Zero-Fee ETFs?

The management fees on most mutual funds and ETFs have fallen significantly due to competition in the space. With some as low as .03%, can it go any lower? The answer is yes, as some are predicting a fee of 0% (or even a negative fee, with investors being paid to use certain products). How is this possible? With more assets, economies of scale allow for a lower fee. Further, asset managers can generate revenue on the underlying securities, primarily through lending to short sellers. So, who will win the "race to zero?" See article here, WSJ.

Long-Short (Equity-Bond) Investment

Given the historically low interest rate, some investors with long time horizons (philanthropies as an example) are issuing long-dated bonds (i.e., going short) and using the funds to invest (i.e., going long) in the equity markets. As long as equity markets outperform bonds over the time period, the trade creates a positive return. See article here, WSJ.

Inflation Picking Up

The Fed has targeted a 2% inflation rate, but, even with an expanding economy, inflation has remained below this level. Recently, however, the spread on traditional Treasury bonds versus TIPS (Treasury Inflation Protected Securities) has exceeded 2%, suggesting that investors expect inflation to hit this level in the near future. See article here, WSJ.

Cost Matters

Research continues to show that low fees are the most important driver of a fund's future alpha. Vanguard has a nice piece describing their findings. Click here to see the article.

Berkshire Shares Hit Record

What is the highest priced stock traded in the United States? It is the A-class stock of Warren Buffett's company Berkshire Hathaway (BRK-A). The shares recently touched a record high of over $300,000 per share. Does this mean it is the highest valued company? The answer is no, as that distinction belongs to Apple, with a market cap of $906 Billion (vs. Berkshire's $493 Billion). The main reason for this difference is that Buffet has not split Berkshire's stock. See related article here, Reuters.

GE Hits Fibonacci Support

Traders who rely on technicals often try to identify support (and resistance) levels for stocks. Such levels may be based on moving averages or historical lows (and highs), but another common approach is using Fibonacci numbers (i.e., the "golden ratio"). According to this process, a key support level is a 61.8% retracement from a high price, which GE is approaching. See article here, MarketWatch.

Understanding the VIX

The number of volatility linked investment products has grown significantly since the "great recession." Many of these products are linked to the VIX, or volatility index. Unfortunately, many investors have a limited understanding of what the VIX actually is. Fortunately, in a recent article, the WSJ attempted to provide a brief explanation.