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Does Morgan Stanley add value for investors?
Asset Management
<p>&nbsp;</p> <p>&nbsp;</p> <p>In an April 21, 2015 column, New York Times reporter Nathaniel Popper observed that, over the last few years, a growing line of mutual funds created by the likes of Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo have attracted billions of dollars from investors looking to earn a good return.</p> <p>Popper noted that in the latest 10-year period, Morningstar data showed that only 38% of Morgan Stanley’s mutual funds outperformed their analyst-assigned benchmarks. Thus, while the fees these funds have generated are among the few consistent bright spots of growth on Wall Street, there is still a question for investors: Have these banks’ actively managed mutual funds actually been good investment choices?</p> <p>Today, I’ll provide further insights into that question as I continue my series evaluating the performance of the market’s foremost actively managed fund families with an in-depth look at Morgan Stanley Investment Management.</p> <p>According to Morningstar, as of April 30, 2015, Morgan Stanley had over $34 billion in assets under management in mutual funds. The firm’s website states: “Morgan Stanley Investment Management strives to provide outstanding long-term investment performance and best-in-class service to a diverse client base, which includes governments, institutions, corporations and individuals worldwide. Our global structure leverages the breadth, depth and access of the Morgan Stanley franchise to provide our clients a comprehensive suite of investment management solutions.”</p> <p>Does Morgan Stanley deliver on what they strive for? Have its funds been adding value for investors, or was the firm the real beneficiary?</p> <p>Active versus passive</p> <p>As is my practice, I’ll compare the performance of Morgan Stanley’s actively managed equity funds to similar fund offerings from two prominent providers of passively managed funds, Dimensional Fund Advisors (DFA) and Vanguard. (Full disclosure: My firm, Buckingham, recommends DFA funds in constructing client portfolios.)</p> <p>To keep the list to a manageable number of funds, and to make sure I examine long-term results through full economic cycles, the period covered will be the 15 years from April 2000 through March 2015. I’ll use the lowest-cost shares when more than one class of fund is available for the full period. In cases where Morgan Stanley has more than one fund in an asset class, I’ll use the average return of its funds in the comparison. The table below shows the performance of 13 of Morgan Stanley’s mutual funds covering seven asset classes – five domestic funds and eight international funds.</p> <p>April 2000 - March 2015</p> <p>Fund<br /> Symbol<br /> Annualized Return (%)<br /> Expense Ratio (%)</p> <p>U.S. Large Growth</p> <p>Morgan Stanley Multi-Cap Growth<br /> CPODX<br /> 0.2<br /> 0.92</p> <p>Morgan Stanley Institutional Opportunity<br /> MGELX<br /> 3.0<br /> 1.67</p> <p>Morgan Stanley Institutional Growth<br /> MSEGX<br /> 4.0<br /> 0.96</p> <p>Consulting Group Large Cap Growth<br /> TLGUX<br /> 1.9<br /> 0.67</p> <p>Morgan Stanley Average</p> <p>2.3<br /> 1.06</p> <p>Vanguard Growth Index</p>
Friendly fire helped to blow up ETFs on Black Monday
Asset Management
<p>ETFs traded like drunken sailors on Black Monday, practically throwing themselves overboard.</p> <p>Recall on August 24, some ETFs traded at a 50% discount to the underlying baskets of stocks that they reference.</p> <p>Is that anyway for a $2 trillion-plus market to act, even if the Dow Jones Industrials tumbles 10% at the open?</p> <p>No. It is not. Credit Suisse estimates that 42 cents of every dollar traded on U.S. exchanges is for an ETF.  A lot of industry insiders have said some self-serving stuff. Or retail investors shouldn't set market orders. Thanks for the advice.</p> <p>Barron's takes a deep dive into what happend on August 24 and comes up with some pretty interesting observations. Observation numero uno: New regulations put in place after the June 2010 flash crash made things much worse. Namely: 327 ETFs were forced to halt trading for five minutes; some were halted more than 10 times.</p> <p>What would you do if suddenly you had no idea how much the ETFs you were trading were worth? Or more important, what would a market maker do? Widen the hell out of the spread. And then you get iShares Core S&amp;P 500 tumbling 26%, more than 20 percentage points below the underlying stocks for the $65 billion ETF. This is the stuff of panic.<br /> “Aug. 24 highlighted the fragility of ETFs in a stressed market,” says James Angel, a professor at Georgetown University who specializes in the functioning of the stock market. “The characteristics of the products aren’t going to change, so we need to contain that fragility.”<br /> Later this month, the SEC's equity market structure committee is holding a meeting. Let's hope ETF structure is top of the agenda.</p> <p>Read the entire analysis at Barron's here. It's very good stuff.<br /> Photo: Official U.S. Navy Page</p>
September swoon for ETFs could continue in the week ahead
Asset Management
<p>U.S. stocks ended last week in miserable fashion as all three major U.S. indexes slumped more than 1 percent on Friday. For the week, the S&amp;P 500, Dow Jones Industrial Average and the Nasdaq Composite each lost at least 2.6 percent.</p> <p>With those dismal numbers in mind, perhaps it is a good thing that the week ahead will be shortened by the Labor Day holiday because while the bull market is still in tact, investors' enthusiasm for riskier assets is clearly waning. Emerging markets stocks and exchange traded funds continue to confirm as much.</p> <p>Read more at Benzinga.<br /> Photo: Rich Herrmann</p>
ETFs may wobble, but can they 'flash crash'?
