FINANCIAL ADVISOR INSIGHTS: Why The Popularity Of Index Investing Hasn't Created The Expected Opportunity For Active Investors

Despite Concerns About Index Investing It Hasn't Got Too Big (Vanguard)

"The contagious enthusiasm for indexing has cultivated a loyal following, including financial advisory firms dedicated to passive investment strategies," according to Vanguard. Naturally some are worried that this is creating market inefficiencies that could actually let active investors profit by creating a favorable environment for stock pickers.

But Chris Philips, senior analyst in Vanguard Investment Strategy Group, says that "investing is a zero-sum game that is being played among active investors, regardless of how many exist. …Prices are set and continuously reset by active investors seeking to execute on their information and beliefs. Indexers, on the other hand, attempt to passively track the market at the prices set by those active investors. Even if active investors made up a minority of a market in terms of invested dollars, as long as a profit motive existed, they would be jockeying with one another for any opportunity to make a gain."

"....If the rise of passive funds were leading to inefficiencies because of the 'dumb' money that was information-ignorant, theoretically active managers should have an easier time outperforming a relevant index. However, as the dollars allocated to passives have increased, the relative performance of active managers has not followed suit."

Unconstrained Bond Funds Aren't Doing A Great Job (Investment News)

Interest rates are expected to rise going forward, but no one knows when. Bond fund managers with their aggressive campaigning have managed to "stem and sometimes even reverse the tide," write Stephen Huxley and J. Brent Burns at Investment News. One way they've done this is by offering unconstrained bond funds. These funds, often called 'go anywhere funds,' allow managers to choose debt securities in the U.S. or abroad; be they government or corporate.

"The three largest are Pimco Unconstrained Bond A (PUBAX), JPMorgan Strategic Income Opportunities A (JSOAX) and Goldman Sachs Strategic Income A (GSZAX). Since the beginning of the year, they have returned 2.21%, 0.60% and 0.29%, respectively. By comparison, the generic Barclays U.S. Aggregate Bond Index, which includes over 8,000 bonds worth about $17 trillion, gained 3.87%."

In this light, Huxley and Burns writes that investors can either exit bond funds altogether or hold them till maturity because this way "no matter what happens to rates, the investor will preserve principle and get some interest," they write. Alternately investors could look at individual bond funds.

There Are Major Differences Between Expectations Of Those Retired And Those That Are Still Working (Northwestern Mutual)

A survey from Northwestern Mutual 2014 Planning and Progress Study found that 38% of respondents aged 60 and over said they would have to work till they were were 75 or older. 13% said they can't retire. Meanwhile, the average retirement age for those that have already retired from the workforce was 59. Interestingly 37% of working adults said they think they would be happier in retirement than they are working. Meanwhile, 84% of those retired say they are happy, and 60% said they were happier now than when they were still working.

This Chart Shows Why This Rally Has Been So Hated (Business Insider)

This has been described as one of the move unloved bull markets. Investors have not really taken part in this rally. Volatility and volume have been lower that in previous years. Bank of America's chart on equity client flows, shows that even as the S&P 500 has hit record highs, its clients (including hedge fund, institutional, and private clients) have been net sellers of stocks.

Bank of American Merrill Lynch

Wealthy clients exiting their businesses are increasingly giving shares to donor advised funds instead of selling their business and then donating money to charity, reports Veronica Dagher at the WSJ. Making a gift ahead of the sale entitles clients to "income-tax deduction equal to the fair-market value of the donated stock," writes Dagher. It also means the clients "avoid capital gains on the donated shares when the company is sold."