Covestor and CVIM Blog

Investors Pulling Out of Funds

The Financial Times ran an interesting piece this weekend about Investors worldwide pulling almost $100bn out of equity funds in the first three months of this year - a record shift, and part of a long term trend away from the US market. The article goes on:

The outflows also accelerate a trend for investors to put their money either in ultra-safe cash options such as money market funds, or into riskier markets and high-fee products such as hedge funds. They are abandoning the middle ground of mainstream equity and fixed income funds, especially in the developed markets.

At the same time money market funds have seen record inflow's, adding c$140bn in the same period.

There is clearly a great deal of cash out there waiting for markets to stabilize. Albeit much of the current outflow is caused by the credit squeeze, with low cost ETFs on one side, and the democratization of active money management on the other (e.g. on Covestor), unless they pick up their own performance and transparency who would argue that these funds will flow back.

Bernanke And The Fed

With the emergency 0.25 point rate cut over the weekend, and the news that JP Morgan have bought Bear Stearns for $2/share (a valuation of c$235m) it is going to be an interesting week in the markets.

A number of members have already shared their views on what falling interest rates and a weakening dollar mean, both for the economy and for their portfolios. We are highlighting a number of these as they are well worth checking out.

Views on Bear Stearns from:

• StockMarketBeat
• BobsAdvice
• Mooney

More general views on interest rates and market volatility from:

• bnbien
• DeeFree
• GraySwan
• wong55
• fredwilson

Keep the commentary coming - we will do our best to highlight it throughout the week, both to others members and to journalists.

Members In The Press (Follow Up)

Following on from an earlier post, we are delighted that so many members we put forward have been referenced in recent articles about the market conditions. These have appeared in the press worldwide, highlighting the quality of investors in the Covestor community.

Recent citations include:

• Peter Kurata - Talking about the opportunity presented by high commodity prices
• Bob Freedland - Talking about how he is reacting to the volatile conditions
• Sean Hannon - Talking about the impact of a weak dollar for consumers

In many ways our favourite example is the pick up that Fred Penney's comments have had in his native Newfoundland.

Having been quoted on his views re handling stock market volatility, he made front page news in his local paper, The GFW Advertiser (click on image to the right). Local radio station, CBC, followed this up with an interview and have now asked that he appear occasionally on their show.

Many congratulations to them all - if you would also like to be put forward for press requests we recieve, please get in touch.

Weekly Member Interview: Tom Carlson

This week's interview is with Covestor member Tom Carlson, aka tmantrader. As Tom explains on his profile, he retired from corporate life in 2006 and now trades full time - managing both long term and short term accounts.

Tom is largely a technical trader, who having trained as an actuary, applies his background in data analysis to proprietary trading systems that he builds and back tests. In the account he shares on Covestor he is primarily a swing trader - holding overnight and for periods of 2 to 10 days.

In his interview Tom talks about his approach and some of the parameters he factors into his trading systems. He also shares a list of some of the books which have helped in to develop as a trader. Tom has had a fairly volatile ride in the markets since joining Covestor 6 months ago, but continues to outperform his chosen benchmark, the S&P 500.

As always you can put your questions directly to Tom on his fact sheet, and you will find his interview with The Wall Street Transcript posted in the top right hand corner.

The Economist: Special Report on Asset Management

The current edition of The Economist has a special report on asset management.  The first article, by Philip Coggan, The Economist's Capital Markets Editor, highlights how the fund management industry has and continued to do very well, but for itself.  Here's a quote from the introductory paragraph:

Imagine a business in which other people hand you their money to look after and pay you handsomely for doing so.  Even better, your fees go up every year, even if you are hopeless at the job.  It sounds perfect.  That business exists.  It is called fund management.

The article goes on to report that the average profit margin that fund managers who took part in a Boston Consulting Group survey was an astonishing 42%.  Fees tend to grow 15% per year despite the industry's vast size - Watson Wyatt estimated value of all professionally managed assets of more than $64 trillion at the end of 2006.  And despite the introduction of lower cost alternatives, such as index tracking funds and ETFs, fund managers have been very successful at maintaining their high fees.

If you have any stories of rip off funds, we'd love to hear from you.  Or why not ask your fund manager to join Covestor to showcase the value they truly provide.

You can read the full Economist report here.