FYI:
Regards,
Ted
April 28, 2016
Dear WEALTHTRACK Subscriber,
Question: What is the biggest trend in investing today?
Answer: Passive indexing!
Hundreds of billions of dollars are flowing into index mutual funds and ETFs. Over the last 10 years, assets in passive index mutual funds have soared to nearly $2.5 trillion from under a trillion in 2006. Index ETFs have seen even more spectacular growth, from under $500 billion ten years ago, to $2 trillion in 2015, when a record $372 billion of net new assets poured in.
Given the performance figures of active mutual fund managers over the last decade, the accelerating money flows into passive investments are completely understandable. Headlines like this from the Financial Times are all too common: “Worst Performance in Two Decades Delivers Fresh Blow to Active Funds.”
Here are the stark figures from S&P Dow Jones Indices: In 2015, 66% of large-cap managers, 57% of mid-cap and 72% of small cap managers underperformed their benchmark indexes. As we have said many times, one year does not a trend make, but if you look at the five and ten year comparisons the underperformance of actively managed funds is even worse.
Over the last five years, 84% of large-cap, 77% of mid-cap and 90% of small cap lagged the market. Plus, over the last ten years, 82% of large-cap, 88% of mid-cap and 88% of small-cap managers lagged. It’s no wonder that so many investors are throwing in the towel and moving to indexes.
Not so this week’s WEALTHTRACK guest, who is a firm believer in owning and holding individual stocks and has beaten the market by a wide margin over the last ten plus years. He is David Gardner, Co-Founder and Co-Chairman of the Board, with his younger brother Tom, of The Motley Fool which they started in 1993 as a small printed newsletter for family and friends. A year later they launched their website fool.com.
It is now an international multi-media network offering financial solutions to millions of individuals through its website, newsletters, column, books and advisory services
Gardner and his brother have run stock portfolios for their monthly newsletter, Motley Fool Stock Advisor since 2002.
David’s stock portfolio has swamped the market since its 2002 inception with a 953% cumulative return or 18% annualized, versus the S&P 500’s 135% gain, 6.3% annualized. On this week’s show, Gardner describes his “Rule Breakers” approach that has trounced the market, and tells us why The Motley Fool is still committed to active stock picking when so many investors are going in the opposite direction.
If you can’t watch this week’s episode on Public Television, you can always watch it by going to our website. In the EXTRA section you’ll find an online exclusive with Gardner about how one of the keys to his success is sticking with his carefully chosen winners through thick and thin.
Three of Gardner’s long-term holdings were in the news this week:
Amazon reported its largest quarterly profit ever in the first quarter
Priceline’s CEO resigned after a relationship with an employee was discovered:
Investments by Tesla’s Elon Musk were the subject of a front page Wall Street Journal article.
If you are interested in hearing more from David Gardner, you can listen to his free weekly podcast, “Rule Breaker Investing”.
Have a great weekend and make the week ahead a profitable and productive one.
Best Regards,
Consuelo
