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Prashanth Krish | Portfolio Yoga - Part 17

Author: Prashanth Krish

Should you Panic – CoronaVirus

Coronavirus is said to have been transmitted from Bats to humans first. Today, it has spread from humans to stock markets as markets around the world tumble on the likely economic impact of the Virus that currently doesn’t seem to have any known cure.

Panic happens when we have inadequate information and coronavirus is one such case. On one hand, there will be an impact when an economy such as China more or less shuts down even partially. On the other hand, how should we act is a question that props up.

Let’s start with the worst case scenarios taking the idea from thousands of fictional novels and hundreds of movies which have dystopian futures as the key element of the plot. 99% of humankind is wiped out and the survivors fight back.

If that is to be the case, should you sell everything and buy Gold (which is rocketing currently). The answer of course is Nope for what use is Gold when it cannot protect your life or the ones of your loved ones. Heck, it may actually turn out to be a liability given the ease at which it can be stolen.

Should you Sell everything, convert your fixed assets to cash and wait to see how this pans out? Seems like a great idea, but like in Gold, this has a draw-back. What happens when there is a cry of Fire in a crowded theatre? A stampede.

If things go really bad, the first thing to shoot up would be Inflation as everyone wishes to stock up. While having cash may help you in the first phase, as prices keep going up, your money in the Bank like the Zimbabwean Dollar becomes a worthless currency.

Most conspiracy sites quote the “Spanish Flu” as bearing resemblance in terms of spread and hence in terms of damage. The difference in my opinion though is that unlike 100 years ago, we have much better knowledge and much better infrastructure to treat those who have been infected.

But since our focus is on markets, let’s look at its impact on markets. The Spanish flu killed Millions worldwide including an estimated 5% of India’s population at that point of time (Link). In the United States, 28% of the population of 105 million became infected, and 500,000 to 675,000 died (0.48 to 0.64 percent of the population). 

Since we have US Dow data of those times, it’s pertinent that we visit them to see how badly it impacted them. The key here is understand the Risks that may be out there and try to prepare for them rather than panicking like everyone else.

Do note that the period of time was also the same period when World War I was finally coming to a close and hence there would have been overlapping factors at play.

If you were to start when the Spanish Flu first erupted till when it halted, the Dow actually was higher than where it had started. Do note that for the Dow 1917 was a bad year and 1920 turned out to be another bad year (down 30%). Post that though, Dow shot up 400% in the coming years until the crash that brought upon the Great Depression.

I don’t believe that now is the time to dump stocks and move to cash. Instead, if the crash continues, I would rather be adding for its only in hindsight we recognize good opportunities.

Nifty 50 has not seen a fall in a long time even as the economic situation has deteriorated around. Not surprisingly just 2 days of fall seems to be creating some amount of panic when the truth is that only today the index closed slightly below its 200 day EMA

Before the financial crisis, Indian markets like a clock easily slid down 20% from its 200 day EMA literally every alternate year. Post 2008, we are yet to see one such move.

Plot of how far away has Nifty 50 swayed from its 200 day EMA

It’s important that you have a plan of action for having a plan in advance avoids panicking and behaving like the rest of the herd. If you strongly feel that markets may melt down, it’s not wrong to exit and reduce the risk exposure even now.

If you think that even this shall pass and are comfortable with the current asset allocation, moving higher or lower based on market triggers is the right approach. 

Do note that as Equity markets fall, so shall your exposure to markets even without you having to do anything (as total percentage). 

Every time markets fall, it seems that the world as we know is ending and everytime we are in for a disappointment as it did not end. If the world does end due to this virus, I doubt you shall complain to me that I was wrong, if it doesn’t hopefully this post would have given you an ability to create a framework on how you shall deal with this crisis – both financially and personally.

Debt – Invest in Long Term Funds or Short Term

In 1996, IFCI came out with Family Bonds. OF the many options it provided, one that interested me and one I had my family invest was Millionaire Bonds (Option 1) with a face value of 10,000 per Bond. 

As the name itself proclaimed, an investment of Ten Thousand would result in a final maturity amount of 1 Million. The investment itself was a no brainer despite my own lack of knowledge on interest rates. IFCI being a government owned company meant no credit risk and a Million Rupees is a Million Rupees.

The bonds would compound at a rate of 17% annually and at the end of 30 years would yield the investor the final maturity value of 10,00,000.00. The bonds if they were still in force would have matured in 2026 and while a Million Rupees these days doesn’t seem as much as it was seen in 1996, it still is a solid amount. 

