Author Archives: Scalper1

Are Fund Awards Only Showtime For Mutual Funds?

By Detlef Glow Not only the film industry has glamorous events such as the Academy Awards (better known as the “Oscars”) and the “Golden Globe Awards,” where juries select and reward the best movies from their point of view. The mutual fund industry also celebrates its best performing funds with fund awards ceremonies at the beginning of the year. As with movies, these fund awards are determined by a jury (a qualitative screening) or with a quantitative screening on a global basis by the likes of Morningstar and Thomson Reuters Lipper, who use a similar quantitative methodology for their awards all around the world. Or the funds are selected by local players, who award funds only in a single country or region according to their definition of the best funds. Are awards useful tools for fund selection? Fund awards reward the past performance achieved by a portfolio manager. Since past performance is the only way to evaluate the achievement potential of a fund manager, fund awards-like fund ratings-can be used as a tool to support a quantitative fund selection process. Opposite to fund ratings, where normally a group of funds gets the highest score, there is only one winner in each peer group for a fund award. In this regard, one can assume that an award can be used as guidance for fund selectors. But this is only true if the methodology on which the award is calculated suits the expectations and requirements of the investor, especially with regard to risk-adjusted returns. It is key for investors who want to use awards as tools in their fund selection process to know the methodology and/or selection process employed in the determination of the award winners. Unfortunately, the majority of funds are not able to maintain their top position for the succeeding year. Even though some observers see this as a big disadvantage of fund awards, it is the nature of the beast; not all investment approaches such as value or growth work well in any given market environment. But, unlike for movies, there are funds/fund managers that are able to win the categories year after year, and these might be the funds an investor should examine more closely. Fund flows as an indicator of future performance Another issue that can’t be neglected is the impact of high inflows and outflows on a mutual fund. As shown in the study “The Kiss of Death” by Matthew R. Morey , a good rating can have a massive impact on the flows into a fund, which can at some point have negative impacts on its performance. Even though the author analyzed only the impacts from one rating and the negative effects do not apply to every fund, investors need to monitor the flows of all funds in their portfolio regularly, so they can act appropriately if a fund becomes too small or too large. Summary Fund awards, like fund ratings, are an additional tool that can be used by investors to support their fund selection process, as long as the criteria used to nominate the award winners suit the needs of the investors. It can be concluded that fund awards ceremonies, which are typically held over the first quarter of any year, are not only a show event where the employees of the mutual funds industry enjoy a glamorous evening and the organizers do their marketing bit; the funds also get a lot media attention at these ceremonies. But a fund award can’t replace a full fund analysis process; investors still need to invest a lot of work in their fund selection process even if they may use awards as guidance. At the end of the day, as it is for the movies, not everybody likes all the winners; everyone is looking for different funds that may be the winners the next year. The views expressed are the views of the author, not necessarily those of Thomson Reuters

