Nov 13 Episode:
"Middle America is the new Emerging Market"

Copied From the Big Bang Investing Board and edited for posting on the MFO Board.
This briefing is for the week ending November 12, 2021.
The Index Review
The major market indices finished down for the week. The Dow Jones Industrial Average gave back -0.63%%. the S&P 500 Stock Index declined -0.31%, the Nasdaq Composite was down -0.69%% while the Russell 2000 Small Cap Index lost -1.04%. The three best performing major equity sectors for the week were materials +2.60%, health care +0.72%, and industrials +0.48%. The widely followed S&P 500 Index closed the week with a dividend yield of 1.27% while the 10-year US Treasury bond's yield was listed at 1.57%. Year to date the S&P 500 Index is up +24.67%.
Global Equity Compass: For the week my three best performers in my global equity compass were FXI (China) +5.29%, BKF (BRIC Countries) +3.55% and EWZ (Brazil) +3.04%.
Fixed Income Compass: For the week my three best performers in my fixed income compass were SHY (1-3 Yr US Treasuries) -0.24%, HYG (Corporate High Yield) -0.74% and AGG (US Agg Bond) -0.78%.
Commodity Compass: For the week my three best performers in my commodity compass were SLV (Silver) +4.79%, GLD (Gold) +2.71% and DBA (Agiculture) +2.49%.
Producer Compass: For the week my three best performers in my producer compass were GDX (Gold Miners) +6.17%, SIL (Silver Miners) +6.07% and XME (Metals & Mining) +4.28%.
Currency Compass: For the week my three best performers in my currency compass were UUP (US Dollar Bullish) +0.87%, FXB (British Sterling) -0.51% and FXY (Japanese Yen) -0.60%
A Blurb About Old_Skeet's Portfolio: Thus far, I am up 6.28% in my spiff (special investment) position which I opened back in September. Since, this spiff is invested in Voya Corporate Leaders 100 Fund (VYCAX) I have no plans to add to it until after it makes it's annual year end distribution estimated to be in the 6% to 8% range. I will be building cash during the most part of the 4th quarter while being fully invested within the confines of my portfolio's (20/40/40) asset allocation (cash, bonds and stocks). I will rebalance, if warranted, during the 1st quarter of 2021.
Articles of Investment Interest
US STOCKS-Wall Street ends higher with boost from big tech
https://www.reuters.com/article/usa-stocks-idUSL1N2S323Z
NY Fed Releases First Monthly Bond-Buying Schedule Reflecting Taper
https://www.reuters.com/article/usa-fed-purchase-schedule-idUSKBN2HX2D3
Is Cash a Good Low "Risk" Hedge?
Ooops ... Link to ZeroHedge article removed for briefing posting on the MFO Board.
Old_Skeet's Favored Reference Links
Short Volume S&P 500 Index ... https://nakedshortreport.com/company/SPY
Breadth Reading ... https://stockcharts.com/h-sc/ui?s=$SPXA50R&p=D&b=5&g=0&id=p25768973625
S&P 500 Chart, Elder Ray System ... https://stockcharts.com/h-sc/ui?s=SPY&p=D&b=5&g=0&id=p20881173280
T/A Stock Opinion, SPY ... https://www.barchart.com/etfs-funds/quotes/SPY/opinion
T/A Bond Opinion, AGG ... https://www.barchart.com/etfs-funds/quotes/AGG/opinion
Thanks for stopping by and reading; and, I wish all "Good Investing."
Old_Skeet

In the Foreign Large Blend category, I like SCIEX and MIEIX*.
The SCIEX management team also manages 30% of VWILX.
MIEIX has below average costs, low turnover, and usually provides good downside protection.
Mr. Ling started managing MIEIX on 10/01/2009; Mr. Webber began managing SCIEX on 03/01/2010.
Portfolio Visualizer Results from Mar 2010 - Oct 2021
*Morningstar fund category was Foreign Large Growth prior to 2020

I don't care if an active fund tracks an index on the upside, but I do care if it tracks an index on the downside. The SPY lost like 38% in the GFC while PRBLX was down only 22. I'll take positioning & performance like that anyday.

From M* PRILX Fund Analyst Report:
"Downside protection has been a strength for this
fund’s focused, roughly 40-stock portfolio. Since
Ahlsten became a manager on the fund, the strategy
has outperformed the S&P 500 in every market
correction, including the 2007-08 financial crisis, 2018’s
end-of-year pullback, and early 2020’s pandemic-driven
sell-off. One reason for that is that almost all holdings
have narrow or wide Morningstar Economic Moat
Ratings. While the fund typically lags in the ensuing
rallies, the managers have shown skill in picking up
depressed names that have proved beneficial in the
rebound."

