“An Indomitable Rise for This ETF”

June 17, 2015

Nice profile of the First Trust Dorsey Wright Focus 5 ETF (FV) by ETF Trends:

Hundreds of new exchange traded products come to market every year. Some take the long road to asset-gathering proficiency while others gain investors’ affinity in a matter of months. Then there is the rare breed that finds success right out of the gate.

The First Trust Dorsey Wright Focus 5 ETF (NasdaqGM: FV) is in that category. FV debuted in March 2014 and today it is a $3.55 billion fund, easily making it one of the most successful ETFs to debut last year. Impressively, FV needed less than nine months of work to top $1 billion in assets and has needed just seven months to more than triple in size from there. [Another Good Year for New ETFs]

“What causes a fund to collect $3 billion in about one year? 1) a great marketing organization – First Trust, the Focus Five sponsor, grew 68% last year and has total assets in excess of $100 billion with a 100-plus person nationwide sales team, 2) an easy to explain story, 3) convenience and 4) performance,” according to Morningstar.

FV makes a Dorsey Wright strategy used by advisors and institutional investors accessible to a broader audience. FV tracks the Dorsey Wright Focus Five Index which is comprised of “five First Trust sector and industry based ETFs identified by DWA’s index methodology to offer the greatest potential to outperform the other ETFs in the selection universe,” according to First Trust.

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Latest Dalbar Numbers

June 17, 2015

The latest Dalbar numbers, via NYT:

For the two decades through December, Dalbar found, the actual annualized return for the average stock mutual fund investor was only 5.19 percent, 4.66 percentage points lower than the 9.85 percent return for the Standard & Poor’s 500-stock index. Bond investors did even worse, trailing the benchmark Barclays Aggregate Bond index by 4.71 percentage points.

In isolation, these figures, which aren’t adjusted for inflation, may seem small. But they aren’t when they recur year after year. In fact, because of the effects of compounding — in which a positive return in one year adds to your stash and can grow further in subsequent years — those annualized numbers translate into life-changing disparities.

Consider a $10,000 investment in the S.&P. 500 index. Using the Dalbar rates, my calculations show that with dividends, that $10,000 would grow to $65,464 over 20 years, compared with only $27,510 over the same period for the return of the average stock mutual fund investors.

That gap grows over time. At those rates after 40 years, with compounding, the nest egg invested in the plain vanilla stock index would grow to about $428,550, compared with only $75,680 for the average returns of stock mutual fund investors, a $352,870 difference. Disparities of this order have been showing up year after year in the Dalbar numbers. And with so many Americans forced to rely on their own investing acumen because of the decline of traditional pension plans and lax government rules about financial advice, these awful returns really matter.

Keep in mind that those numbers are just average investor returns. Plenty of people excel in the financial markets and, no, passive cap-weighted indexing is not the only (or perhaps not even the best) solution. However, succeeding in the financial markets does require an understanding (or use of a professional who understands) what factors work over time and what investor behavior practices are most likely to lead to good outcomes.

HT: Abnormal Returns

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Crash Dieting for Savers

June 17, 2015

From Crash Dieting Doesn’t Work for Savers, Either, by Anthony Isola:

Sure, deprivation diets can work temporarily. Brides preparing for weddings rely on this short-term effect, as do celebrities who want to fit into designer gowns for awards shows. But the more we deny ourselves, the more we crave what we deny.

Result? According to Bloomberg, the share of the population classified as obese has ballooned from 14% in 1960 to 36% in 2010. That’s a problem. Here’s another: CBS Moneywatch reports that 26% of people ages 50-54 and 14% of those over 65 have no savings. Boosting savings is critical, but just as you can’t live long-term on a starvation diet, you can’t realistically expect to build up a nest egg for tomorrow by starving yourself financially today.

I am still convinced that that the only savings plan anyone needs is to save 15% of every dollar ever earned (and invest that money wisely). Learn this as a teenager and live it throughout your life and personal finances will be a breeze.

HT: Abnormal Returns

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