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Sometimes in all these discussions about stocks the big picture gets lost. Stocks haven't gone anywhere for 1 1/2 years http://finance.yahoo.com/echarts?s=^GSPC+Interactive#{"range":"2y","allowChartStacking":true}
Clearly, we need another round of QE to get things going again. Because these days stocks apparently can't move upwards for a prolonged period without such assistance. And besides, only old or retiring investors/traders care about such charming and antequated things like 'natural price discovery'!
Clearly, we need another round of QE to get things going again. Because these days stocks apparently can't move upwards for a prolonged period without such assistance. And besides, only old or retiring investors/traders care about such charming and antequated things like 'natural price discovery'!
I think that the FED will not raise rates and will need to follow Europe with negative rates at some point. At that time you will hear people say proudly "I'm getting 3% on my bond investments!", and others saying "I wish I could find such a return now.".
Sometimes in all these discussions about stocks the big picture gets lost. Stocks haven't gone anywhere for 1 1/2 years http://finance.yahoo.com/echarts?s=^GSPC+Interactive#{"range":"2y","allowChartStacking":true}
Remember to include dividends. In real terms, even including dividends, it's true that stocks have returned nothing. But in nominal terms, stocks have provided small gains. See, e.g.
VTSMX has gone up 1.45%, and the S&P 500 has gone up 2.79%.
Given recent volatility, a single day's movement could wipe all this out. So the cumulative returns are indeed positive, but not necessarily meaningful.
I think that the FED will not raise rates and will need to follow Europe with negative rates at some point. At that time you will hear people say proudly "I'm getting 3% on my bond investments!", and others saying "I wish I could find such a return now.".
I agree. The bond story is one that no one is looking at. And, no one is looking at what it is telling us. Growth is slowing around the world. Stock wise, I'm guessing, the stocks that have pricing power will do well. I would guess, health care and real estate. The sector to avoid in real estate are shopping malls and less then class A office space.
Huh? $10k into SPY New Year's day of last year is now worth $373 more as of close yesterday, more as of close today, looks like. Not much, sure, but not nothing.
I cited M* for S&P 500 TR from 12/31/14 close (aka New Year's Day, 2015) to 6/29/15 as 2.79%. Agreed it's not nothing, but it's not 3.73% either.
Since SPY is a unit investment trust that can only reinvest dividends quarterly, it suffers from cash drag, which can actually improve performance when the market dips. (It reinvests dividends later, after the market has gone done for the quarter.) That's one reason why I wouldn't use SPY as a benchmark.
In any case, it appears you're using Yahoo's adjusted close figures for 6/29/16 and 1/2/15. (266.66/199.21) That's a common off-by-one error. Somewhat like saying that we're in the 20th century because our years begin 20xx. It's forgetting that the first century started with a 0, not with 1(000).
One needs to start with the final price before the period begins (i.e. 12/31/14). Then, the closing price on 1/2/15 (relative to the 12/31/14 close) tells you how much you made by holding your stock for the first trading day of the year.
I don't get especially exercised when I see market returns that are tied to very specific start and stop dates. I'm especially alert when those dates have fractional time components. I don't worry those types of numbers which seem to be transitional and designed to evoke an emotional response.
I much prefer a broader array of return summaries that incorporate various timeframes. These numbers are readily accessible at websites like Morningstar. Here is a Link to one such extensive table listing:
Lots of both red ink and black ink in this table. That's more the rule than the exception. The table provides a more balanced view of numerous market segments over differing timeframes. I find that more informative than single, selected presentations. Have fun!
Since I'm a long term investor, the columns on the left side of the table are meaningless for my purposes. I agree with Carl Richards' cartoons in that regard. I find the 3 and 5 year return listings most informative. But that's just me!
EDIT: Here is an internal MFO Link that references a pertinent Richards' sketch:
I cited M* for S&P 500 TR from 12/31/14 close (aka New Year's Day, 2015) to 6/29/15 as 2.79%. Agreed it's not nothing, but it's not 3.73% either. Since SPY is a unit investment trust that can only reinvest dividends quarterly, it suffers from cash drag, which can actually improve performance when the market dips. (It reinvests dividends later, after the market has gone done for the quarter.) That's one reason why I wouldn't use SPY as a benchmark. In any case, it appears you're using Yahoo's adjusted close figures for 6/29/16 and 1/2/15. (266.66/199.21) That's a common off-by-one error. Somewhat like saying that we're in the 20th century because our years begin 20xx. It's forgetting that the first century started with a 0, not with 1(000). One needs to start with the final price before the period begins (i.e. 12/31/14). Then, the closing price on 1/2/15 (relative to the 12/31/14 close) tells you how much you made by holding your stock for the first trading day of the year.
No yahoo to it. I was looking at M* to see what happened if I bought $10k worth of SPY the first day of 2015. That's all. If you no likee SPY, that's cool. If I bought FUSVX the day before, right, I have made $275, actually a hair under. (SPY made $266, a hair under, as you note; some intervals it does better, as cash drag works both ways sometimes.) This is for yesterday close; not including today's nice runup. I know about birthday math, yes. Don't know where your figs come from, but for idiot-resistant simplicity I just go to M* and use either SPY or FUSVX, sometimes both, and do it from pretend purchase day with settlement at market close. No 'needs to start with'.
I got the S&P 500 Total Return performance from the M* chart of VTSMX where I added the S&P 500 as a benchmark. Here's the link again for that chart. You can read the S&P 500 total return ending value for the period in the chart (Dec 31, 2014 to June 29, 2016). It's $10,279.39 (2.79% return).
Cash drag (due to UIT reinvestment rules) is a problem found in only a few ETFs like SPY. But all ETFs have another problem in measuring market performance. Their prices don't match their NAVs - so any pretend purchase (which by definition of "purchase" uses the purchase price) results in performance data that differs from the market.
For example, the YTD (price) return for SPY as of June 30th (M* data) is 3.82%, while the NAV YTD return is 3.74%.
Other problems using index funds as proxies for market performance are tracking error due to embedded expenses, and tracking error due to, well, inaccurate tracking (e.g. portfolios that don't exactly replicate the index).