The first thought through my mind was: the IRS would never consider TWVLX "substantially identical" to whatever index one would like. For tax purposes at least that would get laughed out of court.
The article conflates active share and correlation. The former was defined in a 2006 working paper by Martijn Cremers and Antti Petajisto as a measure of how much overlap (or lack thereof) the actual components of a fund have with the components of an index. More formally:
Active Share = ½∑ | weight portfolio (sub i) - weight benchmark (sub i) |
https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/leadership-series_active-share.pdf
FWIW, ActiveShare.info reports TWVLX has an active share of 65%. Not great, but better than 31% of large cap funds. By this measure, almost a third of funds would be at risk of being sued.
OTOH, correlation is a measure of how closely a fund's movements resemble (or can be "explained by") an index's movements.
The way the suit is described (" plaintiff’s attorneys cited a metric that suggests more than 90% of the fund’s movements can be explained by the benchmark"), it sounds like, not surprisingly, the complaint is concerned with the fund's performance, not how closely its holdings match those of the index.
Morningstar reports that the 3 year R² of TWVLX and the R1K value index is 96.84%. Perhaps there's an argument to be made. The problem is that just because a portfolio moves like an index doesn't mean that the portfolio is being managed for that effect. TWVLX is significantly more volatile. Its three year standard deviation is 10% above that of the index. That's reflected in magnified upside/downside capture ratios of 103/110. Likewise, its beta relative to the R1K value index is 1.09.
For a fund with underwhelming performance, that higher level of volatility is not something especially desirable. Nevertheless, it shows that this unleveraged fund is not a mere index tracker.

First of its kind? https://www.marketwatch.com/articles/american-century-investments-lawsuit-51636672247?mod=mw_latestnews
Suit is against American Century Funds and directed to TWVLX. "American Century told Barron’s in an email that the allegations are “false and completely without merit” and that it will vigorously defend itself against the lawsuit."
In the Large Cap thread I posted about PRBLX and how I admire its performance but I have a hard time switching from FXAIX or SPY to it because the performance is so similar. Am not implying that it's a closet indexer as I've done ZERO research on the subject on this fund but when I read the story above about closet indexing (something I wasn't familiar with) ... it made me think of my recent post. I'll have to take a closer look at several examples.
Wonder how many other funds too closely mirror their benchmark index?
Corrected… American Century… not American.

"Decriminalizing pot at the Federal level would take care of the truck driver situation."
Little Feat: Willin'.

I think there may be some interest in a discussion on World and Foreign Stock funds or International as some were mentioned in @KHaw24 thread on Large Caps and @MikeW and @Observant1 weighed in with some good commentary on LC and Foreign.
So, I asked about a few above and will repeat below. I'm interested in WCMIX and maybe more now that Observant said its going to soft close on 11/30. Most of mine is in MGGPX and now PRGSX. Are there any other favorite International funds or ETFs?
After all, it's 20 percent or so of my port. Thanks @BenWP and @rforno for commenting as well.
Foreign LG:
PWJZX +22.04
MFAIX +20.00
BUFIX +19.94
WCMIX +19.11
World LG
PRGSX +16.70
BGAIX +15.73
MGGPX +8.85 <-- Not great.

and much of Europe
https://messaging-custom-newsletters.nytimes.com/template/oakv2?campaign_id=116&amp;emc=edit_pk_20211112&amp;instance_id=45273&amp;nl=paul-krugman&amp;productCode=PK&amp;regi_id=22268089&amp;segment_id=74259&amp;te=1&amp;uri=nyt://newsletter/3f1d215b-ccd4-5aa0-a71f-7e709f371a37

Ah, I guess he left out technology before stocks.
Yes, that was a bad 2.5y. And then a loong haul, sure. Good thing I was in the diversified TWEIX instead (Fundalarm recommendation, iirc).
Anyway, what is your takeaway from Roth? Avoid tech now? Does that seem wise?
What nonfear, meaning usable, strategic-action point do you read he is making? He says he is an FA, ffs.
>> The I-bond thread already points to an interesting avenue for saving. Options funds if you can find the right one are interesting. Are Treasuries worth it, REITs, high quality value stocks with strong balance sheets? Gold bullion? Cash? Paying down your mortgage or refinancing it?

Again, LB's own broad thoughts give more to chew than Roth's "good article" megaphone.

The article is stupid because of what it says:
Try to imagine what would happen if stocks lost 70% and stayed down for years.
What useful or actionable comes from such imagining? To anyone?
And what would have been the conditions for such? Asteroid? Worse plague?