Asset Management
<p>Wobbly markets and international turmoil can get the best of even a seasoned investor. Take a look at what happened in the world of ETFs. When the Dow Jones Industrials plunged 10% on Black Monday, some ETFs went all haywire. The much-loved vehicle for Main Street suddenly stopped making sense.</p> <p>Kim Arthur, of Main Management, told ETF.com that the August 24 mayhem was  reminiscent of the May 2010 flash crash.</p> <p>&nbsp;</p> <p>Just to recall what happened: In the early trading hours, ETFs suffered a massive sell-off, with some funds seeing close to 50% losses. The iShares Select Divident fund was down 36%. And the Guggenheim S&amp;P 500 Equal Weight dropped 42%. Skittish investors sold the funds at huge discounts, only to see the security prices bounce back in minutes. Some investors were stalled for up to 20 minutes trying to log into their accounts, creating pent-up sell stops that slammed the market.</p> <p>Arthur says players aren't playing close enough attention to trade executions and keeping realistic bid/ask spreads.<br /> “I had thought, along with that flash crash in 2010, [regulators] told market makers they had to have some reasonable tolerance within your bid and your offers; otherwise, you cannot be making a market. You have to get out of the way,” Arthur said. “It seems like we saw that again [August 24].”<br /> Not so, says Ed Rosenberg, head of ETF Capital Market and Analytics for FlexShares. You can't compare the original "flash crash" of 2010 to a quick downturn in ETFs, he argues.  “Its almost impossible for the ETFs to crash on their own,” says Rosenberg. ETFs are tied so closely to the underlying securities that there needs to be serious price dislocation from securities for that to happen. Price dislocations do happen, but they self correct within seconds. "Those last so short it's unbelievable," says Rosenberg.</p> <p>The market did exactly what it was supposed to do August 24, but ETF investors freaked out, writes Dave Nadig in FactSet. For example during the first hour of the market's open, trading in the Guggenheim S&amp;P 500 Equal Weight ETF (RSP) only happened in 15 to 30 second bursts between halts. Any move of more than 10% within a five minute window triggers a halt, meaning trading halted four times on down moves and six times on up moves.</p> <p>Most investors are "smart enough to treat their ETFs...as long term asset allocation vehicles," says Nadig. The day to day swings can be scary, but most people recognize that it's part of holding such an investment.</p> <p>Investors do need to understand that an ETF isn't to be traded like a stock, says Rosenberg. ETFs seem to trade like stocks, but stocks are driven by supply and demand, where ETFs are tied to the underlying securities, he says.</p> <p>Unlike mutual funds, which just trade once a day at the closing net asset value price, ETFs have to weather the daily trading storms, says Ben Carlson in his blog "A Wealth of Common Sense." "Whenever something goes wrong in the markets (read: losses), people tend to look for someone or something to blame," writes Carlson. It's not the ETFs' fault if an investor put in a sell order and gets stuck with the market's price for the fund. ETF traders should expect this, but long term investors needn't worry. Panics can and will happen on occasion, says Carlson. The trick is just to not be forc</p>
Top Ten Investment Scams Ever
Asset Management
<p>Every year, over 31 million purchasers are victimized by investment fraud. The medium loss per investor is roughly $15,000. Individual losses run into hundreds of thousands of dollars. Most remarkable is that financial swindle targets ranked above financial non-victims with percentages of 58% and 41% respectively.</p> <p>Why do many get scammed The #1 rule in fraud is "Don't breed any mistrust." High returns can go overlooked for decades. But, like Bernie Madoff shows, it will all show up at the end of the day. In 2013, the SEC listed over 700 enforcement efforts for investment scams.</p> <p>A look at fraud would have to go back centuries to 300 BC. That’s about the timie a Greek merchant named Hegestratos took out an insurance policy. The merchant would borrow money and pay it back with interest on a ship’s cargo arrived. If the loan isn’t paid back, the lender had the rights to acquire the boat and its freight.</p> <p>Hegestratos conspired with a few friends to empty his boat, sink it, keep the loan and sell the corn. His plan didn’t really work out. The ship’s crew and passengers caught him in the act and he drowned trying to escape.