With all these (admittedly minor) errors, why not just use indexes themselves to measure market performance? After all, that's what indexes are designed for. And index total return figures are just as easy to pull out of Morningstar (or Yahoo, or ...) as are fund return figures. See links above.
I am , and have been, an investor in the capital markets for a good number of years now (better than forty). Through this time I have seen many periods of time when the market moved side ways (within certain trading ranges). This fits into part of my overall investment strategy as use an adaptive allocation and do some buying during times of pull backs when the stock market has become oversold and then sell some off as the market advances becoming overbought and richly priced. During the time bought to the time sold I collect dividends as I invest in stocks and mutual funds that pay dividends as part of this strategy. This is not to say that this is the only strategy that I employ within my portfolio but one that certaintly has its place within my investment tool kit.
I have written about this in the past as I put this strategy in play back during the January/February pullback and March/April rebound.
I also did a little buying recently during the most recent downdraft. Thinking there will be more downdrfts this summer I have a great deal of dry powder left to do more buying. After the fall elections I am looking for stocks to rally. In the meantime I am collecting dividends while I await my anticipated capital appreciation that should come during the fall. If so, then I'll trim my equity positions booking profits collecting dividens along the way.
If you are looking for a mutual fund that plays stock market pullbacks automatically you might wish to study CTFAX to see if its strategy might interest you and it might be a strategy to incorporate within one's own portfolio to take advantage of stock market movement.
A liking for actual investor return based on plausible behavior, rather than theory, that's all. (For when someone says 'stocks have been flat' blah blah.) Not picking a fight with you of all people. I want to know what would happen to my $10k if I go to Fido and buy whatever the last day of the year, or the first day of the next, and the gain or loss as of CoM at any given close. That's the only reason.
Interesting that the $10k-growth spread over the last month among SPY, FUSEX, VOO, and IVV is 45 cents, with Fido on top --- above Vanguard by 37 of those cents. Huh.
Not fighting here either, just interpreting "stocks have been flat" differently.
In my mind, it's equivalent to saying "the stock market's been flat, so there wasn't any point in having investing in stocks" (regardless of whether one used funds or individual stocks).
Regarding the spread: A spread of 45 cents on $10K is 0.0045%. On a share price around $200 (IVV), that's less than a penny. It's just rounding.
But if one looks at market return (what an actual investor would get) as opposed to NAV return, the differences are more marked. I compared FUSEX, VOO, VFIAX, and S&P 500 TR. (M* data for month ending 6/30/16). The only one that had a different return is VOO (at 0.32% vs. 0.26% for the others).
Recognizing that VOO and VFIAX are two different share classes of the same portfolio (not two identical portfolios, but a single portfolio), and that they have identical ERs, the only explanation for the deviation would seem to be market return vs. NAV return.
If you are looking for a mutual fund that plays stock market pullbacks automatically you might wish to study CTFAX to see if its strategy might interest you and it might be a strategy to incorporate within one's own portfolio to take advantage of stock market movement.
I have always felt that this fund was designed by the marketing department - I felt that way when it was first announced, and upon rereading the prospectus, I still feel that way. I may post more about the fund at some point in another thread.
Here I'll stick with how it dealt with the Brexit pullback. Its basic problem is that it is not allowed to reverse course for 31 days. (That appears to be out of concern about triggering the wash sale rule.)
It decreased its equity exposure down to 20% (from 25%) in early June (with the S&P 500 rising above 2100). Consequently it was not allowed to increase its equity exposure for the rest of the month, even as the S&P retraced its path below 2100, and even went below 2000 on June 27th.
Had the market not moved so fast, the fund would have increased its equity holdings to 30% at that point, and gradually sold off equities as the market resumed its upward path. Instead, it just sat there. At least if it did what the prospectus required.
It is worth reiterating - the 31 day "cooling off period" is strictly for tax reasons. The prospectus offers no tactical justification.
>> if one looks at market return (what an actual investor would get) as opposed to NAV return,
What I posted was M* growth of $10k. Presumably what an actual investor would get investing $10k at the start date and going to the market close of the end date. No? Am I not getting something? Not NAV so far as I can tell but supposedly actual performance.
I can go back farther of course to see exactly what obtains. Did not to me seem rounding error necessarily.
Ah; well, here is ytd, investing $10k on Jan 1, so far as M* knows:
S&P 500 TR USD - just under $406 gain FUSEX - just under $402 VFIAX - just over $404 VOO - just over $381 wtf SPY - just under $396
It shows what you described. Closing values for the an initial $10K in the funds were: FUSEX - $10,025.69. VOO - $10,025.32 (37 cents less) IVV - $10,025.24 (45 cents less) SPY - $10,025.48 (21 cents less)
But those are NAV returns, and the ETF returns are all within about a 0.002 share rounding error. To see that these are NAV returns, look at the June monthly returns for VOO and SPY on M* here and here, respectively.
Scroll to Trailing Total Returns, and click on the Monthly tab. This will give you returns to the end of last month, i.e. to June 30th. The first data column has the one month returns, i.e. June returns.
These pages show:
VOO (price) 0.32% VOO (NAV) 0.25% (this matches the return shown in the graph - $25.32/$10K
SPY (price) 0.35% SPY (NAV) 0.25% (this matches the return shown in the graph - $25.48/$10K)
You appear to have posted the returns from the graph. As just shown, those are NAV returns, not price returns.
The differences among the returns shown on the graph (45 cents or less) amount to noise. That $10K bought around 50 shares of each ETF. The closing price could have been rounded up or down as much as half a cent. So the spread due to rounding on the final price alone can be as much as a penny times 50 shares, or 50 cents.
As a tech writer I do not know how I can say it any more exactly.
Go to M*, enter FUSEX in Quote, go down to Growth of 10k, click More..., eliminate Large Blend leaving FUSEX, also del S&P 500 TR USD for this example, click any period you like (I did ytd). Then add other SP500 entities with various reinvestment rules, ERs, whatnot. Read the totals $ at top of graph.
Let us say you add VOO and VFIAX.
But you know all that already. No link needed.
Forget going to any other data on the page. Just stick with growth of 10k, please.
