Barron's: Time to Buy the Commodities Bear

By SIMON CONSTABLE

The collapse in commodities prices since summer has some investors wondering whether the complex has any place in their portfolios. The answer depends on the time horizon.

The Thomson Reuters/Jefferies–CRB Index, which tracks a basket of commodities, has fallen about 22% since June 20, according to data from SIX Financial Information. U.S. oil prices are off 46% over the same period, while gold has slid about 7%, on top of a substantial retreat over the prior 18 months. See original story here.

Photo by Pete Nuij on Unsplash

WSJ: What Is Window Dressing?

By SIMON CONSTABLE

To most people the holiday season means decorations at home and at work, but it also
can mean “window dressing” in your mutual fund.

This somewhat disparaging term is used to describe the practice of a mutual fund
making cosmetic changes to its portfolio just before the end of each calendar quarter.
It’s done because funds publish their exact holdings of securities four times a year
based on what they own at the end of each quarter. See original story here.

WSJ: Will the "Presidential Cycle" Boost Stocks in 2015?

By SIMON CONSTABLE

As President Obama gears up for his penultimate year in office, it could be time to cast
a ballot for stocks.

That suggestion has nothing to do with the administration’s policies or whether
investors agree with them. Rather, it’s about history.

Specifically, we’re talking about the so-called presidential stock cycle, which suggests
that stocks do better on average in the president’s third year in office (regardless of
whether it is a first or second term) than in any other year. The pattern has held with
remarkable consistency. See original story here.

Barron's: How USAA Finds Stable Growth

By SIMON CONSTABLE

When you look at the $1.2 billion USAA World Growth fund. you Might think you’re seeing double. First, there are two portfolio managers, David R. Mannheim and Roger Morley. They work for USAA’s subadvisor, MFS Investment Management, which is where the second part of the double vision kicks in. The pair also run the MFS Global Equity fund (ticker: MWEFX), which is “modeled after,” or is substantially the same as, the USAA fund (USAWX). USAA’s World Growth has expenses of 1.19%, versus 1.29% for the MFS version. See original story here. 

Photo by AbsolutVision on Unsplash

WSJ: Five Gifts for the Financially Savvy

By SIMON CONSTABLE

This is the time of year when many of us buy loved ones a special gift. This is the fourth year I’ve compiled a list of suggestions, all with a financial theme. Think of them as reminders that we all need to be savvy about money. As usual, there is something for budgets small or large. Read more here.

Photo by lasse bergqvist on Unsplash

WSJ: How Important is "Active Share" for Fund Managers?

By SIMON CONSTABLE

Just how active is the manager of your actively managed mutual fund? And how much
does it matter?

A debate is on over the concept of “active share”—a measure of how much a portfolio’s
stocks differ from those in its benchmark. The issue is whether it is a valid way to
evaluate managers.

It all started in a 2006 working paper and 2009 article by Martijn Cremers and Antti
Petajisto, then professors at the Yale School of Management. They suggested ranking
funds from zero to 100% based on how much their holdings diverge from a benchmark
index. An active share of 60%, for example, means that 40% of the fund’s stocks merely
match what is in an index—a mix that would make the fund’s manager a “closet indexer,” the professors wrote. Read more here.

WSJ: What Does Confirmation Bias Mean?

By SIMON CONSTABLE

In an effort to understand why investors do what they do, the term “confirmation
bias” is often trotted out. Most basically, it means that people tend to find evidence, in
the form of data or anecdotes, to support their position and ignore evidence to the
contrary.

That might make sense for politicians arguing with each other, but it can be dangerous
for investors.

“From a behavioral-finance perspective, the mind likes to see what it likes to see, and
so it filters information,” says Steve Wood, chief market strategist at Russell
Investments. “You need to expose that bias to the pressure of data.”

In particular, he says, don’t seek out data that supports your position. Instead, look at
all data and try to objectively assess it. In other words, we all want to prove we’re right.
But doing so could lead us to ignore the facts that suggest we’re wrong.

Mr. Wood uses the example of being predisposed to a certain conclusion when discussing inflation. When he talks with some people who were part of the workforce
in the inflation-ridden 1970s, they are often predisposed to seek out inflation
protection in their portfolios.

But right now, according to most government measures of prices, inflation looks tame
and likely to remain so. Still, those who have confirmation bias toward the idea that
there is already or is going to be inflation might conclude they need assets in their
portfolio to protect against it, says Mr. Wood.

The result: Suboptimal investment choices are made.

See original story here.