The Nasdaq peaked at 5,048.62 on March 10, 2000.
From that point it generated a maximum cumulative loss of ~80% until October 2002.
I'm not aware of any major plagues or asteroid crashes during this period.
All that was needed for this to occur was a bit of irrational exuberance!
The Nasdaq did not climb back above 5,000 until March 2015.

There is a lot of fear mongering about the economy and inflation for obvious reasons, but I don't see a lot about the stock market. I think Roth is right to get people to try to conceptualize the risks even if a little ham-handed. Here's Zweig on the subject of optimism:

In February 2020, before the pandemic had fully hit home, these [surveyed Vanguard] investors estimated the odds of such a bear market at an average of only 4%. By April, just after the S&P 500 had fallen by one third, their expectations that the market would plunge again in the coming year nearly doubled to 8%.
Those fears swiftly faded. By last December, investors in the Vanguard survey estimated the probability of another crash in the ensuing 12 months at only 5%. That was slightly lower than their average estimate during the three years before the pandemic.
It’s as if the speed of the recovery had erased the pain of the decline, or made a recurrence seem even more improbable. Just like that, a grizzly bear turned into what feels more like a teddy bear.
That complacency takes a toll—even among Vanguard investors, who tend to be cautious. These people often follow the philosophy of the firm’s late founder, Jack Bogle, who preached patience and repeatedly warned that stocks are risky. If anyone should come through the sharpest market decline in decades unperturbed, it’s the people in this survey—typically about 60 years old, with about $225,000 in Vanguard investments, roughly 70% in stocks.
Yet they didn’t all sit tight. One group in the survey stood out: those who went into early 2020 with the highest expectations for stock returns in the upcoming year. They ended up reducing their exposure to stocks much more sharply during the crash of February and March 2020 than those who had been expecting lower returns.
They also tended to turn around and buy back much of the stock they had just sold—but not until prices had already shot above the March lows.
Investors elsewhere seem to have concluded from the swiftness of the recovery that stocks aren’t risky at all. After last spring’s rebound, Dave Portnoy, a social-media celebrity, declared “Stocks only go up” so often that it began to seem like a magic incantation.
And, for the past year, just about every stock has gone up.
That’s largely because the Federal Reserve has backstopped markets by squashing interest rates toward zero and by buying more than $2.5 trillion in Treasury securities since February 2020, along with other massive interventions. Meanwhile, emergency government programs pumped trillions of dollars of stimulus into the economy.

As for useful actions, I can think of quite a few--save more, spend less being an obvious one. But there are others. Roth's story has a table I can't reproduce here for some reason of which asset classes did well in previous bear markets. It's worth thinking about which might do well in the next one. The I-bond thread already points to an interesting avenue for saving. Options funds if you can find the right one are interesting. Are Treasuries worth it, REITs, high quality value stocks with strong balance sheets? Gold bullion? Cash? Paying down your mortgage or refinancing it? Those are worthwhile discussions to have.

JonG

Good post @KHaw24 . The OP mentioned growth, blend and value. But just focusing on Blend for the moment - I agree with @MikeW on PRBLX over PRDGX for the reasons he mentioned. I don't own the fund because every time I look closer at it - I compare it to the plain old S&P 500 or FXAIX and have a hard time justifying peeling some from FXAIX with a .015 ER vs PRBLX with a .84. The disparity in max DD, Ulcer and StdDev is not that much to me.
There could be an entire thread about LC Growth funds (so many).
For Value, I really like PARWX and am invested there. I think when you compare it to HCMAX, you'll find it outperforms in almost every category/time period. Worth looking at.
PRWCX is just a great fund. Wished I owned it and might if it opens up. Until then, happy to stay with FBALX and FMSDX for now. Best to you.

Thanks...I owned PARWX for a while in my 401k but started transitioning to cost effective OEF's and ETF's like the Fido Funds you mentioned. ISn't there a looming retirement on Endeavor's PM team? Not certain if I am correct on that...

Your comment above has (not surprisingly) more intelligence and substance and less unhinged alarmism than the Roth guff.
At least until you get to the '50% fall' and 'important question' parts. :)
I did not say anything about Zweig.
The article is stupid because of what it says:
Try to imagine what would happen if stocks lost 70% and stayed down for years.
What useful or actionable comes from such imagining? To anyone?
And what would have been the conditions for such? Asteroid? Worse plague?
I’m pretty certain that you’d feel a lot of regret ...
Jeez louise.
I do recognize that anxiety-churning is a major motive for journalism and especially financial journalism. But Roth is juvenile even by today's standards of mega-fret-mongering.

