What kind of products do you expect to advise clients to use more this year?

The mutual fund and traditional financial advisor market seems (in spite of most missing two bear markers and losing money over the past decade) unwilling to give up the buy-and-hold, front-end-compensation and style-box oriented portfolio construction model. For that reason as of the beginning of 2009, a survey in Private Wealth Magazine reported that 70% of high-net-worth investors planed to dump their brand-name advisors and 80% intended to tell their friends to do the same. There has been little innovation in the traditional mutual fund industry to address the issue of measuring success as a positive return and seeking ratings of high-return, low-risk and five-star rating. Only about three dozen mutual funds and two-dozen separate accounts earned those kinds of Morningstar ratings. The innovation is most likely to come in the form of RIAs proactively-managing separate accounts of sector ETFs and funds. While not ironically included in the Morningstar Separate Account data base, Morningstar is currently managing $68 billion of separate accounts of ETFs and funds (although at what investment results only Morningstar knows). I am sure that dozens of innovative RIAs are doing the same and may be at very competitive returns. Considering that on average ETFs saves investors about 50 BP in management fees and due to the availability of at least ten times the sectors available in traditional funds, adds 150 BP in alpha, any management fees of RIAs seldom exceed 200 BP on most portfolios, on average, it seems that little additional cost would pay for proactive rather than passive management. Such management can be surprisingly successful considering that over the past decade avoiding risk was more profitable than taking additional risk. For some reason there is little coverage of this potential source of management by the financial press who recoil in horror comparing the horrible additional costs vis-a-vis the value that can be added simply by investing more proactively. Think about it.

Here we go again................while your longstanding premise that advisors should be predictive market timers is well known here and not worthy of another round of disagreement, I really would like to know the basis for your illogical "statistic" that the availability of sector/index ETFs ALONE adds 150 basis points of Alpha!!!! You mean to say that this plethora of ways to miscall the future automatically adds value and performance to an advisors portfolio outcome???? You just keep waving your crazy flag!! Perhaps, intraday traded ETFs that are cheaper than index funds demonstrate improved performance over index funds due to cost...but add Alpha?????????????? HOW????? And by definition, the active fund managers I employ on behalf of my clients DO NOT buy and hold anything. Have you ever noticed the "turnover ratio" all active managers report? Please reconcile buy and hold with portfolio turnover and sector rotations reported. Then add the fact that MPT REQUIRES periodic portfolio rebalancing using either a frequency or model variance discipline (no rebalancing - no MPT) and explain how those two together resemble "passive buy and hold". NO ONE in our business does what you accuse ALL of us of doing. You keep criticizing and competing against what does not exist. Your premise that advisors should replace fund managers and MPT with predictive utilization of ETFs, while silly and impossible for those of us with hundreds of client portfolios all with different tax situations, income needs, etc., is at least defensible and debateable...if only you used reason and logic in your outlandish claims. You crack me up!!

To answer the Managers query - Compared to 5 years ago, I am now using more "future benefit" riders with my VA contracts which provide a level of comfort and confidence to clients - however, the cost they pay for their comfort in additional premium may well be a cost without fruit as I remain confident in my ability to double portfolio value every 10 years without such guarantees. My equity allocation and my fixed income allocation both reflect a more global approach vs. my former more U.S. based allocations. I am also using more fund managers with wide open prospectus opportunities such as Mike Avery's "Asset Strategy". I recommend a larger cash allocation now, especially for income portfolios and I don't reinvest dividends or distributed gains to better demonstrate portfolio cash flow to clients in fund portfolios as a design feature and function of the portfolio regardless of share price performance. But I have yet to incorporate long/short, leveraged, or deriviative based funds (although I am considering funds which offer futures contracts management for their apparent hedging and covariance features). These changes have less to do with the black swan of 2008 than their availability and liquidity and additional diversification potential for portfolios. It is getting easier and easier to drift away from MPT rather than simply increase alpha and covariance.....lots of noise from the better mouse trap crowd....see above!!

