Each month, we highlight changes to the funds and ETFs listed in the monthly newsletter and online.
Added to the Monthly Newsletter
We added Guggenheim S&P 500 Pure Growth (RPV) to Class 3′s diversified fund listings.
Closed to New Investors
T. Rowe Price Capital Appreciation, which we list in Class 4 total return funds, has now closed to new investors.
Exchange-traded funds (ETFs) trade throughout the day like stocks, while mutual funds trade just once a day. Some investors believe that this is an advantage: they like that they can sell an ETF immediately if market conditions change.
But the ability to trade ETFs at any time can prompt investors to trade more frequently than necessary. It may also encourage investors to buy riskier ETFs because investors may think they can avoid the risk by quickly selling these ETFs.
Since our Upgrading strategy uses funds to adapt to changing market leadership, some investors assume that we’d be better off using only ETFs. But our research and real-world experience shows that using a combination of ETFs and regular mutual funds is better than using ETFs exclusively — and we aren’t the only ones to come to this conclusion.
Mark Hulbert reported in a February 12, 2014 piece on Marketwatch.com that the ETF-only portfolios he tracks in the Hulbert Financial Digest haven’t performed as well as fund-only portfolios—even when both portfolios are managed by the same advisor. Why? “The ability to get into and out of [ETFs] at any time during the day, as well as the ability to sell them short, have seduced advisers into trading too often,” Hulbert wrote.
Larry Swedroe’s July 16, 2014 ETF.com post focused on a 2013 Yale study that found “statistically significant underperformance of the ETF portion of investor portfolios versus their non-ETF portion.” Swedroe noted that “the authors found that poor performance was caused by bad market timing.”
So what should investors do?
Continue reading “Do ETFs Cause Investors to Trade Too Often?” »