So ... are you explaining to all --- and this would be news, would it not ? --- that M* is in fact not really showing accurate growth of $10k. That if I put 10k commissionfree into VOO and ditto into VFIAX on Jan 1 and checked my balance this weekend, I would not see the two very different totals that M* shows? To wit:
FUSEX:10,401.62 VOO:10,381.34 VFIAX:10,404.10.
Would be worth curious minds' querying M* about, it seems.
Here's the chart you described. Thanks for being so clear.
You couldn't have put money in these funds on January 1st. January 4th was the first trading day of the year. If you had put $10K into open end funds (which get end of day pricing) on January 4th, you'd have missed the market movement on January 4th (which was down). So you'd have gotten a return higher than the YTD return.
This is easy to see. For FUSEX, the Jan 4th price was $70.72. The July 1st price was $74.31. Ignoring dividends, you'd have gotten a return of $74.31/$70.72.
$74.31/$70.72 = 1.050764, so $10K invested at $70.72 would be worth $10,507.64, plus dividends. Much more than M* is showing.
So let's use the correct price for a full YTD return - Dec. 31st close. That was $71.80. For $10K, you received 139.276 shares. This was a rounding up of 139.2758 shares, and so you got a gift of $0.02 due to rounding.
On April 15th, you got cap gains and income divs totaling $0.368/share, and reinvested at a price of $73.23. This is according to Fidelity's page.
That's $51.2536 in dividends, that got rounded down to $51.25. This was reinvested at a price of $73.19. So you got an additional 0.700 shares (again due to rounding); this was worth $51.25, costing you about 1/3 of a penny. You then had 139.976 shares.
The closing price on July 1 was $74.31. Your final value was thus $10,401.62.
I went through this in gory detail to demonstrate two facts:
1) The starting date for YTD returns of open end funds is December 31, not January 1st (or 2nd or 4th). 2) Rounding can give or take a few cents here and there, when shares are denominated in thousandths, and money is denominated in pennies.
As to VOO, I'll say again that the chart you're looking at is showing NAV return. So the answer to your question "is $10,381.34 the value you would see for your VOO investment", is no, it is not. You investment would be worth more.
The 3.81% return ($10,381.34) shown for VOO is not YTD through July 1, but YTD through June 30th. I know this because Vanguard gives YTD figures for VOO (through June 30th) as 3.81% (i.e. $10,381 and change) for NAV, and 3.84% (i.e. $10,384 and change) for price.
You can also just look up the VOO YTD returns on M* without using the chart. If you use the daily tab, rather than the montly tab, you'll get the YTD figures through July 1:
VOO (price) 4.10% VOO (NAV) 3.81% (this matches the return shown in the graph - $381.34/$10K
I am interested only in the accuracy of the M* 10k growth chart. (For anything.) When we put in your ytd start of 1/4, the latest total shown for VFIAX is that I gained $404 and change, while the latest total shown for VOO shows a gain of $381 and change. And this is due to ... M* using different pricing (?) for the two *types* of entities? (Of which you will of course recall that you wrote: >> Recognizing that VOO and VFIAX are two different share classes of the same portfolio (not two identical portfolios, but a single portfolio), and that they have identical ERs, the only explanation for the deviation would seem to be market return vs. NAV return.) So is that the answer, are you now thinking is confirmed? Do you have thoughts on why that is? Seems worth querying M* about.
Further, the Performance column (below the graph) for VFIAX for ytd says gain of $382 (as of 6/30). The graph 12/31/15 - 6/30/2016 now says $284. So something is clearly wack.
Note finally that that graph gain from 1/1 and from 1/4 is identical, which is why I seemed to you not to know that the market is closed New Year's Day.
M* may update the security prices at different times.
As I wrote above, what you were seeing for VOO was NAV performance through June 30th, not July 31st. The graph has since been updated for the exchange traded security, and VOO shows a YTD return of $403.49. Not a perfect match, but $403.49 is a whole lot closer to $404 and change than was the "old" return of $381 and change.
As to the 0.0061% (61 cent) difference in YTD performance between the two share classes, we're back to noise. Easily attributable to the fact that reinvestment price is not well defined for ETFs, not to mention that the dividends are distributed (and thus reinvested) on different days for the two share classes.
I do still claim that sizeable differences are due to comparing different figures - price return vs. NAV return.
The graph shows NAV returns only. But even if it showed market returns, it wouldn't match your investment to the penny. That's because it can't use the exact same reinvestment price/time as your broker does.
If you invested $10K in the same ETF at the same time at two brokers, your ending values would be different. Obviously no graph could match both of those results at the same time. See Heisenberg.
Finally, regarding the VFIAX return. For open end funds, it appears M* is doing the "simple" thing you seemed to want at the outset - when you ask for the return from January 1st to now, it gives the full YTD return.
When you ask for the return from December 31st, it includes the return on December 31st as well as on all the subsequent days. That is, it uses the Dec 30th closing price as its starting point.
It is giving you returns for all days including the end points, e.g.
Jan 1 <= each day's return <= July 1 (uses Dec. 31 close and July 1 close) Dec 31 <= each day's return <= July 1 (uses Dec 30 close and July 1 close)
Thank you for making comment about a fund that I made mention of and that is CTFAX. I realize that the fund is not for everyone. No doubt, you must be one of those investors that does not favor the fund. I got to tell you, though, it is both one I favor and one that I own.
You bring up a point about this fund and its use of the its 31 day trading rule (loss sell rule). I'd also like to note inorder for the loss sale rule to be utilized there has to be a loss. If securities are sold at a profit then the rule does not apply. I am thinking they increased their allocation to equities during the Brexit pullback. Anyway, I'll be checking for information on this and when available I'll post.
Thanks again for your comment.
Old_Skeet
Additional comment ... In checking current fund trading details at Columbia ... below is what they state.
"On 6/23/16, the S&P 500 Index closed at 2113.32 which is above the fund's 2100 price level threshold, resulting in an increase to the fixed-income fund exposure in the portfolio." My comment ...This reduced the equity allocation from 25% to 20% and increased the fixed allocation from 75% to 80%. During the January/February pullback it had raised its equity allocation to about 40% and has now reduced it to the 20% range.
