Be of good cheer!

by | Oct 22, 2019 | Investing

Here we go!

The next 12-month period promises to be among the most interesting runups to an election in a long time.  For some, it may also be an alarming and discouraging time.  As almost everything gets perceived through a political prism, and media sources take full advantage of the extra attention they can garner in a big election year, the cacophony may rise to ear-splitting and mind-numbing levels.

A gentle reminder – beware letting all of this wear you down.  I have to admit I sometimes find myself feeling pretty discouraged when I have heard a little too much news, too much negativity and speculation.  In a perverse way it can be addictive, if for no other reason than the forlorn hope that something positive might come up next.

Whatever your interest in the political process, try to keep your spirits up, and if the noise gets to be too much sometimes, get away for a while and clear your head.  Maybe remind yourself that we have seen many a crisis; they all seem critical at the time, but life usually goes on.  Being upset could reduce your resistance to bad ideas and even panic at difficult moments.

Meanwhile, anything interesting happening in the broad markets?

In our quarterly market summary, you can see that the third quarter produced very modest returns overall.  The S&P 500 was up 1.7%, while small cap and international equities declined slightly.  Bonds continued to produce strong returns as interest rates remained very low.  The good news is that this small positive return leaves a well-diversified portfolio with excellent year-to-date returns.  For example, the S&P 500 and the Investment Grade Bond Index, represented by the Bloomberg Barclays US Aggregate Bond Index, were up 21% and 8.3% year to date, respectively.[1]

Looking at the big picture and long-term developments, a couple of recent articles are worth discussing.

Passive equity management continues to increase market share at the expense of active management

As we have discussed many times, it is exceedingly difficult to actively manage publicly traded stocks and beat the correct benchmark after fees and trading costs, even before considering taxes.  As a result, we continue to see funds flowing into passively managed equity funds and out of actively traded funds almost every year.  In fact, active funds have experienced outflows every quarter since mid-2014![2]

I just thought it would be interesting to point out this historical and fundamental change in how equities are managed.  This particular article only looked at funds and ETFs, ignoring institutional funds and also limiting their definition of “passive” to index funds, ignoring the various factor and quantitative funds which are also low-cost and largely passive, and so they understate the trend.  It is a big, big change.

Myth of the ETF

This article is a good reminder of why ETFs are a small part of the mutual fund world, despite their growth and the headlines they garner.  ETFs are mostly passive, and therefore low-cost, but not lower than passive mutual funds.  They are often compared to active funds or all funds, giving the wrong impression.  They are used by hedge funds for active trading, including shorting, but seem to offer little advantage to the long-term investor, thus their relative unimportance in the world of mutual funds.[3]

Best Regards,

Roger Hewins


Team Hewins, LLC (“Team Hewins”) is an SEC registered investment adviser; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. The information contained within this letter is for informational purposes only and should not be considered investment advice or a recommendation to buy or sell any types of securities. Past performance is not a guarantee of future returns. It should not be assumed that diversification protects a portfolio from loss or that the diversification in a portfolio will produce profitable results. The opinions stated herein are as of the date of this letter and are subject to change. The information contained within this letter is compiled from sources Team Hewins believes to be reliable, but we cannot guarantee accuracy. We provide this information with the understanding that we are not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas. For detailed information about our services and fees, please read our Form ADV Part 2A, which can be found at or you can call us and request a copy at (650) 620-3040.

[1] Source: Morningstar Direct, data as of 10/17/2019

[2] Lim, Dawn. “Passive Investing Resumes Its March.” The Wall Street Journal, Dow Jones & Company, 18 July 2019, .

[3] Ravo, Nick. “ETFs Get All the Buzz, but Mutual Funds Still Dominate. There’s a Reason.” The Wall Street Journal, Dow Jones & Company, 7 Oct. 2019, .