The Long and Short Of It

Before today’s post here is an official transcript of my interview this morning on FBN. Alexis: So Roger what do you think? Roger : Um, der, well, gerflack. Alexis: Back to you in the studio. Just kidding, it went fine. WSJ had an article yesterday about long/short mutual funds having a better run lately than during the market beat down from last summer. According to Morningstar there are 162 long/short mutual funds but if you look at the last and take out all the multiple classes of the same fund the number is closer to 53, at least that is what I got when I counted. The idea of owning absolute return is appealing and probably more so than it was a year ago. It might be so appealing that some folks may want to switch to more of these in their portfolios. This could be a good idea but doing so after a big decline, like we’ve just had, and before the comeback that will happen at some point is probably a bad idea. There will likely be some big rallies when the new cycle starts, whenever that is. Speaking of Morningstar they have some new ETF coverage in a blog they are calling Basis Points. So does this mean they are moving the direction of offering useful content? Based on the first real post… no. They found a filing for some fixed income funds that apparently dive into credit default swaps and maybe some other fixed income derivatives too, not sure about that. After an attempt to explain how the CDS markets work (not critical of that,...

The Long and Short Of It

Before today’s post here is an official transcript of my interview this morning on FBN. Alexis: So Roger what do you think? Roger : Um, der, well, gerflack. Alexis: Back to you in the studio. Just kidding, it went fine. WSJ had an article yesterday about long/short mutual funds having a better run lately than during the market beat down from last summer. According to Morningstar there are 162 long/short mutual funds but if you look at the last and take out all the multiple classes of the same fund the number is closer to 53, at least that is what I got when I counted. The idea of owning absolute return is appealing and probably more so than it was a year ago. It might be so appealing that some folks may want to switch to more of these in their portfolios. This could be a good idea but doing so after a big decline, like we’ve just had, and before the comeback that will happen at some point is probably a bad idea. There will likely be some big rallies when the new cycle starts, whenever that is. Speaking of Morningstar they have some new ETF coverage in a blog they are calling Basis Points. So does this mean they are moving the direction of offering useful content? Based on the first real post… no. They found a filing for some fixed income funds that apparently dive into credit default swaps and maybe some other fixed income derivatives too, not sure about that. After an attempt to explain how the CDS markets work (not critical of that,...

Here Comes The Funny!

I will be on Money For Breakfast on Fox Business Channel tomorrow morning for the whole three hours. They wanted an Arizona based person on the show and that appears to be me, lol. Its a nice 4am 6am start time so I am going to bed now. As I understand it there will be three or four one segments during the show that I would participate in. Hopefully you will set your TiVo’s and check me out. (slight change in the...

Here Comes The Funny!

I will be on Money For Breakfast on Fox Business Channel tomorrow morning for the whole three hours. They wanted an Arizona based person on the show and that appears to be me, lol. Its a nice 4am 6am start time so I am going to bed now. As I understand it there will be three or four one segments during the show that I would participate in. Hopefully you will set your TiVo’s and check me out. (slight change in the...

Fundamental Indexing Dead!

How’s that for a sensational headline? IndexUniverse has an article up that recaps 2007, it notes that fundamental indexing like the RAFI ETF (PRF) and some of the WisdomTree funds lagged the cap weighted funds. This was more of a domestic phenomenon than with foreign. The article even quotes Bruce Lavine from WisdomTree offering some explanation. The article attributes the following quote to Lavine “There are some unique characteristics about the U.S. market that have just been tough this year. That had to do with getting let down by companies that had solid fundamentals on paper.” The article concludes that it does not really mean much as it is just one year and the author posits that subprime could be to blame. I don’t think the article looks at quite the right thing and I would say there is not enough of a look forward. Most of what happened with domestic fundamental indexing can be explained with a this-is-how-the-market-works analysis. If you read any of my TSCM articles (here’s one from August, 2006) about any of the broad based WisdomTree funds you will probably find a word of caution because they are heavy in financials and with the curve flattening/inverting (depending on when the article was written) the funds could have problems. That’s right, yield curve, it all reverts to the yield curve. Fundamentally weighted funds tilt to value. Value lags growth with a flat or inverted curve because debt offerings (the manner in which more mature value companies access capital) are not as easy to price and value companies can’t issue stock as easily as growth companies because...