Low Volatility ETFs

A recent trend is the development of low volatility funds, including both ETFs and mutual. These funds invest in a subset of a specified index, selecting only those stocks with low price volatility (which may be identified by a low beta). There is not sufficient history to gauge the performance of such funds, but two issues are worth noting. First, given the impact of volatility on compounded returns (i.e., geometric averages are lower than arithmetic averages), low volatility funds should have an advantage, particularly in otherwise volatile markets. Second, value funds may outperform over long periods (albeit not every period), and since value stocks are more likely to be low volatility, this may play a role in the performance. (See article here, Schwab.)

Insider Trading

Insider trading (i.e., trading on material nonpublic information) is illegal. However, corporate executives are allowed to trade stock in the firms they manage. This is difficult to reconcile since these executives, in all likelihood, have such information. A recent study by the Wall Street Journal found that executives trading ahead of corporate earnings announcements earned substantially higher returns (or avoided substantially lower losses). See article here.

Student Loan Debt

Obviously real estate was the focus of the recent credit (or subprime) crisis. However, many investors believe that student loan debt, which is also bundled and sold (i.e., collateralized), is the next "crisis" area. Student debt has risen substantially, as has the percentage of borrowers in delinquency. See these two articles: Wall Street Journal and New York Times.

Fiscal Cliff

There has been much discussion surrounding the impending "fiscal cliff." So, what exactly is this? Well, it is a combination of items that effectively equate to about $600 billion in potential spending cuts and tax increases. This represents about 4% of US GDP. So, failing to address these issues would likely result in a deep, prolonged recession.  Read a good summary here, American Action Forum.

Index ETFs -- Not Created Equal

You might expect that all "Large Cap" ETFs are the same, as they would likely track the S&P500 index. However, in an effort to reduce costs, many ETF providers (such as Vanguard) are replacing the standard index with others that charge lower licensing fees. This allows the providers to either reduce the expenses they charge or increase operating margins. As providers make this switch, it could also impact the underlying holdings to the extent that differences occur across the indexes. See article here, Wall Street Journal.

"Alternative" Alternative Investments

Typical Alternative Investments include such categories as commodities and real estate. However, some investors have branched out into more esoteric assets such as cars and collectibles. As such, there is a growing category of managers offering such funds. See the article here, Wall Street Journal.

Apple: Head and Shoulders

In technical analysis, traders look for patterns in stock prices, which they then use to determine buy/sell decisions. One such pattern is the "head and shoulders," which, as the name suggests, is two small peaks, with a larger one in the middle. Such a pattern is often considered bearish, particularly if the price breaks through the "neckline." Unfortunately (or not, depending on your view of technical analysis), Apple's share price recently exhibited this pattern. See the article here, Yahoo.