ETFs and ETNs: Knowing What You Own

Posted on August 13, 2014 | AAII Journal

The liquidity composition of a fund’s underlying assets, the historical tracking error and fees are important characteristics to consider when investing in an ETF.

ETFs are one of the fastest-growing investment vehicles, with total assets reaching $1.4 trillion in 2012 (Figure 1). Like open-end mutual funds, exchange-traded funds typically hold a basket of underlying securities. The basket can consist of stocks, bonds, futures, options, forwards (a non-publicly traded contract to deliver a cash commodity at a specified date in the future), the rights to physical commodities, or any combination thereof.

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Figure 1. U.S. ETP Assets & Number of ETPs by Year

Figure 1. U.S. ETP Assets & Number of ETPs by Year

Real Returns Favor Holding Stocks

Posted on August 12, 2014 | AAII Journal

Stocks are good hedges against inflation, preserve purchasing power, and, over long periods, are less risky than bonds.

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CBOE’s Volatility Index (VIX)

Posted on August 6, 2014 | AAII Journal

An explanation of the so-called “fear gauge” and insight into how it is used.

The VIX is a measure of the implied or expected volatility of S&P 500 options over the next 30 days. Implied volatility is the market’s estimated future volatility and is reflected in the premiums paid for options.

Originally launched in 1993, the VIX underwent a change in calculation in September 2003. The “original” VIX was calculated using at-the-money put and call options on the S&P 100 index OEX. Furthermore, the original VIX was based on prices of only eight at-the-money OEX puts and calls, the most actively traded index options at the time.

By 2003, the S&P 500 index SPX option market was the most actively traded option market, while trading volume in OEX index options had fallen off significantly. Also, portfolio managers were using options more as a means of insuring their portfolios, specifically with out-of-the-money and at-the-money index puts. Therefore, the new VIX calculation includes put and call options with a wide range of strike prices, including those in-the-money, at-the-money and out-of-the-money.

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The Individual Investor’s Guide to Exchange-Traded Funds 2014

Posted on August 1, 2014 | AAII Journal

Detailed return information and data on 446 ETFs and ETNs, including an overview of the current trends in the ETF industry.

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Five Common Traits of Successful Value Screens

Posted on August 1, 2014 | AAII Journal

Though investing gurus differ in what they look for in a stock, there are five common traits we see across the AAII value-oriented screens.

Wouldn’t you love to get Benjamin Graham’s thoughts on whether a stock you are considering is priced attractively?

Or how about getting a warning message from David Dreman before you fall for a common emotional trap after a beloved company just missed its earnings target? Who wouldn’t want some tips from Warren Buffett on how to identify if a company has a competitive advantage?

We have adapted the works of the best investing minds on Wall Street and created simple stock selection rules that individuals can use to find attractive investments. AAII members can learn more about stock market gurus and their strategies and even see which stocks currently match each approach on the Stock Screens segment of or in AAII’s stock screening and analysis tool Stock Investor Pro.

If you look at the approaches of these gurus and stock market experts, you will quickly notice that successful approaches within a given investment style tend to have similar elements. Sure, the Dreman approach on may emphasize the price-earnings ratio to locate value companies while the Piotroski strategy uses the price-to-book-value ratio, but every successful value-oriented approach not only looks for a low price-related multiple, but also some measure of expected growth or financial strength.

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Money Funds and the Regulators

Posted on July 31, 2014 | AAII Journal

Following the 2008 financial crisis, there has been debate about how much regulatory change is needed, including whether floating net asset values should be required.

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July Letters to the Editor – Members comment on John Bogle’s advice, the PEG ratio, covered calls and estate planning

Posted on July 30, 2014 | AAII Journal

Mr. Bogle has a very sound knowledge about investing. I am very fortunate to have my 401(k) plan through Vanguard. My plan offers both index funds and active funds as options. Although my investments are mostly in index funds, I also use a couple of active funds to balance out my portfolio. Although the index funds have lower expenses, the two active funds I use have expense ratios of approximately 0.35% to 0.45%, which is still very inexpensive. I feel that a mix of index and active funds will give me a greater chance for investment success. Of course, other fund companies charge much more than Vanguard and that could make a major difference in returns!
—Jerry Durham from Tennessee

A really great article. How can I save it for my grandchildren?

Shortly after I retired 11 years ago, I did a long calculation on my 43 years of stock market performance and I just matched the Dow Jones industrial average. I could have saved eight to 10 hours a week with an index fund (22,360 hours by 2003). The moral of the story is that unless you are in the market more for kicks than profits, you should be in index funds.
—Homer Milford from New Mexico

Charles Rotblut responds:

Near the top of every Journal article, on the left-hand side, is a section labeled “Share this article.” Below it are options to email a link to the article or to share it on social media websites such as Facebook. If you want to save a copy of the article, click on “Download printable PDF” just above under the heading “Print this article.”

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Supreme Court: No Bankruptcy Protection for Inherited IRAs

Posted on July 29, 2014 | AAII Journal

Inherited IRAs do not qualify for the same protections under the bankruptcy code as other types of IRAs do.

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The Role of Luck and Skill in Investing

Posted on July 25, 2014 | AAII Journal

Since luck plays a bigger role than skill in influencing investment returns, investors need to focus on their portfolio management process.

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“Market Wizards” Advice: Doing the Uncomfortable Thing

Posted on July 24, 2014 | AAII Journal

Basing trading decisions on what feels emotionally satisfying often leads to the worst portfolio performance.

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