Kanye West Boosts Tidal, Vows Not To Offer New Album Via Apple

Iconoclastic rapper Kanye West gave Tidal a boost by debuting his new album, “The Life of Pablo,” exclusively through the Jay Z-owned streaming music service. West also announced that he would not offer the album through Apple ( AAPL ). It’s been a busy few days for self-proclaimed genius West. He released his new album on Tidal after performing on “Saturday Night Live” over the weekend. He also announced that he is $53 million in debt and asked Facebook ( FB ) CEO Mark Zuckerberg for $1 billion. And he got into a new spat with pop star Taylor Swift and proclaimed himself this generation’s Walt Disney. The Tidal app jumped to the No. 1 spot on Apple’s iOS app store thanks to the “The Life of Pablo” exclusive. West later took to Twitter to announce that the album would never be on Apple iTunes, Apple Music and presumably other services, such as Spotify. “My album will never never never be on Apple. And it will never be for sale. … You can only get it on Tidal,” West tweeted on Monday. Apple Music has had some success without West’s help. Apple revealed last week that Apple Music now has 11 million paid members. The streaming music service costs $10 a month for individuals and $15 a month for a family plan that can be shared by up to six people. Apple Music started the year with 10 million paying subscribers. Tidal also costs $10 a month, but it offers a $20-a-month plan for lossless (high-end data compression) high-fidelity sound quality. Apple Music boasts its own exclusives. Music artist Future debuted his latest album “Evol” through Apple Music and iTunes. The album hit No. 1 on the Billboard 200 chart, thanks to the exposure on the Apple platforms, AppleInsider reported . Tidal might not get much traction from the West album release because it upset customers who wanted to download the album, Edison Investment Research analyst Richard Windsor said in a research report. “The release of Kanye West’s latest album, ‘The Life of Pablo,’ has rocketed Tidal up the Apple App Store charts, but we suspect that Tidal’s awful handling of its new customers has done more harm than good,” Windsor said. Tidal initially offered the album as a digital download, as well as via the streaming option. But customers who paid for the album (at $20 a pop) were unable to download it. They were also hit with a mysterious $1 service fee, TechCrunch reported . Some customers reported being double-billed for the album and the service fee. West later decided not to offer the album for download on Tidal, and customers are left waiting for refunds. “Apple and Spotify are likely to be the main beneficiaries of Tidal’s woes, but we think that Tidal’s numbers are so small that it is unlikely to make a visible difference to either company,” Windsor said. “Apple and Spotify remain the two leaders in music streaming and the only two (excluding YouTube) that are likely to be around long term.” RELATED: Apple Pulls Trigger On First Original TV Show, Starring Dr. Dre .

Distinction Between Mutual Funds And Hedge Funds Is Eroding

The growth of liquid alternatives combined with an evolving regulatory framework is leading to a confluence between ’40 Act mutual funds and private hedge funds, according to Wulf A. Kaal, contributor to the forthcoming Elgar Handbook on Mutual Funds. In an expert from that guide, titled Confluence of Mutual Funds and Private Funds , Mr. Kaal makes the case that mutual funds are becoming more like hedge funds in terms of strategy, while hedge funds are becoming more like mutual funds in terms of regulation. In Mr. Kaal’s view, this calls into question the distinction between mutual funds and private funds. Eroding Distinctions While it’s true that mutual funds and hedge funds still occupy distinct segments of the market, employ some different strategies, serve largely different clients, and are subject to different legal rules, the gulf between the two types of funds is eroding. This is due to a combination of market forces, as retail investors seek out alternative strategies while institutions demand greater liquidity and transparency; and regulatory changes such as the Jumpstart Our Business Startups Act (the “JOBS Act”), which makes it easier for non-accredited investors to fund private, startup enterprises, including via crowdfunding. Alternative AUM Growth In terms of market forces, Mr. Kaal points out that, since 2005, alternative investments have grown twice as fast as traditional investments, in terms of assets under management (“AUM”). Although traditional investments, i.e. long-only stocks and bonds, have seen AUM grow from $37.1 trillion in 2005 to $56.7 trillion in 2013; in terms of percentages, the growth in alternative AUM from $3.2 trillion in 2005 to $7.2 trillion in 2013, is greater. While traditional investments’ AUM grew by a total of 52.8% during the period under review, alternative investments saw their AUM more than double. Rate of Growth Across Alternative Investments Mr. Kaal breaks down AUM growth across three alternative-investment structures: Alternative mutual funds Hedge funds Private equity He also lists the AUM growth for all mutual funds – i.e., mostly traditional assets – as a control group. His findings: While all four categories suffered AUM drawdowns in 2008, alternative mutual funds had by far the strongest growth in 2009, 2010, 2011, and 2012. Alternative mutual funds continued to grow in 2014, but at an abated pace. All three alternative categories showed positive AUM growth for all years, save 2008, while traditional mutual funds lost ground in 2011. Conclusion Market forces and regulatory changes are leading to a confluence between mutual and private hedge funds – but what are the implications of this confluence? Mr. Kaal lists several areas he expects will be impacted, ranging from mutual fund governance to the structure of federal securities law, and he opines that possible effects of this confluence could include “drastic immediate repercussions for market participants.” He concludes his paper by calling for continued monitoring, scholarly evaluation, and regulatory scrutiny of these developments. For more information, download the full report . Past performance does not necessarily predict future results. Jason Seagraves contributed to this article.