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There is an alleged ancient Chinese curse, “May you live in interesting times.”

While there is no historical proof of the origin of that curse, there is ample current proof in the securities markets that  we are living in interesting times. It’s simply nasty out there — or at least it feels that way.

The image shows the year-to-date performance of six key asset classes:

• US Total Stk Mkt (VTI)
• Non-US Developed Stk Mkts (EFA) - excludes Canada
• Emerging Markets (EEM)
• US Equity REITs (VNQ)
• Commodity Basket (DJP)
• US Aggregate Bonds (AGG)

Commodities are up, REITs are up but rolling over, and everything else (stocks and bonds) is down.

Click image to enlarge

That made us think about advice from Warren Buffet for difficult times.  Here are some of his comments that may be relevant as investors watch wilting portfolios:

Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics is equally unpredictable, both as to duration and degree. Therefore we never try to anticipate the arrival or departure of either. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.

Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful.

Our favorite holding period is forever.

If you are a professional and have confidence, then I would advocate lots of concentration. For everyone else, if it’s not your game, participate in total diversification. The economy will do fine over time. … buy a cheap index fund and slowly dollar cost average into it.

We don’t get paid for activity, just for being right. As to how long we’ll wait, we’ll wait indefinitely.

The stock market is a no-called-strike game. You don’t have to swing at everything  –  you can wait for your pitch. The problem when you’re a money manager is that your fans keep yelling, ‘Swing, you bum!’

Clearly, Warren Buffet did not mean that if you hold a poorly designed portfolio you should hold forever.  He means that if you used good judgement and had conviction when you invested, you should not be troubled by storms, which are always followed by sunshine.

Richard Shaw
QVM Group LLC

Today, Vanguard’s new Total World ETF (VT), tracking the FTSE All World index, became available to trade.  It’s too early to get into the ETF, because there is virtually no volume, but this fund deserves watching.

The FTSE All World Index covers 47 countries and 2,908 companies, including both developed and emerging markets.  FTSE says the index covers 98% of the investable world universe.

The ETF from Vanguard charges a 25 basis point fee.  The sister mutual fund (VTWSX) has a higher expense ratio and charges a 2% fee for redemptions in the first two months (not a factor for the ETF).

In the short term, the mutual fund would be a better choice if you have a time horizon over 2 months, because of the liquidity factor.

The mutual fund will definitely execute at NAV on the day you place your buy order and will definitely execute at NAV on the day you place your sell order.

However, the ETF may not execute at all on the day of an order given the negligible initial volume.  Here is a place where Vanguard has a strength that most other ETF sponsors don’t have — the ability to offer a mutual fund or an ETF for the same objective (actually the same investment pool).

Here is a listing of the top ten country holdings and the sector weightings as provided today in a FTSE email to investment advisors:

This fund will likely be useful to some investors as a core equity holding, to which they would add other country and sector funds to “tilt” their equity exposure this way or that, based on their situation and market views.

Note: FTSE is a joint venture of the Financial Times of London and the London Stock Exchange.

Richard Shaw
QVM Group LLC