Publisher and Author Results for 2009-2010 – Highlights, Surprises

As a LikeAssets user you can track the performance of your own investments and ideas, but you are also provided with a valuable service – the ability to track the most famous investing websites, magazines and blogs. Investing ideas from these sources always sound good when you read them, but which ones actually work over time? Are there any investment sites that consistently outperform the market?

When examining the picks from 2009-2010, there are some surprising results.

The top four performing publishers contain only one of the largest financial media sites – Barron’s. However, it is the picks from the print version that are beating the LikeAssets Benchmark by 13%, while those from Barron’s website are up only 4%. The other three top publishers are Stockerblog (24%), Ockham Research (20%) and Value Expectations (+15%).

Are the SEC's new TDF regulations enough?

The SEC has just announced new disclosure requirements for target date funds.

The SEC’s proposal would require marketing materials that are in print or delivered electronically to include a prominent table, chart, or graph that clearly depicts the asset allocations among types of investments over the entire life of the fund. These proposals would also require that the table, chart, or graph be immediately preceded by a statement explaining that the asset allocation changes over time, noting that the asset allocation eventually becomes final and stops changing, stating the number of years after the target date at which the asset allocation becomes final, and providing the final asset allocation.

This type of transparency is a logical first step, but it is not enough to inform and protect investors. Managers design target date funds to hold all of an investor’s assets for years, if not decades.

Highlights from Morningstar’s 2010 Target-Date Industry Survey

Backtesting analysis of target-date funds demonstrates that the biggest risk is selecting target-date funds that provide extreme performance surprises. Such funds generally use outlying strategies that are not easily understood. Examples include heavy equity allocations at retirement for strategies focused on “through retirement” glide paths, and investments in CDOs that were allocated as low risk short-term bond investments. This risk increases the importance of thoroughly understanding the target-date strategy and underlying investments of a selected target-date fund.

The complexity of target-date funds receives plenty of attention in the press and from regulators, but what does it mean for investors, plan sponsors and advisors? Below I highlight some interesting examples from the recent Morningstar survey of the target-date industry. The survey demonstrates that analyzing and maintaining a clear understanding of target-date fund risk is a task only a few well qualified investors should do on their own. Defaulting to a market index based approach provided by MarketGlide portfolios is the prudent choice for everyone else.

The Art of Annuitization

The art of annuitization. How do advisors and their clients determine how much to annuitize? Ask 20 advisors randomly and I guarantee you will see an incredible range of responses. If recent research and advisor feedback are believed, annuitization remains a mysterious art.

One example – research recently completed by Mathew Greenwald Research provides insight into advisors’ views about using annuity products.

The advisor concern stems from a persistence of an all or nothing view of annuities’ role in financial planning. The research discusses a more moderate approach, targeting 20-30% allocation to annuities.

But why 20-30%? This feels like the 60/40 asset allocation approach that is the default lacking good client data. What this research shows is the lack of a rigorous method for advisors to get annuity allocation advice and be able to compare and explain options unique for each unique client.