ETF’s are becoming popular not just with do it yourself investors, but also with advisors. In WSJ’s “All ETF portfolio: Pros reveal the ins and outs”  Core holdings include S&P500 SPDR (SPY) combined with MSCI EAFE index (EFA). The core holdings of some are evolving to using S&P Equal (rather than capitalization) Weighted Index or the FTSE RAFI US 1000 (fundamentally weighted index), which have outperformed the capitalization weighted index recently. Some advisors then add individual stocks or individual countries, to the mix thus increasing the risk and, hopefully, the return of the overall portfolio.

We talked about Target Date funds at this website before (Target Date Funds and Target Date Funds II). This is one of the fastest growing segments of the U.S. mutual fund markets. The Wall Street Journal’s “Do Target funds hit the mark?” compares how such funds performed by looking that 2020 funds which have at least three years record. The performance rages from a high of 13.1% to a low of 7.4% annually. The performance differences are largely the reflection of differences in the percent equity and international equity allocation. Of course some o f the more aggressive funds (managers of which believe that the highest risk is that of running out of money, rather than capital preservation) that outperform in up markets will underperform in down ones. After asset allocation fees are the next significant contributor to performance. It is also suggested that in all likelihood managers are still fine tuning the best way to run these relatively new funds. In “Targeted fund offerings expand” the WSJ discusses that large number of Target Date Funds that have been added in the past year as more and more 401(k) plans use them as their default, especially when they use auto-enrolment.

WSJ’s Opdyke discusses a new Wharton study, sponsored by annuity seller New York Life, on how using ‘income annuities’ for an income stream for life may cost 40% less than a traditional stock, bond and cash mix” in “The case for ‘Income Annuities’” . The study compared annuities with using mutual fund based portfolios(is it a good benchmark?) which the authors concluded to have greater risk and lower return (but also zero residual value). No mention in the article, if longevity insurance products were covered. The article does mention that to overcome investors’ reluctance to buy income annuities, the insurance industry started building less expensive contracts, including options to access cash after annuitization and is using less dubious sales tactics. (I haven’t seen the study and I am keeping an open mind, but I would reserve judgement on the advantages of the annuities advocated by these professors until I see the specifics; as they say “show me the money”. See more on annuities in Annuities I and other upcoming blogs on this topic at this website as we try to better understand what they are about and how to decide if they are advantageous to us)
Still on annuities in “Backlash hits annuities tied to the stock market”  the WSJ reports the growing lawsuits faced by sellers of equity indexed annuities for using “deceptive marketing or targeting consumers who are too old to benefit from the products”. While many of these funds offer principal guarantees, in fact they come with high costs, high surrender charges to access to the funds and they offer limited participation in the gains available from the stock market. Many even sold policies to people with dementia. Not a great source of satisfied customer referrals.

And finally, bad news and good news for Florida’s snowbird property owners in “Judge dismisses Save-Our-Homes challenge” . Those who read my numerous blogs (rants?) on the subject are aware that four Alabamans have finally brought a suit against the unconstitutionality of Florida’s Save-Our-Homes amendment that resulted in a gross two-tiered discriminatory tax system. The bad news (though not unexpected from an elected judge in Tallahassee) was that the judge felt that the “law that shifted about $7.8B in property taxes from homesteaders to all other property owners this year is “even-handed” and not discriminatory”. The good news, if you are an optimist, is that the Alabamans’ lawyers are determined to pursue the case all the way to the U.S. Supreme Court, with a few stops along the way at various other courts in Florida. All Florida property owner snowbirds are watching their progress, while they continue paying their neighbours property taxes. If you want to read the complete story on pages 18-19 in “Snowbirds’ Florida Tax Crisis” in the current issue of Canadian Snowbird Association Magazine.