers think about markets and structure their trades accordingly.

Market Thoughts…

“A position that is going with you tends to keep going with you and your initial estimate of the move may have been conservative. A loss by overstaying a market is not one of the common mistakes. In fact, holding a profitable position a little longer will win far more often than it will lose. The big risk is closing a good position too soon.”

Amos Hostetter

Founder, Commodities Corp.

If you have thoughts or comments, please click here to reach out to us.

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2018 ETF Performance Review

Welcome to the 2018 ETF performance review.

It was a difficult year for a number of asset classes. The figure here shows that only a few ETFs had positive returns in 2018, using commission-free ETFs available from Fidelity. Based on broad indices for the stock, bond and cash asset classes, and including dividends, stocks lost 4.5%. Bonds barely broke even, returning 0.1% for the 2018 calendar year. The best performing broad market index was cash, which returned 1.7% for the year.

Fidelity-2018

Download here

Here is your 2018 ETF performance review. It was a difficult year for a number of asset classes, with only a few with positive returns.