With the Brexit pullback the S&P500 Index did not close below the fund's closing price threshold thus their was no trigger for the fund to buy equities and increase its allocation in them. Not because of the 31 day trading rule (loss sale rule) but because the price level of the Index did not close below the threshold requiring it to increase its allocation to equities.
My records indicate that on 6/23 the 500 Index closed at 2113 ... on 6/24 at 2037 ... on 6/27 at 2000 ... on 6/28 at 2038 ... on 6/29 at 2071 ... on 6/30 at 2099 ... and, on 7/1 at 2103.
I hold this fund in my hybrid income sleeve since it appears, for the most part, to be a bond fund that loads equities during stock market pullbacks. Indeed a neat hybrid type fund by my thinking giving a fixed income investor some exposure to equities when warranted.
@davidrmoran - I agree with you about the disclaimer, though slow postings has been a major, major complaint about M* for some time now.
The paragraphs you cited do generally describe the ETF pricing mechanism. Though there are enough exceptions that one should not rely too heavily upon close price/NAV tracking in times of stress.
ETFs simply don't track during flash crashes, both because of market interference by circuit breakers, and because authorized participants (APs) are reluctant to step in when they can't get a good handle on the price of securities in the underlying portfolio.
Some ETFs, notably leveraged, inverse, and commodities, are derivative-based, their creation baskets tend to be all cash, and the mechanism is more complex than what the article described.
Thank you for making comment about a fund that I made mention of and that is CTFAX. I realize that the fund is not for everyone. No doubt, you must be one of those investors that does not favor the fund. I got to tell you, though, it is both one I favor and one that I own.
I appreciate that you like it, and it seems to have performed adequately. But I believe that's in spite of its design, not because of it. I'll start a new thread later going into detail.
You bring up a point about this fund and its use of the its 31 day trading rule (loss sell rule). I'd also like to note inorder for the loss sale rule to be utilized there has to be a loss. If securities are sold at a profit then the rule does not apply.
"Please note: the fund employs a 31-day trading rule to help reduce the risk of taxable events. if the fund has increased the allocation to stock or bond funds, it will not decrease that allocation for 31 days."
As in the prospectus, this is stated as an unconditional rule: it will not rather than it may not. You can fault me for being too legalistic here, but that's what the prospectus is, a legal document. IMHO (and it sounds like in your opinion as well), the rule is too conservative, but there it is.
Additional comment ... In checking current fund trading details at Columbia ... below is what they state.
"On 6/23/16, the S&P 500 Index closed at 2113.32 which is above the fund's 2100 price level threshold, resulting in an increase to the fixed-income fund exposure in the portfolio." My comment ... [...]
With the Brexit pullback the S&P500 Index did not close below the fund's closing price threshold thus the fund to trigger a new buy thus the fund did not increase its allocation to equities during the Brexit pullback. Not because of the 31 day trading rule (loss sale rule) but because the price level of the Index did not close below the threshold requiring it to increase its allocation to equities.
My records indicate that on 6/23 the 500 Index closed at 2113 ... on 6/24 at 2037 ... on 6/27 at 2000 ... on 6/28 at 2038 ... on 6/29 at 2071 ... on 6/30 at 2099 ... and, on 7/1 at 2103.
A minor quibble and then a look at the numbers. Despite the fund's commentary referring to S&P 500 Index closing price, the prospectus says nothing about the S&P 500® Index closing price, just the S&P 500® Index level (with no restriction on time of day given). Nevertheless, let's work with the closing prices.
The prospectus says that "When the S&P 500® Index moves into a new band on the table, the Fund will rebalance the stock/bond mix to reflect the new S&P 500® Index price level" (with exceptions like the 31 day rule).
That's pretty clear - the allocation is determined strictly by the value of the S&P 500 index, not its motion up or down.
The relevant bands are: 2100-2175: 20% stock/80% bond 2025-2100: 25% stock/75% bond 1950-2025: 30% stock/70% bond
As you observed, the index closed in the 25/75 band on 6/24, and in the 30/70 band on 6/25. Two thresholds were crossed on the way down: 2100 and 2025. The fund didn't add stocks to its 20/80 portfolio, because that would have been a reversal from its 6/23 change, where it reduced stocks.
(Actually, I believe the commentary is wrong - the index rose above 2100 on June 2nd, so the fund should have reduced stocks to 20% then. For the rest of June, i.e. within 31 days, it could not have reversed direction and increased stocks. Thus on 6/22, it still had a 20/80 allocation, and the fact that the index went above 2100 on 6/23 didn't matter. The fund already had a 20/80 allocation.)
It appears from review of addition fund literature titled "Adjusting to Changing Markets" under sub heading "Rebalancing" ...
On 1/1/16 with S&P 500 level 1990 the fund held 30% stocks and 70% bonds.
On 1/11/16 with S&P 500 level 1922 the fund held 35% stocks and 65% bonds.
On 2/2/16 with S&P level 1829 the fund held 40% stocks and 60% bonds.
On 3/14/16 with S&P level 2022 the fund held 25% stocks and 75% bonds.
Therefore, it seems that it did not employ the 31 day trading rule in increasing its equity allocation while it did employ it in reducing its allocation to equities but not bond funds. Note when it was increasing its allocation to its equity funds it was reducing its allocation to the bond funds held. With this, it seems to me the 31 day trading rule applied some of the time but perhaps not all the time. Note the dates 1/1/16, 1/11/16 and 2/2/16 ... I am not finding that 31 days elasped between these dates. Perhaps it applies only if the 30 day loss sale rule applies? Not sure; but it sure seems that could be a possibility. And, another possibility might be if they have ample cash to cover new positioning.
The rule itself is simple, though the prospectus states it in language that's a bit too compact.
You're not allowed to reverse direction within 31 days. So if the fund increases its stock allocation, it can increase it further, but if it wants to decrease its stock allocation, it has to wait 31 days since it last increased the stock allocation.
Likewise, if the fund increases its bond allocation (i.e. decreases its stock allocation), it can increase bonds further. But it can't start selling off bond funds until 31 days since it last increased its bond holdings.
