Whilst advisers and investments are comfortable and familiar with the simple term “funds” (has anyone heard of an “CIS (Collective Investment Scheme) Conference” or being an “AUT (Authorised Unit Trust) investor”?  There is much less familiarity with the once-institutional and now pervasive ETFs (Exchange Trade Funds).  That lack of familiarity means that for some reason that particular TLA has stuck.

Claer Barrett in FT Weekend’s FT Money section tries to demystify the jargon  – but ends up makes thing sound more complicated than they need to be.

Advisers wanting to check or brush up on the difference between an ETP, ETF, ETN and ETC could do well to invest 2 hours of their time to earn accredited CPD (Continuous Professional Development) from the roadshow being run by Copia Capital Management to get a solid understanding of this increasingly popular and pervasive investment vehicle.

As for civilians – customers and investors – it's actually quite simple.  It’s about money. Client money. And how it gets put to work.  So forget the TLAs and the alphabet soup of ET-this and ET-that.  The key question to ask managers is “What are you doing for your fee, and how do I get to keep the most of my available return?”

The investment management industry is waking up to the fact that its customers deserve more English-language dialogue, and fewer abbreviations. QED.

NOTICES: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.  I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it.
This article has been written for a US and UK audience.  Tickers are shown for corresponding and/or similar ETFs prefixed by the relevant exchange code, e.g. “NYSEARCA:” (NYSE Arca Exchange) for US readers; “LON:” (London Stock Exchange) for UK readers.  For research purposes/market commentary only, does not constitute an investment recommendation or advice, and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.  This blog reflects the views of the author and does not necessarily reflect the views of Elston Consulting, its clients or affiliates.  For information and disclaimers, please see www.elstonconsulting.co.uk
Photo credit: squarespace,com; Chart credit: N/A; Table credit: N/A

John Authers’ Long View article in the FT this weekend addresses market timing.  While he claims that just passive investors are such bad timers, we would go further: most are.

Attempts to time the market (choosing the right moment to buy or sell into risk assets) are a mug’s game.  Great for brokerages that delight in investors’ fees levied to senselessly overtrade.  Bad for investor’s portfolio outcomes.  Despite the annual survey by Dalbar that investors’ attempts to time the market is really bad for their portfolio, people – including some portfolio managers – still try and have a go.

The problem is that in timing the market, we become slaves to our behavioural biases around entry points, and the noise around market sentiment.  An investor fearing Brexit might have – out of emotion – sold everything to cash stocked up on gold sovereigns and run for the hills whilst tracing Irish ancestry.  The smart thing was to acknowledge sterling weakness and increase their allocation to FTSE100 exposure where companies have predominantly foreign earnings.

So what do you do if you don’t want to time?  The answer’s simple: have a rule.  If you’re moving from holding one portfolio of risk assets to another (e.g. switching managers).  There’s no point trying to time – switching on a relevant valuation point (e.g. month or quarter end) keeps you “in the game” and allows you to reset the performance measurement clock.

If you’re moving from 100% cash to a 100% non-cash portfolio of equities and bonds, it’s slightly different: your entry point has a huge impact on long-term value of your portfolio.  In this instance, I would want to “average in”, either by allocating 1/12th of the capital each month into the proposed portfolio, or a quarter of the capital each quarter.  By using "pound cost averaging” - your entry point is exactly that: an average.

But that’s better than flipping a coin on the vicissitudes of Mr. Market.

NOTICES: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.  I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it.
This article has been written for a US and UK audience.  Tickers are shown for corresponding and/or similar ETFs prefixed by the relevant exchange code, e.g. “NYSEARCA:” (NYSE Arca Exchange) for US readers; “LON:” (London Stock Exchange) for UK readers.  For research purposes/market commentary only, does not constitute an investment recommendation or advice, and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.  This blog reflects the views of the author and does not necessarily reflect the views of Elston Consulting, its clients or affiliates.  For information and disclaimers, please see www.elstonconsulting.co.uk
Photo credit: Google Images; Chart credit: N/A; Table credit: N/A