Unfortunately for the Investors, the Bond also had an early call option which IFCI exercised and redeemed the bond in 2003 for a princely sum of Rs.30,270. So much for the Million Dreams that got shattered.

Today when interest rates at Banks are close to 7%, a 17% interest rate of the past seems like something that may never come back. Today even 7% appears to be mouth watering when we see the interest rates in european countries where you need to pay an interest on your deposit to the bank rather than the other way around.

Unlike in 1996 when there was no opportunity to lock-in funds for decades ahead, today we have such an opportunity in the form of 30 year government treasury bonds. If you don’t have taxable income, you are able to get an regular interest income for the next 30 years.

But if you are like most employed and have a taxable income, the returns are sub-par post accounting for the taxes (higher your bracket, lower the returns). Thankfully we do have Mutual Funds which can Buy and Hold such securities while income is recognized on your books only at the time of selling.

The biggest advantage of buying long term gilt is that you are locking in the interest for the future. But this can work either way. In a falling interest rate scenario, your investment like the IFCI bond would turn out to be an amazing winner.

Yet, the risk  is as high if not higher. In neighbouring Pakistan, Core Inflation in 2015 dropped below the 4% mark. Like us, it came even as GDP growth rate fell. This was a steep fall from the  17 percent inflation that was seen in the country in the year 2007-08. Interest Rates followed suit with the Central Bank slashing the rates to a 42 year low of 7%.

Today, Pakistan Inflation of 14.6% is the highest its been in the last 12 years. While most countries interest rate is going down, the Central Bank has been forced to hike it up to 13.25% (double the rates it had seen just 5 years ago).

Mutual Funds love selling longer term funds. The expense ratio for a Medium to Long Term fund is 5 times as expensive as a simple liquid fund. Based on current assets under management, I see very little interest in such funds {Ignoring for Liquid AUM, Medium to Long Term funds have been able to capture just 0.78% of the total assets}. 

Investing in Long Term Bonds requires a view on the interest rates and is not a Buy and Hold investment for if things go bad, you will end up not having any return even after years of being invested.

Thanks to the recent downmove in Interest Rates, 1 year Gilt returns looks extraordinarily good and this is starting to show up as interest both from advisors and retail clients. Jumping in now can be beneficial if interest rates continue to trend downwards, but if they react upwards, you would be in for a really long wait.

Short Term Funds carry the risk of reinvestment at lower and lower rates if interest rates continue to go down. But if they rise, they quickly start getting higher returns since the bonds are of short tenure and reinvested at a higher rate.

For a small investor, Debt funds are and should be used as Capital Protection for the rainy day. The real growth though shall come from Equity and hence the importance of asset allocation. Trying to generate Alpha through Debt is fraught with Risks that need not be taken in the first place.

Choosing the Right ELSS Fund

While India hasn’t been caught up as much in the move from active to passive other than on Twitter., the truth is that such a day is not far away given better education of the client since data that shows how few funds are able to beat the benchmark they track.

But while the odds of an active Mutual fund beating the benchmarks today stands at less than a coin toss, there are funds that have beaten the benchmark even on a 10 year stretch.  The big question though is whether we can identify such funds other than in hindsight.

Most mutual fund rankings that exist today are heavily tilted towards the recent performance of the fund. If the fund is performing strongly vs its peers, it gains a higher rank and vice versa. The problem with such rankings is the volatility of the ranks themselves. What is a 5 Star rated fund today can in a few months from now be a 3 Star rated fund. 

Randolph B. Cohen, Joshua D. Coval and Luboš Pástor wrote a paper titled Judging Fund Managers by the Company They Keep. While this paper came out in February 2003, it was only recently that I was able to read the same. I am not aware of any fund site that uses similar methodology to rank but the thought process seemed to have legs.

Investing in ELSS funds to save tax may not be required going forward for those who don’t wish to take advantage of the exemptions offered. While the tax advantage may go away, the bigger advantage of investing in a ELSS fund is that thanks to the lock-in, scope of one panicking and exiting the fund at the wrong juncture is minimized. I recently wrote a post around that though process – ELSS as a Nudge for Long Term Investing

Personally ELSS is my choice when it comes to tax saving instruments and every year I keep experimenting with strategies on which fund to pick. While it’s tough if not impossible to predict which fund shall do well over the next three years, I believe that it makes sense to give it a try than invest randomly even though the results of either endeavor maybe the same.