In your example, stocks go up (1/11/16), then up more (2/2/16). Before going down, it must wait 31 days (until 3/4/16). So it's allowed to reduce stocks on 3/14, having waited more than 31 days.
The rule as stated in the prospectus: "after the Fund has increased its percentage allocation to either stock funds or bond funds, it will not decrease that allocation for at least 31 days"
Not to keep lingering of the subject; but, it seems while it is increasing its position in stocks funds, it is decreasing its position in bond funds, unless it has an ample cash position to absorb its trading activity. However, from reading what has been written under "Adjusting to Changing Markets," it does not seem, to me, to not be following the 31 day trading rule in all of its rebalancing and new positioning moves. Still it is a fund that I own and I continue to add new money to. Your arguement (debate) should not so much with me ... as I feel ... it should be presented to the fund company itself. Perhaps they can provide some clairty to their rebalancing and new positioning moves. I have only written on what I have read and made comment on what I felt would explain or what might would have allowed them to make new positioning moves when the 31 days had not elasped. And, you have only written on what you have been reading. I guess, it will be up to the fund company to better explain these rebalancing and positioning moves should you choose to contact them for comment. Perhaps, this is something you will make further comment on in your coming writtings on this fund. Still, it is a neat fund, by my thinking, and the only one that I am aware of like it. Do you know of others?
Again, thanks mfs for making your comment(s). I enjoyed reading what you have written because it provides someone else's take on a fund that I feel employs a neat, clever and simple investment strategy for that of a mutual fund.
Have a great 4th of July ... and, most of all ... I wish all good investing.
Comments
Clearly, we need another round of QE to get things going again. Because these days stocks apparently can't move upwards for a prolonged period without such assistance. And besides, only old or retiring investors/traders care about such charming and antequated things like 'natural price discovery'!
Yahoo S&P 500 Total Return chart (2 Year, interactive), or
M* interactive chart - Total Stock Market (VTSMX) and S&P 500 TR, Dec 31, 2014 to June 29, 2014
VTSMX has gone up 1.45%, and the S&P 500 has gone up 2.79%.
Given recent volatility, a single day's movement could wipe all this out. So the cumulative returns are indeed positive, but not necessarily meaningful.
BOE's Mark Carney just said more QE is coming this summer. Here we go again...
http://www.marketwatch.com/story/this-economist-thinks-china-is-headed-for-a-1929-style-depression-2016-06-30
This economist thinks China is headed for a 1929-style depression
Since SPY is a unit investment trust that can only reinvest dividends quarterly, it suffers from cash drag, which can actually improve performance when the market dips. (It reinvests dividends later, after the market has gone done for the quarter.) That's one reason why I wouldn't use SPY as a benchmark.
In any case, it appears you're using Yahoo's adjusted close figures for 6/29/16 and 1/2/15. (266.66/199.21) That's a common off-by-one error. Somewhat like saying that we're in the 20th century because our years begin 20xx. It's forgetting that the first century started with a 0, not with 1(000).
One needs to start with the final price before the period begins (i.e. 12/31/14). Then, the closing price on 1/2/15 (relative to the 12/31/14 close) tells you how much you made by holding your stock for the first trading day of the year.
Since 1924, mean reversion statistically has occurred when there have been consecutive years of S&P 500 performance over the fixed "valuation baseline" * ( recent consecutive string 2012, 2013, 2014, ). Quantitative price based variable # 1 https://stockmarketmap.wordpress.com/2015/11/14/market-map-model-tactical-asset-allocation-using-low-expense-index-etfs-2015/
https://docs.google.com/document/d/1hsBqvv3SUmHKBV5G0SUcFQpGaSf9nNlzDbT3W8hXGo8/edit
Economic conditions index falling below threshold removes "economic" market support
( conditions still positive ): https://docs.google.com/document/d/1IqXuggnKY7fDH-i_96uMIOlmhzS7ei-dreUZ_8dpatc/edit?usp=sharing
An inversion of the yield curve can correlate to larger forward market declines vs. declines during normal yield curve structure ( during model cash signals ):
https://docs.google.com/document/d/1QkFJRNjd3TTEwDPUwXcCjd7toGaN_mxix5-nSN-kdig/edit?usp=sharing
*
I don't get especially exercised when I see market returns that are tied to very specific start and stop dates. I'm especially alert when those dates have fractional time components. I don't worry those types of numbers which seem to be transitional and designed to evoke an emotional response.
I much prefer a broader array of return summaries that incorporate various timeframes. These numbers are readily accessible at websites like Morningstar. Here is a Link to one such extensive table listing:
http://news.morningstar.com/index/indexReturn.html
Lots of both red ink and black ink in this table. That's more the rule than the exception. The table provides a more balanced view of numerous market segments over differing timeframes. I find that more informative than single, selected presentations. Have fun!
Since I'm a long term investor, the columns on the left side of the table are meaningless for my purposes. I agree with Carl Richards' cartoons in that regard. I find the 3 and 5 year return listings most informative. But that's just me!
EDIT: Here is an internal MFO Link that references a pertinent Richards' sketch:
http://www.mutualfundobserver.com/discuss/discussion/28342/carl-richards-no-really-just-ignore-day-to-day-stock-market-fluctuations
Richards and I are joined at the hip on this principle. Even 5 days of market data is mostly noise.
Best Wishes.
If you no likee SPY, that's cool.
If I bought FUSVX the day before, right, I have made $275, actually a hair under. (SPY made $266, a hair under, as you note; some intervals it does better, as cash drag works both ways sometimes.)
This is for yesterday close; not including today's nice runup.
I know about birthday math, yes.
Don't know where your figs come from, but for idiot-resistant simplicity I just go to M* and use either SPY or FUSVX, sometimes both, and do it from pretend purchase day with settlement at market close. No 'needs to start with'.
Here's the same result using a chart for FUSVX.
Cash drag (due to UIT reinvestment rules) is a problem found in only a few ETFs like SPY. But all ETFs have another problem in measuring market performance. Their prices don't match their NAVs - so any pretend purchase (which by definition of "purchase" uses the purchase price) results in performance data that differs from the market.
