ETFs Beating Hedge Funds W/O High Fees
Jack Bogle, the founder of low-cost fund pioneer Vanguard Group, says investors are taking notice of the wide difference between inexpensively managed ETFs (exchange-traded funds) and hedge funds with high fees and slim returns.
“There is deep disenchantment with hedge funds among large investors,” he said at the weekend. “People have been paying extremely high fees for very poor performance — performance even a zero fee wouldn’t justify.”
He cited data that show ETFs received $490-B of inflows as hedge funds saw $70-B of redemptions – the biggest withdrawals in seven years. ETF assets grew to a record $3.55-T, surpassing the $3.01-T in hedge funds.
“These latest figures confirm that hedge fund assets will never again exceed that of ETFs,” he said.
Hedge funds are losing customers left and right, with pension funds in Illinois, New York, Kentucky and Rhode Island cutting their holdings. Calpers, the biggest public pension fund, three years ago dumped hedge funds after saying they were too expensive and complex.
“There are some brilliant people working in hedge funds but they come up against lots of other brilliant people and the result is you get the average,” Mr. Bogle said. “The alleged advantage is competed away.”
Future growth of ETFs may depend on how well the stock market performs over the next few years, given investors’ high expectations for President Donald Trump’s pledge to cut taxes and regulation.
Marc Faber, editor of The Gloom, Boom & Doom Report, predicts that the current bull stock market is actually very fragile and a trio of dangerous threats loom.
He says that a “very complacent” market is ignoring 3 factors that might spark a correction: foreign currencies, the US economy and the Trump administration.
Mr. Faber said the stability of the US economy relative to foreign nations’ economies has attracted capital to the United States, boosting the USD and stock prices. But the trend could reverse.
“I believe the time will come when the weakness of the euro becomes uncomfortable for the Europeans, specifically the Germans, and then there will be a reverse,” Mr. Faber said. “And the dollar will go down, and the money that flowed into US assets will flow out of US assets, and so the market is more likely to go down,” he said.
Mr. Faber also is not totally convinced that US President Donald Trump has the strategy to really “Make America Great Again.”
“I believe also the policies of Mr. Trump will actually not reduce the government,” Mr. Faber said, suggesting that the commissions Trump sets up to restructure government agencies will actually go against traditional Republican ideals.
“Plus, fiscal spending means essentially an expansion of the government, so that is not pro-growth in my book,” he added.
“We have roughly inflated asset markets. I also own shares, I also own bonds, and I also own precious metals. I also own real estate. So if asset prices go down, I suffer like you and everybody else,” he said. “But at least I know that it can happen.”
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