Good post @KHaw24 . The OP mentioned growth, blend and value. But just focusing on Blend for the moment - I agree with @MikeW on PRBLX over PRDGX for the reasons he mentioned. I don't own the fund because every time I look closer at it - I compare it to the plain old S&P 500 or FXAIX and have a hard time justifying peeling some from FXAIX with a .015 ER vs PRBLX with a .84. The disparity in max DD, Ulcer and StdDev is not that much to me.
There could be an entire thread about LC Growth funds (so many).
For Value, I really like PARWX and am invested there. I think when you compare it to HCMAX, you'll find it outperforms in almost every category/time period. Worth looking at.
PRWCX is just a great fund. Wished I owned it and might if it opens up. Until then, happy to stay with FBALX and FMSDX for now. Best to you.

Hey when I look at the trailing p-e of QQQ and it’s over 40 and the trailing p-e of IVV and it’s over 33 when the long-term average for stocks is about 15, it seems surreal to me. And this isn’t off trough earnings either. This is after massive amounts of stimulus when the tech sector, the dominant one in both indexes, did quite well. How much ammo does the Fed have left to prop things up if things go wrong? And if you read Zweig’s article—not a dummy by any means—he would argue that even the 08-09 bear was short by historical standards. I think it’s important to put things in perspective and I liked the fact the article showed how different asset classes performed well in different kinds of bears. That’s very important for investors to understand—what might work depending on the kind of bear we will have. Stocks could fall 50% from here and still not be at historical norms. And it’s an important question whether such a decline lasts a few months or several years. So, I’m not sure why the article is stupid.
From Zweig's piece:

With the exception of a 100-day rebound after an interim drop in early 2009, [the 2020 recovery is] the fastest-ever recovery to a prior peak. The S&P 500 has fallen at least 20%—the conventional definition of a bear market—26 times in the past nine decades, according to Dow Jones Market Data. Recoveries to previous highs have typically taken almost three years, often much longer.

My asset allocation for this portfolio - 56% Domestic Equity, 22.5% Int'l/EM, 20% Fixed Inc. I am 13 years from Retirement and all of my equity holdings are a healthy split across Style and Market Cap.

@KHaw24 It's hard for me to comment on choosing PRWCX over PRDGX not knowing your specific situation in terms of age and how close to retirement you are, how you are currently allocated, and what your other holdings might be. They are both excellent funds. Personally, I have been wanting to add PRWCX for a number of years and plan to buy it if/when it opens up again. For me, however, if I were to select a large cap blend fund, I would probably invest in PRBLX. If you run the screen on MFO Premium you'll find that PRBLX is a Great Owl, has stronger APR over the past 5 and 10 years as well as lifetime of the funds, has less max drawdown, and has performed better in bear markets.

"Good"? A preposterous fright article seems more like it. Zero substance.
(And ... teddys include 2.5y and 1.5y dips?)
What would cause a protracted bear market? Fundamentals (overvalued) aside, if the market fell as he scarily suggests is possible but without giving reasons, the buying eventually (pretty soon) would be astonishing in its quickness, as quick as or quicker than the selling.
Q: Who here would use a financial advisor who told you with a straight face:
"... just recently, the Japanese stock market recovered from its 1989 high—that’s 30 years! If you think that can’t happen here, I suggest you rethink your position—and I’d do it sooner rather than later"
"Try to imagine what would happen if stocks lost 70% and stayed down for years. It might mean things like:
You cannot afford to send your kids and grandkids to college. In fact, you need to take back those college 529 accounts you set up for them.
You must sell that vacation house even though the market is quite depressed.
You must either sell your home or take out a reverse mortgage to have cash to live on.
You must figure out how to cut your monthly expenditures in half even though you say only 20% is discretionary. Maybe one of the kids will let you live with them?
Embrace the pain you would feel. Even if you didn’t need to cut things out, I’m pretty certain that you’d feel a lot of regret if you were heavily in stocks and lost more than half of your net worth."
" ... protect your financial independence from a bear market that doesn’t resemble the last three. "
... "I’m afraid of grizzly bears—they are fierce!"
Booga and boo!
Worthless. Is there a point? A plan? Ah: bond ETFs? Got it. Yeah, that'll work.
Maybe he just meant to say Don't use levered equity ETFs. That person he met in the lede made him lose his mind. I sure hope he did not get paid any folding money for writing this.

I posted their hiring this past September.
https://www.mutualfundobserver.com/discuss/discussion/58680/artisan-adds-lead-portfolio-manager-for-new-emerging-markets-debt-team