The specific statistics in question come from the 12/31/09 Morningstar Principia data base. As of 12/31/09, the average of 906 ETFs boasts an average of 207 BP advantage over the 6723 average distinct mutual fund portfolios. The ETFs net expense ratio of 56BP is 57BP less than the 113 charged by the average mutual fund. The average alpha of ETFs is 219BP, a 150BP advantage over the average alpha of distinct mutual funds. There are about 70 or so unique long-term stock and bond style-boxes or prospectus objectives of mutual funds followed by Morningstar versus those offered by the 906 ETFs currently available. Most traditional mutual fund families offer funds concentrated on domestic stock and bond markets and broadly-diversified “international” stock funds. ETFs offer many more unique investment choices tied to hundreds of different indexes. For example, funds may offer a S&P 500 index funds where ETFs offer, bull and bear market versions tied to that index as well as leverage and unleveraged at plus and minus betas of 1.0, 1.5, 2.0 and 3.0; in addition while a family might offer a large-cap “international fund,” ETFs offer the opportunity to invest In hundreds of individual countries, regions, currencies and commodities often in both leverage and unleveraged bull and bear versions. Morningstar’s efforts to fit the broader range of ETF choices into the narrow fund style-boxes is frustrated because there are not enough identical ETFs against which to compare performance. Investing in ETFs is like painting an oil painting with several primary colors and discovering unique colors where the paints overlap and mix. Investors in ETFs have many sectors to which to allocate their investments. They also have the opportunity to diversify much more fully when they can simply invest one-third of their position in a triple-beta fund and get the same return as a single-beta allocation three times the size. That allows for investment of the other two-thirds the position in a safe harbor fund to add additional alpha. There are also rebalancing strategies that can increase the odds that a leveraged bull or bear market fund will achieve a total return close to the multiple of the underlying index as intended. In addition, ETFs allow you to invest in more positions with strong momentum to diversify among the positions most likely to have a running start toward capitalizing on a strong trend. The liquidity of ETFs allows you to get out of sectors with deteriorating momentum and reallocate to new leaders plus the ability to have greater liquidity with greater diversification than investing directly in individual securities. Tracking sector momentum technically has, in my experience, been much more reliable than listening to television pundits speculating what a buy-and-hold investor should be buying from them. It takes the kind of responsible work that investment managers charging management fees should be doing. Let me also sat that we do not trade inter-day, rather we review continuously and in some of our most successful portfolios trade about three times a year. Trading that actively would be speculating as much as using rigid buy-and-hold, I am saying that many investors did not have a successful decade (and few funds or advisors called to reallocate their portfolios during the financial crisis) and I would suggest that more attention to asset allocation and absolute return strategies would be wise. Finally, I am suggesting that advisors objectively consider that there is more than one way to adjust asset allocations in this rapidly changing world. I suspect that the current emphasis on large-cap growth portfolios investing in well-respected dividend-paying companies might reflect basic changes in the marketplace. First, the turnover in growth fund portfolios may reflect the fact that companies with growing sales and/or profits are rare as hen’s teeth today. When you consider that 50% of new bond issues are rated “junk bonds” and that many of these issuers are mid-cap companies who used to be large-cap and offer “investment grade” bonds. If the stocks that fit the categories are in a state of flux, maybe the strategies to invest in those style-boxes may have changed. If I believed I could not substantiate the long-term potential effectiveness of the strategies I am discussing, I would not be sharing them. My goal is to suggest how you might improve your clients’ performance and give you some alternative strategies to learn from. As to the comment above, I would be very careful in watching the ratings of the insurance companies as I am sure you are doing. A ten-year "guarantee" from a five-year company could be very expensive.

Please...I'd bet the farm on a ten-year guarantee from an insurance company rather than the miraculous money management skills of a schlocky RIA who doesn't know how to market himself properly and won't pony up for a sales rep.

First, were you aware that 90+ life insurance companies petitioned their state regulators to allow them to lower the reporting standards on their portfolios of CMOs last year and nearly all were allowed to do so? Insurance companies are, I think you can agree, among the largest and most susceptive to investing in long-term assets to match their long-term liabilities. The lack of adequate transparency simply makes me sceptical of insurer longevity and the ability of the best-motivated rating agency to rate them properly. As variable annuity assets are not general account obligations, they belong to the annuity-holder and not the insurer. Once you take control then you have to ask why in the 15 months to 12/31/08 VA assets fell from $1.5 trillion to $1.0 trillion. We do manage assets in several variable annuity programs to proactively strive to protect client assets. As to guarantees, a half-trillion of losses in just 15 months is a huge shortfall on which to keep the promises of guarantees. In fact, VAs got hit much harder than other retirement savings account as they were more likely to be fully invested inequities and less likely to be offered a third-party investment advisor. Guarantees are good form but appear to be dubious content. The regulators' lack of aggressive regulation appears to make it hard to find reliable ratings and disclosure. My intention here is not to market but to discuss an alternative "service" to traditional "products". I think you will find our ten-year track record of high-return, low-risk performance worthy of your review. Others offer alternative services. Talk to them as well. I hope I have justified my assertations' value to you with specific references. As to our representation, no representations are made here but you can find fully-disclosed information on Power Income Portfolio at [url=mailto:dgill@sa-cm.com] [/url] http://www.donoghue.com/site/files/Power%20Income%2012-31-09.pdf

Bill, I think I speak for a majority of the posters when I ask you to kindly get lost. For all the good you add, it's becomes nothing but a thinly-veiled sales pitch. If you want to advertise, buy an ad. Better yet, for best results, hire a sales rep who can wholesale for you.

Would you be surprised to know that I have over $300 million in assets under management, have tens of thousands of financial advisors who can offer access to our money management and our Power Income Portfolio's ten-year performance rivals the risk-adjuested returns of nearly all mutual funds and separate accounts? Wise financial advisors are focusing on gathering assets (which are available today as so much money is in motion because of the state of denial many advisor are in that buy and hold died in 2000) and letting advisors like myself manage the money for them. It's simply good business to sell top perofrmance at low risk than to insist that mutual fund families who have let down investors so badly (did your clients double their money over the past decade? Mine did if they stuck with the program) might want to see an alternative choice. I respect your right to disagree if you will respect my right to disagree. I have not heard a single statement of a documented fact or successful strategy from you. Methinks you protest too much. If you want to talk with me directly write me at [url=mailto:fessormojo@yahoo.com]fessormojo@yahoo.com[/url] and not here. Bill Donoghjue

Bill, You misunderstood me. I don't doubt your performance. What pisses me off is you are using these boards as your own personal advertisement. Many participants have asked you to stop. You continue to promote yourself. Since you're so successful in raising AUM, why are you compelled to troll here? Aren't there more effective ways to raise money than soliciting the same 6 reps who post here?