Episode 59 is a radio show format. This week we're diving into some of the recent market stories which Meb has found most interesting. We also bring back some listener Q&A.
We start with a Tweet from Cliff Asness, in which he rebuffs a Bloomberg article titled, "The Death of Value Investing." The article states that value isn't working. Sticking to that approach has resulted in a cumulative loss of 15 percent over the past decade, according to a Goldman Sachs Group Inc. report. During roughly the same period, the S&P 500 Index has almost doubled."
So is value investing dead? Meb gives us his thoughts. We discuss its underperformance, mean reversion, and factor-crowding.
Next up is a New York Times article referencing a recent stance-reversal from Burt Malkiel, a passive investing legend. He's now saying he recognizes where active investing can exploit certain market inefficiencies. The same article has some great quotes from Rob Arnott on the topic of factor investing, and the danger in tons of quants all looking at the same data and trading on it. Meb gives us his thoughts on factor timing and rotation, using trend with factors, and the behavioral challenges involved in both.
Another Arnott quote steers the conversation toward backtesting - the pitfalls to avoid when backtesting, so you don't create a strategy that looks brilliant in hindsight, but is hideous going forward.
Next up are some listener questions:
There's plenty more - including our new partnership with Riskalyze, which enables advisors to allocate client assets into Trinity portfolios. But the more interesting story is how Meb gave his wife food-poisoning the other night. How'd he do it?
Find out in Episode 59.
In Episode 58, we welcome Axel Merk from Merk Investments. After a bit on Axel's background, the guys jump in, discussing the Fed's decision to raise interest rates today (recorded on Wed 6/14/17).
Axel discusses how the Fed has announced the normalization of its balance sheet and the pace at which it would like to do so - but they've left out lots of details. He likens it to driving into a tunnel with no lights on. In essence, the Fed doesn't know where it wants to go.
Axel's response touches upon our current low volatility. Meb hones in on this, asking if the low volatility is in part due to actions from the Fed.
Axel believes this to be the case (central banks in general, not just the Fed). Yet there's plenty more, involving how central bank activity has fueled this up, up, up market, with investors piling into risk assets. But Axel thinks asset prices are likely to come down from here. He says "A lot of that (rising asset prices) has been induced by central banks. The unwinding of that is going to be, at the very least, let's put it in quotes "'interesting.'"
Meb then focuses the conversation on equities. He says how here in the U.S. they're expensive. So what does Axel see as the opportunity set in equities around the globe?
You'll need to listen for the details, but Axel likes a pairs trade, going long France and short the S&P. Of course, he is quick to say he could be wrong on both legs.
Meb segues to China, as Axel had mentioned it earlier. If you're a regular Meb Faber Show listener who heard Steve Sjuggerud and Jason Hsu's thoughts on China, you'll want to hear Axel's thoughts for a different take. He's not nearly as bullish. He concludes by saying "I happen to think that if you want to be looking at the one risk event that's out there, that's going to get people's attention, China is certainly at the very top of the list."
Since Axel is a currency guy, Meb then brings currencies into the conversation, asking how investors might think about them in a broader portfolio context.
Axel gives us a great overview of different currency markets, with additional detail on the Dollar vs Euro. Overall, he sees the Dollar toward the top of its cycle, and the Euro toward its bottom. He concludes by predicting that the Euro will be substantially stronger a year from now.
There's a great deal more in this episode: whether retail investors should be following an endowment allocation... how holding cash is not necessarily a bad investment choice... a great discussion on gold, and how it fits into a portfolio... even Axel's thoughts on cryptocurrencies and Bitcoin.
And of course, we get Axel's one piece of investment advice for listeners, as well as his most memorable trade (Hint - he bought Apple early).
Find out all the details in Episode 58.
Episode 57 is another "radio show" format, yet this one is different than our others.
In this episode, Meb discusses his 17 different "million-dollar" fintech ideas. In essence, Meb has had various business ideas over the years which he's wanted to pursue, but hasn't had the time. Some he's tweeted about, some he's blogged about, others he's kept to himself. But in Episode 57, he'll run through all 17, diving into more detail.