<br /> Investment Scams: The First Insider Trading Scheme<br /> Just a few years after American became a nation, it produced it first fraud. In the late 18th century, American bonds were like junk-bonds are today. Every wind of news about the colonies’ fortunes cause the value of the bonds to fluctuate. The trick for the investor was to be able to anticipate which direction a bond’s value was headed.</p> <p>Alexander Hamilton, Treasury Secretary, worked to restructure American finance by replacing a variety of bonds issued by the colonies with bonds from the new country’s central bank.</p> <p>William Duer, assistant secretary of the Treasury, was in the perfect spot to get in some profitable insider trading. Duer was among the first to know news which would drive up bond prices. He would tip his friends, trade in his portfolio and then leak that information to the public. Then all Duer had to do was set back and sell off bonds and make an easy profit.<br /> Top Ten Investment Scams</p> <p> Charles Ponzi – $20 million lost by investors</p> <p>Everyone has heard of "Ponzi scheme. It is titled after Charles Ponzi's famous scheme where he promised profits of 50% in 45 days. Tenured investors were paid off with money from fresh investors.</p> <p>Lesson: Get an independent 3rd party to write the statements</p> <p> Barry Minkow – Loss calculated at $100 million</p> <p>When he was 19, Minkow saw his rug washing company go public and eventually reach $200 million in capitalization. Using false records and sales slips, it appears Minkow had built a huge and profitable business. Clients who were suspicious about overcharges on their invoices headed to an inquiry which uncovered Minkow's revenue figures. Minkow was sentenced regarding almost 60 felonies.</p> <p>Lesson: Again — Get a reliable 3rd party accountant is reviewing the statements.</p> <p> Jordan Belfort – Loss $200 million</p> <p>Jordan Belfort was the subject of the TK movie "Wolf of Wall Street." Belfort reached the silver screen by running a pump-and-dump scam in the 90s where agents would force up the cost of usually, junk stock and then ca</p>
Sequoia, Legend back Baidu’s online education platform
<p>The Chinese internet giant Baidu is about to spin-off its “after school” education platform Zuoyebang, attracting investments from two of the world’s largest venture capital firms.</p> <p>According to TechCrunch, Zuoyebang has just completed a Series A funding round with Sequoia China and Legend Capital, though how much the two invested into the former student Q&amp;A site is currently unclear.</p> <p>It’s probably a lot though. Zuoyebang reportedly boasts 50 million registered users, 3 million of which use it on a daily basis to rifle through the 950 million questions and answers the platform currently has on file. It can also be used within 113 schools around China, a huge plus against Tencent and Alibaba in the current war for control over China’s online education market.</p> <p>This isn’t the first time Baidu spun-off one of its subsidiaries; Baidu Takeout Delivery raised $70 million from the Japanese noodle chain Ajisen Ramen and the Chinese private equity firm The Hina Group earlier this year, while 91 desktop – Baidu’s desktop theme app – was also purged from the mothership in a move widely seen as a promotion of the startup culture.</p> <p>This is what they had to say regarding the spin-offs:<br /> “This strategy aims to promote the independent quality assets, and to foster Baidu’s open ecosystem.”<br /> Photo: 드림포유</p>
NexAmerica People Moves: Northern Trust adds to Canada team; BlackRock alpha strategies head to retire
Asset Management
<p>Northern Trust added institutional sales v.p. Nick Petruccelli has joined Northern Trust for the newly created position of senior v.p. for institutional sales in Canada. Petruccelli will be responsible for building the custody and asset servicing business with pensions funds, endowments and foundations. Petruccelli most recently worked as head of sales and business development at Larsen &amp; Toubro Infotech. Pensions &amp; Investments</p> <p>BlackRock alpha strategies head to retire. Quintin Price, the lead behind the $944 billion alpha strategies group, will retire next year. Price will return to London, and will continued to work with the firm as senior advisor through next summer. The 54-year-old Price has been with the firm since 2005, and has led the alpha strategies group since its start in 2012. Reuters</p> <p>Nikko Asset Management hires institutional business head. Nikko Australia hired Eddy Schipper to the newly created role. Schipper previously worked as executive director of Asia Pacific investor relations for IFM Investors. Investor Daily<br /> Photo: ©iStock.com/ooyoo<br /> &nbsp;</p>