For example, the YTD (price) return for SPY as of June 30th (M* data) is 3.82%, while the NAV YTD return is 3.74%.
Other problems using index funds as proxies for market performance are tracking error due to embedded expenses, and tracking error due to, well, inaccurate tracking (e.g. portfolios that don't exactly replicate the index).
With all these (admittedly minor) errors, why not just use indexes themselves to measure market performance? After all, that's what indexes are designed for. And index total return figures are just as easy to pull out of Morningstar (or Yahoo, or ...) as are fund return figures. See links above.
I am , and have been, an investor in the capital markets for a good number of years now (better than forty). Through this time I have seen many periods of time when the market moved side ways (within certain trading ranges). This fits into part of my overall investment strategy as use an adaptive allocation and do some buying during times of pull backs when the stock market has become oversold and then sell some off as the market advances becoming overbought and richly priced. During the time bought to the time sold I collect dividends as I invest in stocks and mutual funds that pay dividends as part of this strategy. This is not to say that this is the only strategy that I employ within my portfolio but one that certaintly has its place within my investment tool kit.
I have written about this in the past as I put this strategy in play back during the January/February pullback and March/April rebound.
I also did a little buying recently during the most recent downdraft. Thinking there will be more downdrfts this summer I have a great deal of dry powder left to do more buying. After the fall elections I am looking for stocks to rally. In the meantime I am collecting dividends while I await my anticipated capital appreciation that should come during the fall. If so, then I'll trim my equity positions booking profits collecting dividens along the way.
If you are looking for a mutual fund that plays stock market pullbacks automatically you might wish to study CTFAX to see if its strategy might interest you and it might be a strategy to incorporate within one's own portfolio to take advantage of stock market movement.
I wish all good investing.
A liking for actual investor return based on plausible behavior, rather than theory, that's all. (For when someone says 'stocks have been flat' blah blah.) Not picking a fight with you of all people. I want to know what would happen to my $10k if I go to Fido and buy whatever the last day of the year, or the first day of the next, and the gain or loss as of CoM at any given close. That's the only reason.
Interesting that the $10k-growth spread over the last month among SPY, FUSEX, VOO, and IVV is 45 cents, with Fido on top --- above Vanguard by 37 of those cents. Huh.
In my mind, it's equivalent to saying "the stock market's been flat, so there wasn't any point in having investing in stocks" (regardless of whether one used funds or individual stocks).
Regarding the spread: A spread of 45 cents on $10K is 0.0045%. On a share price around $200 (IVV), that's less than a penny. It's just rounding.
But if one looks at market return (what an actual investor would get) as opposed to NAV return, the differences are more marked. I compared FUSEX, VOO, VFIAX, and S&P 500 TR. (M* data for month ending 6/30/16). The only one that had a different return is VOO (at 0.32% vs. 0.26% for the others).
Recognizing that VOO and VFIAX are two different share classes of the same portfolio (not two identical portfolios, but a single portfolio), and that they have identical ERs, the only explanation for the deviation would seem to be market return vs. NAV return.
Here I'll stick with how it dealt with the Brexit pullback. Its basic problem is that it is not allowed to reverse course for 31 days. (That appears to be out of concern about triggering the wash sale rule.)
It decreased its equity exposure down to 20% (from 25%) in early June (with the S&P 500 rising above 2100). Consequently it was not allowed to increase its equity exposure for the rest of the month, even as the S&P retraced its path below 2100, and even went below 2000 on June 27th.
Had the market not moved so fast, the fund would have increased its equity holdings to 30% at that point, and gradually sold off equities as the market resumed its upward path. Instead, it just sat there. At least if it did what the prospectus required.
It is worth reiterating - the 31 day "cooling off period" is strictly for tax reasons. The prospectus offers no tactical justification.
What I posted was M* growth of $10k. Presumably what an actual investor would get investing $10k at the start date and going to the market close of the end date. No? Am I not getting something? Not NAV so far as I can tell but supposedly actual performance.
I can go back farther of course to see exactly what obtains. Did not to me seem rounding error necessarily.
Ah; well, here is ytd, investing $10k on Jan 1, so far as M* knows:
S&P 500 TR USD - just under $406 gain
FUSEX - just under $402
VFIAX - just over $404
VOO - just over $381 wtf
SPY - just under $396
Tracking? Plus ER?
Here's a M* chart comparing FUSEX, VOO, IVV, and SPY over the month of June (June 1 through June 30th).
It shows what you described. Closing values for the an initial $10K in the funds were:
FUSEX - $10,025.69.
VOO - $10,025.32 (37 cents less)
IVV - $10,025.24 (45 cents less)
SPY - $10,025.48 (21 cents less)
But those are NAV returns, and the ETF returns are all within about a 0.002 share rounding error. To see that these are NAV returns, look at the June monthly returns for VOO and SPY on M* here and here, respectively.
Scroll to Trailing Total Returns, and click on the Monthly tab. This will give you returns to the end of last month, i.e. to June 30th. The first data column has the one month returns, i.e. June returns.
These pages show:
VOO (price) 0.32%
VOO (NAV) 0.25% (this matches the return shown in the graph - $25.32/$10K
SPY (price) 0.35%
SPY (NAV) 0.25% (this matches the return shown in the graph - $25.48/$10K)
You appear to have posted the returns from the graph. As just shown, those are NAV returns, not price returns.
The differences among the returns shown on the graph (45 cents or less) amount to noise. That $10K bought around 50 shares of each ETF. The closing price could have been rounded up or down as much as half a cent. So the spread due to rounding on the final price alone can be as much as a penny times 50 shares, or 50 cents.
Go to M*, enter FUSEX in Quote, go down to Growth of 10k, click More..., eliminate Large Blend leaving FUSEX, also del S&P 500 TR USD for this example, click any period you like (I did ytd). Then add other SP500 entities with various reinvestment rules, ERs, whatnot. Read the totals $ at top of graph.
Let us say you add VOO and VFIAX.
But you know all that already. No link needed.
Forget going to any other data on the page. Just stick with growth of 10k, please.
So ... are you explaining to all --- and this would be news, would it not ? --- that M* is in fact not really showing accurate growth of $10k.
