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Barron's on Funds & Retirement, 12/23/23

edited December 2023 in Fund Discussions
LINK
https://www.barrons.com/magazine?mod=BOL_TOPNAV

INTERNATIONAL TRADER. EM BONDS are attractive, especially the local-currency EM bonds (LEMB). Dollar-denominated is EMB.

FUNDS. Hot-hand managers are coming to active equity ETFs (TCAF, QLTY, FBCG, CGDV, DCOR, ARKK, etc). There is a flood of active ETFs with 240 new YTD. Much of the growth has been for active equity ETFs after the SEC approved several models a few years ago. The ETF wrapper offers tax-efficiency due to its in-kind creation/redemption. However, most indexes (broad or customized/special) also tend to be tax-efficient. So, active managers have headwinds vs indexes. The active ETFs may have significant differences from their OEF cousins even when both are run by the same team(s) – the ETFs may have fewer stocks or use fewer portfolio strategies. Active ETFs may be only a bit cheaper than their OEF cousins.

FUNDS. @DavidSHERMAN (58) uses value strategies for short-duration (0.75-2 years) HY bond fund CBLDX (ER 0.91%). He also looks for event-driven opportunities – early redemptions, change in control, selloffs following disasters, etc. He expects the yield-curve to normalize in 2024.

INCOME. Higher rates came and went. But bond funds with short/intermediate duration offer high current rates and will benefit from rate declines. Barbell strategies are also good. Mentioned are OEFs STYAX, VMBSX; ETFs AGG, TOTL, PSK (preferreds); CEF PMM (muni).

ECONOMY. FUNDS. Boring won in 2023. This skinny bull driven by Magnificent 7 did wonders for index funds. So, investors who didn’t do much deep analyses and just dumped some money into the SP500 or total market index did well. The SP500 index funds are now 10.7% of the fund universe, the total stock market 6.8%, with both accounting for 17.5% vs 8.76% in 2013. Very interesting considering that the 1st retail SP500 fund in 1976 (Vanguard) was a flop – it raised only $11.3 million in its initial period vs $150 million expected; it could afford only 280/500 stocks; Vanguard total market index fund followed in 1992 and many TDFs hold it. How has the tide turned from the humble beginnings? The SP500 index funds with only 2-4 bps ERs are formidable benchmarks to beat.

Q&A. Joel TILLINGHAST, Fidelity Small/Mid-Cap FLPSX (almost global). He has managed the Fund since its 1989 inception. Considering the regime shifts going on (inflation, taxes, regulation, energy transition, AI, etc), this market is too calm and cheerful, almost like 1999-2000. He likes to see steady and predictable cash flows. Investors may have an edge on small/mid-caps as they are less followed by analysts and institutions. Indexing is very popular now, but active managers will do fine in the long-term. Peter LYNCH taught him to be flexible when things/facts change; to accept errors and move on. He is retiring in 2023, leaving FLPSX in good hands (PECK, CHAMOVITZ), and will devote more time to mentoring, traveling, gardening, and book writing. Previous book, Big Money Thinks Small, 2020.

EXTRA, RETIREMENT. The good news is that Social Security payments will rise +3.2% in 2024 (old news), but the bad news is that it won’t be enough due to high inflation. Although inflation has moderated, that doesn’t mean lower prices. Significantly up are auto insurance, rents, medical care, Medicare Part B Premium. Almost 20% of 65+ are still working.

Comments

  • edited December 2023
    Nice summary Yogi. Interesting story on the move to actively managed ETFs (as you note). TRP’s “rock star” is highlighted. TCAF has slightly outperformed PRWCX since launch.

    Nice story on 12 investing giants who passed away in ‘23. I hadn’t realized Laszlo Birinyi was among them. Sorry to learn. And I miss Byron Wien already. His predictive list of unanticipated market moving events in the new year were a part of the festive season for so long ...
  • Reading the comments of the interview with Sherman makes me think there will NOT be large $$$ going in because of the article. "Too expensive" "First sentence ER 0.91% No thanks" and one likening CBLDX to a flea bitten mangy dog!
  • Expensive is relative to net performance. And, what's wrong with a flea bitten mangy dog...everyone can be loved. LOL.
  • Thanks yogi! Very much appreciated!
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