The China survival guide: Foreign funds change strategy
Asset Management
<p>As China’s markets are consumed by panic and paranoia, foreign investment funds are in a scramble to switch their strategies and generate some upside from the chaos, or at least mitigate some of their loses.</p> <p>According to Reuters, there have been range of responses to the implosion. Here are a few of the strategies funds are adopting to survive the rout:</p> <p>Looking to Hong kong. Those who still remain bullish on China’s long terms prospects are now looking for more opportunities in the territory where valuations are lower. Another main attraction is that the market is better regulated and less subject to whims of Beijing officials than Shanghai and Shenzhen. </p> <p>Shorting Asian currencies. While the bearish sentiment on Asian currencies has eased recently, those that still see the decline in the yuan, and fall in national exports, as a precursor to more economic pain down the line are betting against the currencies of China's Asian trading partners.</p> <p>Shorting banks with heavy China exposure. Many of the same pessimists going short on Asian currencies are also banking on the decline of those with massive China exposure, particularly UL-headquartered banks like HSBC Holdings, and Standard Chartered.  </p> <p>Buying US mortgage-backed bonds. Some are investing in this area in the expectation that the wealthy Chinese looking for a safe haven will pull capital out of China and pour it into US real estate.</p> <p>...or just staying focused on China. Instead of fleeing the mainland completely some are just becoming more targeted. Fidelity Investments, for example, is seeking value in specific high-growth business, particularly in the consumer space, that were undervalued even before the meltdown.<br /> Photo: Lwp Kommunikáció, Bear Grylls Ventures</p>
Pimco's Total Return is not the fund it once was
Asset Management
<p>Oh how the mighty have fallen. Data disclosed on Wednesday reveals Pimco’s Total Return Fund has now sunk below the $100 billion mark to $98.5 billion - a third of its size just two years ago.</p> <p>The shriveling titan has now chalked up 28 consecutive months of outflows since April 2013 when it peaked at $293 billion.</p> <p>The departure of co-founder and "Bond King" Bill Gross - who shocked the investment world by shimmying over to rival Janus Capital last year - has not helped.</p> <p>The last time the fund was this small was in 2007 before it attracted mountains of cash from investors clamoring for the safety of bonds in the wake of the financial crisis.</p> <p>On plus side the outflow has slowed. The firm said investors yanked around $1.8 billion in assets from the fund in August, compared to $2.5 billion the previous month.</p> <p>The hemorrhaging is nowhere near as bad as it was in January when the fund had cash withdrawals of $11.6 billion. The fund has also delivered returns of 0.72% so far this year, beating 85% of its category peers, Reuters reports.<br /> Photo: Eli Christman</p>
Shanghai Chaos Investment loses millions on…Shanghai chaos
Asset Management
<p>Shanghai Chaos Investment, arguably one of the coolest-named asset managers currently out there, ironically got caught in Shanghai’s chaos the past few months.</p> <p>According to Reuters, two of firm’s funds posted serious losses since the Shanghai Composite’s mid-June peak. Chaos Value 1, the firm’s $17.3 million 20-year fund, lost a staggering 63% during that time frame, while Chaos Value 2, an open-ended, $440 million fund, lost a whopping 33%. Reuters does add however, that the former is still up 50% since its July 2014 launch.</p> <p>The funds apparently took a beating when commodity prices – as well as stock index futures – plummeted alongside the Chinese equity markets.</p> <p>The firm does seem upbeat on their prospects though:<br /> “Excessive panic after the market slump is a huge risk, just like excessive optimism was during the market surge," Chaos said in the letter. "We have opportunities to buy those equities that match our values at low prices.”<br /> Photo: John Koetsier</p>