That if I put 10k commissionfree into VOO and ditto into VFIAX on Jan 1 and checked my balance this weekend, I would not see the two very different totals that M* shows? To wit:
FUSEX:10,401.62 VOO:10,381.34 VFIAX:10,404.10.
Would be worth curious minds' querying M* about, it seems.
You couldn't have put money in these funds on January 1st. January 4th was the first trading day of the year. If you had put $10K into open end funds (which get end of day pricing) on January 4th, you'd have missed the market movement on January 4th (which was down). So you'd have gotten a return higher than the YTD return.
This is easy to see. For FUSEX, the Jan 4th price was $70.72. The July 1st price was $74.31. Ignoring dividends, you'd have gotten a return of $74.31/$70.72.
$74.31/$70.72 = 1.050764, so $10K invested at $70.72 would be worth $10,507.64, plus dividends. Much more than M* is showing.
So let's use the correct price for a full YTD return - Dec. 31st close. That was $71.80. For $10K, you received 139.276 shares. This was a rounding up of 139.2758 shares, and so you got a gift of $0.02 due to rounding.
On April 15th, you got cap gains and income divs totaling $0.368/share, and reinvested at a price of $73.23. This is according to Fidelity's page.
That's $51.2536 in dividends, that got rounded down to $51.25. This was reinvested at a price of $73.19. So you got an additional 0.700 shares (again due to rounding); this was worth $51.25, costing you about 1/3 of a penny. You then had 139.976 shares.
The closing price on July 1 was $74.31. Your final value was thus $10,401.62.
I went through this in gory detail to demonstrate two facts:
1) The starting date for YTD returns of open end funds is December 31, not January 1st (or 2nd or 4th).
2) Rounding can give or take a few cents here and there, when shares are denominated in thousandths, and money is denominated in pennies.
As to VOO, I'll say again that the chart you're looking at is showing NAV return. So the answer to your question "is $10,381.34 the value you would see for your VOO investment", is no, it is not. You investment would be worth more.
The 3.81% return ($10,381.34) shown for VOO is not YTD through July 1, but YTD through June 30th. I know this because Vanguard gives YTD figures for VOO (through June 30th) as 3.81% (i.e. $10,381 and change) for NAV, and 3.84% (i.e. $10,384 and change) for price.
You can also just look up the VOO YTD returns on M* without using the chart. If you use the daily tab, rather than the montly tab, you'll get the YTD figures through July 1:
VOO (price) 4.10%
VOO (NAV) 3.81% (this matches the return shown in the graph - $381.34/$10K
When we put in your ytd start of 1/4, the latest total shown for VFIAX is that I gained $404 and change, while the latest total shown for VOO shows a gain of $381 and change.
And this is due to ... M* using different pricing (?) for the two *types* of entities?
(Of which you will of course recall that you wrote:
>> Recognizing that VOO and VFIAX are two different share classes of the same portfolio (not two identical portfolios, but a single portfolio), and that they have identical ERs, the only explanation for the deviation would seem to be market return vs. NAV return.)
So is that the answer, are you now thinking is confirmed?
Do you have thoughts on why that is? Seems worth querying M* about.
Further, the Performance column (below the graph) for VFIAX for ytd says gain of $382 (as of 6/30). The graph 12/31/15 - 6/30/2016 now says $284. So something is clearly wack.
Note finally that that graph gain from 1/1 and from 1/4 is identical, which is why I seemed to you not to know that the market is closed New Year's Day.
All very curious.
As I wrote above, what you were seeing for VOO was NAV performance through June 30th, not July 31st. The graph has since been updated for the exchange traded security, and VOO shows a YTD return of $403.49. Not a perfect match, but $403.49 is a whole lot closer to $404 and change than was the "old" return of $381 and change.
As to the 0.0061% (61 cent) difference in YTD performance between the two share classes, we're back to noise. Easily attributable to the fact that reinvestment price is not well defined for ETFs, not to mention that the dividends are distributed (and thus reinvested) on different days for the two share classes.
I do still claim that sizeable differences are due to comparing different figures - price return vs. NAV return.
The graph shows NAV returns only. But even if it showed market returns, it wouldn't match your investment to the penny. That's because it can't use the exact same reinvestment price/time as your broker does.
If you invested $10K in the same ETF at the same time at two brokers, your ending values would be different. Obviously no graph could match both of those results at the same time. See Heisenberg.
Finally, regarding the VFIAX return. For open end funds, it appears M* is doing the "simple" thing you seemed to want at the outset - when you ask for the return from January 1st to now, it gives the full YTD return.
When you ask for the return from December 31st, it includes the return on December 31st as well as on all the subsequent days. That is, it uses the Dec 30th closing price as its starting point.
It is giving you returns for all days including the end points, e.g.
Jan 1 <= each day's return <= July 1 (uses Dec. 31 close and July 1 close)
Dec 31 <= each day's return <= July 1 (uses Dec 30 close and July 1 close)
Thank you for making comment about a fund that I made mention of and that is CTFAX. I realize that the fund is not for everyone. No doubt, you must be one of those investors that does not favor the fund. I got to tell you, though, it is both one I favor and one that I own.
You bring up a point about this fund and its use of the its 31 day trading rule (loss sell rule). I'd also like to note inorder for the loss sale rule to be utilized there has to be a loss. If securities are sold at a profit then the rule does not apply. I am thinking they increased their allocation to equities during the Brexit pullback. Anyway, I'll be checking for information on this and when available I'll post.
Thanks again for your comment.
Old_Skeet
Additional comment ... In checking current fund trading details at Columbia ... below is what they state.
"On 6/23/16, the S&P 500 Index closed at 2113.32 which is above the fund's 2100 price level threshold, resulting in an increase to the fixed-income fund exposure in the portfolio." My comment ...This reduced the equity allocation from 25% to 20% and increased the fixed allocation from 75% to 80%. During the January/February pullback it had raised its equity allocation to about 40% and has now reduced it to the 20% range.
With the Brexit pullback the S&P500 Index did not close below the fund's closing price threshold thus their was no trigger for the fund to buy equities and increase its allocation in them. Not because of the 31 day trading rule (loss sale rule) but because the price level of the Index did not close below the threshold requiring it to increase its allocation to equities.
