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The Uncertainty Paradox

As markets fluctuate it can be difficult to uncouple emotional uncertainty from financial decisions. However, uncertainty and risk will always be a part of investing in financial markets. By learning about how uncertainty affects markets and your financial decision making, it is possible to craft a better investment strategy--one that can see you through times of greater risk and uncertainty, and keep your emotions from clouding your judgement. 

Doubt is not a pleasant condition, but certainty is an absurd one.

“The market hates uncertainty” has been a common enough saying in recent years, but how logical is it? There are many different aspects to uncertainty, some that can be measured and some that cannot. Uncertainty is an unchangeable condition of existence. As individuals, we can feel more or less uncertain, but that is a distinctly human phenomenon. Rather than ebbing and flowing with investor sentiment, uncertainty is an inherent and ever-present part of investing in markets. Any investment that has an expected return above the prevailing “risk-free rate” (think T-Bills for US investors) involves trading off certainty for a potentially increased return.

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The Mutual Fund Landscape in 2017

The US mutual fund industry comprises a large universe of funds covering securities markets around the world. These funds reflect diverse philosophies and approaches.
How has the industry performed as a whole? What should investors think about when selecting funds?

Research provides insight.

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Surveying the Landscape

Each day, the global financial markets process millions of trades worth hundreds of billions of dollars. These trades reflect the viewpoints of buyers and sellers who are investing their capital. Through these inputs, the market functions as a powerful information processing mechanism, aggregating vast amounts of dispersed information into prices and driving them toward fair value. Investors who attempt to outguess prices are pitting their knowledge against the collective wisdom of all market participants.

The mutual fund industry offers one test of the market’s pricing power. Across thousands of funds covering a broad range of manager philosophies, objectives, and styles, the study tells a compelling story: Many of the funds evaluated have not outperformed benchmarks after costs.

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The Expensive Ingredient of Cheap ETFs

by Jason Zweig
(This article originally appeared in The Wall Street Journal, April 14, 2017)

One portfolio manager estimates that the hidden costs of trading exchange-traded funds exceed $18 billion a year.

The costs of trading are one of the worst destroyers of investment returns. That’s a fact of life in the markets, although it’s easy to overlook in exchange-traded funds, in which commissions and management fees have shrunk almost to zero.

And during placid markets like today’s, when buying or selling tends to become cheaper, investors can form a bad habit of ignoring the costs of trading. That can come back to haunt you when turbulence resumes and trading becomes more expensive.

Often dirt-cheap to own, ETFs can still be costly to buy and sell. In a study just published in the Financial Analysts Journal, portfolio manager Antti Petajisto of LMR Partners, a London-based hedge fund, looked at about 1,800 ETFs from 2007 to 2014. He wanted to see how often, and how much, their market prices differed from the value of their underlying assets.

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What Would the Fed Rate Hike Mean for Stocks?

With the back and forth in the financial media about whether the Fed should or will raise interest rates in the coming quarter, it is not surprising that stock pickers and speculators are weighing in with their ideas of what investors should do in the event that a rate hike happens. In the following article provided by Dimensional Fund Advisors we examine the history of stock and bond response to interest rate hikes and we, not so surprisingly, see that it impossible to predict and therefore, should not be used to make portfolio or investment decisions. Like most other hot news topics, the rate hike is just fodder to sell whatever the next big thing is. My advice, tune out the noise and keep your eye on the long game. 

When Rates Go Up, Do Stocks Go Down?


Should stock investors worry about changes in interest rates? Research shows that, like stock prices, changes in interest rates and bond prices are largely unpredictable.1 It follows that an investment strategy based upon attempting to exploit these sorts of changes isn’t likely to be a fruitful endeavor. Despite the unpredictable nature of interest rate changes, investors may still be curious about what might happen to stocks if interest rates go up.

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Going Global: A Look at Public Company Listings

Trivia time: how many stocks make up the Wilshire 5000
Total Market Index (a widely used benchmark for the US equity market)?

While the logical guess might be 5,000, as of December 31, 2016, the index actually contained around 3,600 names. In fact, the last time this index contained 5,000 or more companies was at the end of 2005. This mirrors the overall trend in the US stock market. In the past two decades there has been a decline in the number of US-listed, publicly traded companies. Should investors in public markets be worried about this change? Does this mean there is a material risk of being unable to achieve an adequate level of diversification for stock investors? We believe the answer to both is no. When viewed through a global lens, a different story begins to emerge—one with important implications for how to structure a well-diversified investment portfolio.


When looked at globally, the number of publicly listed companies has not declined. In fact, the number of firms listed on US, non-US developed, and emerging markets exchanges has increased from about 23,000 in 1995 to 33,000 at the end of 2016. (See Exhibit 1.)

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