Can a listener take one and run with it? Sure. Let us know how it works out! Or work on it with us. We're open to ideas.
Either way, here are the 17 concepts:
Are all of these ideas good? (We have our doubts...)
But find out for yourself in Episode 57.
In Episode 56, we welcome Meb's good friend, and CEO of ETF.com, Dave Nadig. Per usual, we start with some background information. Dave tells us about his early days in the investment industry, starting a consulting firm that was working on a then-new idea: fee-only financial advising. His first client was a little shop that went on to become none other than BlackRock. After some professional twists and turns, including running money for a while, Dave ended up at ETF.com.
Meb then dives in by referencing an article Dave wrote toward the end of last year, called "Outlook for ETFs in 2017." There were several key points in the article which Meb thinks can help provide a general, 30-thousand-foot overview of the ETF space. The first point - ETF flows.
Dave tells us "this is a big year for ETFs." He then takes us through a quick recap of the evolution of ETFs, going from a purely institutional product back in its early days, to something embraced by investment advisors, to an investment vehicle for retail investors. And here we are now, somewhat full circle, with ETFs even more embraced by institutions (think endowments), only now, they're no longer held as fringe investments, but as core holdings.
Meb asks at what point ETF assets will surpass mutual fund assets. Meb had predicted within about 10 years back in 2013. Dave tells us there will always be a demand for mutual funds - that said, he believes the cross will happen around 2025, with asset levels around $14 trillion.
Meb asks if the evolution in the ETF space today is primarily a movement from higher fee to lower fee. David believes this is the case. Most of the new flows are going toward low-cost vanilla products. Dave thinks the whole active/passive debate misses the point - it's really about cost. This dovetails into another business/investment idea Meb has that he's offering to any listener willing to pursue it.
Next, Meb brings us back to Dave's 2017 Outlook piece, this time bringing up "ESG."(This stands for "environmental, social and governance" for anyone unaware.). Dave believes that we're near/in the greatest intergenerational wealth transfer in history. And the 40-year-olds that are inheriting, say, a $5M portfolio from their 70-80-year-old parents have different desires about what to do with that money. Dave tells us that this younger generation wants their money to do something - and this usually gets labeled ESG. So Dave believes we'll see more funds targeting this wealth transfer.
After some conversation about industry regulatory issues and Bitcoin, the guys jump into Dave's recent visit to "The Money Show" â€“ a place Meb describes as the "Wild West" of individual investors. One of the biggest things attendees of the show were asking Dave about was ETF liquidity. Is there reason for concern? How illiquid can you go? Dave gives us the key takeaways: 1) remember good trading hygiene. In essence, don't be an idiot. Use limit orders, assess fair value if you can, and so on. 2) In responding to "how illiquid is too illiquid" Dave says it's not that simple, because liquidity is a moving target. He tells us about "the liquidity barbell." If you're worried about this topic, you'll want to be sure to listen to this section.
Meb then asks about a fear the media loves to play up: "Will ETFs bring about stock market Armageddon?" Meb goes on to say how a USA Today article blames ETFs for exacerbating bad investing habits.
Dave says you can't blame ETFs for bad investor timing. That's just how we're wired. But he goes on to say that many of the arguments against ETFs can be traced back to the old guard - people who are trying to defend active management shops that are underperforming, or defend the lack of transparency in their investing process. But their main argument is worth understanding - namely, the indexing problem; the idea is that if everyone owned index funds, then price discovery would be impossible. But Dave says we're a long way from having this problem.
As usual, there's plenty more in the episode: exchange traded notes... the regulatory change Dave would like to see... buying ETFs at NAV... Dave's one piece of advice offered to help listeners the most... and Dave's answer to a new question: since Dave is a big "game" lover, Meb asks which three games are his top 3 of all time.
What are they? Find out in Episode 56.