My records indicate that on 6/23 the 500 Index closed at 2113 ... on 6/24 at 2037 ... on 6/27 at 2000 ... on 6/28 at 2038 ... on 6/29 at 2071 ... on 6/30 at 2099 ... and, on 7/1 at 2103.
I hold this fund in my hybrid income sleeve since it appears, for the most part, to be a bond fund that loads equities during stock market pullbacks. Indeed a neat hybrid type fund by my thinking giving a fixed income investor some exposure to equities when warranted.
http://www.investopedia.com/ask/answers/052815/what-difference-between-etfs-net-asset-value-nav-and-its-market-price.asp
The paragraphs you cited do generally describe the ETF pricing mechanism. Though there are enough exceptions that one should not rely too heavily upon close price/NAV tracking in times of stress.
ETFs simply don't track during flash crashes, both because of market interference by circuit breakers, and because authorized participants (APs) are reluctant to step in when they can't get a good handle on the price of securities in the underlying portfolio.
Some ETFs, notably leveraged, inverse, and commodities, are derivative-based, their creation baskets tend to be all cash, and the mechanism is more complex than what the article described.
"Please note: the fund employs a 31-day trading rule to help reduce the risk of taxable events. if the fund has increased the allocation to stock or bond funds, it will not decrease that allocation for 31 days."
As in the prospectus, this is stated as an unconditional rule: it will not rather than it may not. You can fault me for being too legalistic here, but that's what the prospectus is, a legal document. IMHO (and it sounds like in your opinion as well), the rule is too conservative, but there it is. A minor quibble and then a look at the numbers. Despite the fund's commentary referring to S&P 500 Index closing price, the prospectus says nothing about the S&P 500® Index closing price, just the S&P 500® Index level (with no restriction on time of day given). Nevertheless, let's work with the closing prices.
The prospectus says that "When the S&P 500® Index moves into a new band on the table, the Fund will rebalance the stock/bond mix to reflect the new S&P 500® Index price level" (with exceptions like the 31 day rule).
That's pretty clear - the allocation is determined strictly by the value of the S&P 500 index, not its motion up or down.
The relevant bands are:
2100-2175: 20% stock/80% bond
2025-2100: 25% stock/75% bond
1950-2025: 30% stock/70% bond
As you observed, the index closed in the 25/75 band on 6/24, and in the 30/70 band on 6/25. Two thresholds were crossed on the way down: 2100 and 2025. The fund didn't add stocks to its 20/80 portfolio, because that would have been a reversal from its 6/23 change, where it reduced stocks.
(Actually, I believe the commentary is wrong - the index rose above 2100 on June 2nd, so the fund should have reduced stocks to 20% then. For the rest of June, i.e. within 31 days, it could not have reversed direction and increased stocks. Thus on 6/22, it still had a 20/80 allocation, and the fact that the index went above 2100 on 6/23 didn't matter. The fund already had a 20/80 allocation.)
With half our nut in DSEEX (thanks to you) I am becoming a student (rank amateur) of these intricacies.
In reference to CTFAX ...
It appears from review of addition fund literature titled "Adjusting to Changing Markets" under sub heading "Rebalancing" ...
On 1/1/16 with S&P 500 level 1990 the fund held 30% stocks and 70% bonds.
On 1/11/16 with S&P 500 level 1922 the fund held 35% stocks and 65% bonds.
On 2/2/16 with S&P level 1829 the fund held 40% stocks and 60% bonds.
On 3/14/16 with S&P level 2022 the fund held 25% stocks and 75% bonds.
Therefore, it seems that it did not employ the 31 day trading rule in increasing its equity allocation while it did employ it in reducing its allocation to equities but not bond funds. Note when it was increasing its allocation to its equity funds it was reducing its allocation to the bond funds held. With this, it seems to me the 31 day trading rule applied some of the time but perhaps not all the time. Note the dates 1/1/16, 1/11/16 and 2/2/16 ... I am not finding that 31 days elasped between these dates. Perhaps it applies only if the 30 day loss sale rule applies? Not sure; but it sure seems that could be a possibility. And, another possibility might be if they have ample cash to cover new positioning.
And, so it goes.
You're not allowed to reverse direction within 31 days. So if the fund increases its stock allocation, it can increase it further, but if it wants to decrease its stock allocation, it has to wait 31 days since it last increased the stock allocation.
Likewise, if the fund increases its bond allocation (i.e. decreases its stock allocation), it can increase bonds further. But it can't start selling off bond funds until 31 days since it last increased its bond holdings.
In your example, stocks go up (1/11/16), then up more (2/2/16). Before going down, it must wait 31 days (until 3/4/16). So it's allowed to reduce stocks on 3/14, having waited more than 31 days.
The rule as stated in the prospectus:
"after the Fund has increased its percentage allocation to either stock funds or bond funds, it will not decrease that allocation for at least 31 days"
Not to keep lingering of the subject; but, it seems while it is increasing its position in stocks funds, it is decreasing its position in bond funds, unless it has an ample cash position to absorb its trading activity. However, from reading what has been written under "Adjusting to Changing Markets," it does not seem, to me, to not be following the 31 day trading rule in all of its rebalancing and new positioning moves. Still it is a fund that I own and I continue to add new money to. Your arguement (debate) should not so much with me ... as I feel ... it should be presented to the fund company itself. Perhaps they can provide some clairty to their rebalancing and new positioning moves. I have only written on what I have read and made comment on what I felt would explain or what might would have allowed them to make new positioning moves when the 31 days had not elasped. And, you have only written on what you have been reading. I guess, it will be up to the fund company to better explain these rebalancing and positioning moves should you choose to contact them for comment. Perhaps, this is something you will make further comment on in your coming writtings on this fund. Still, it is a neat fund, by my thinking, and the only one that I am aware of like it. Do you know of others?
Again, thanks mfs for making your comment(s). I enjoyed reading what you have written because it provides someone else's take on a fund that I feel employs a neat, clever and simple investment strategy for that of a mutual fund.
Have a great 4th of July ... and, most of all ... I wish all good investing.
Old_Skeet