This year, I decided to modify and apply the strategy of selecting the fund based on the paper I have quoted above. With every fund house having an ELSS fund to attract such investors, today we have a choice of around 38 funds to choose from. 

18 Funds with Assets under management of greater than 1000 Crore have cornered 96% of the corpus (of approximately 98K Crores). I decided to take a deeper look at only these funds with two exceptions being Parag Parikh and Quantum. 

The method I choose to rank has two parts. On the first run, I decided to weigh their portfolios based on the strength of the portfolio stocks multiplied by its weight. The strength of the stocks was determined by their long term Momentum Score. 

A stock such as Bajaj Finance has very strong momentum while a stock such as Lupin scores very lowly on long term momentum. By multiplying the score by the weights, I am trying to reward funds that have strong stocks as their top picks versus funds that may hold the same stocks but have weights that are much lower.

While a high Momentum Score is good, what we also need to look at is how unique or otherwise the portfolio is. One way to go about doing this is find the covariances of the managers portfolio versus other portfolios. 

In other words, the focus here is to pick a portfolio that consists of good quality stocks that have generated strong risk adjusted return in the past and one that is as unique as possible compared to the alternative portfolios in existence.

Do note that when we talk about portfolios, we are talking about the current portfolio which is bound to change over the coming years. But if the fund manager has a great portfolio today and one that is unique, he would rank higher versus a portfolio of  stocks that have given poor growth and one that is not unique either.

To give an example, Pidilite Industries is a great company with a delightful product and more delightful advertising (in the past at least). Yet, only one fund has an allocation to this stock among the 20 we are scrutinizing. On the other end of the spectrum, you have Quantum which is the only fund to hold Yes Bank while SBI is the only fund that continues to hold Manpasand. 

By combining the scores, here is the final list of funds and their relative rank. It should be interesting to see how they fare at the end of 3 years from now.

Do note that Prediction is Impossible. Idea of having a method is any day better than making a  random choice. Past Performance of a fund may not be indicative of its future performance, but the Past Performance does provide data points which could be useful and the above analysis is one such attempt.

My past fund choices

2017: Axis Long Term Equity Fund

2018: Invesco India Tax Plan 

2019: Canara Robeco Equity Tax Saver

Some Trivia: 

Of the 20 funds, 19 of them have ICICI Bank. PPFAS is the odd man out. 

Across the 20 funds, they own around 350 Stocks with 185 stocks finding a space in only one fund.

IDFC Tax Advantage fund has the highest number of stocks in the portfolio {73 Stocks} while PPFAS has the smallest portfolio with only 20 stocks finding a space.

Tesla, The great Short Squeeze & the Lesson it Offers

You would have to be living under a rock to not have but noticed the twitter chatter around the ever rising price of Tesla’s stock. We are just one month into 2020 and yet it seems that traders who shorted Tesla may have already lost $8.3 billion this year alone.

But first, the Tesla Chart

This is a kind of move that can make or break careers. In 2009, when Porsche squeezed the shorts in Volkswagen, it ruined many fund houses then. 

Hedge funds lose $30 billion on VW infinity squeeze 

While one can lose money by going long in a stock, a stock can at worst go down to zero. But when you short, there is no limit on how much you can lose since there is no limit on how high the stock price can go.

Most Long – Short funds which have a large portfolio of short positions short stocks that they strongly believe are candidates for bankruptcy or are frauds. In the case of Tesla, many of the ardent short activists believe both to be true.

But my or your beliefs don’t make the market. The markets finally are Supreme even if they are wrong on many occasions. What is interesting about those who shorted or have a negative view on Tesla is how they seem to be blindsided that there are shades of Good, Bad and Grey in Tesla as it is with any other company. 

I am neither an investor in Tesla nor own its Car nor tweet about US markets regularly. Yet, I have amusingly found out that I am blocked by dozens of folks and the only common thread between them is that they are bearish on Tesla. 

Given that I have never followed or even replied to their tweets, the only way I would get blocked is if they specifically searched for me and blocked me. To me that shows a kind of hatred that has nothing to do with money.

But coming back to Tesla, it’s okay to be wrong but not okay to stay wrong is an adage everyone knows and yet Fund managers managing Billions of assets seem to believe that “apna time ayega”.

In India, Nifty today is a hated Index. The reason for the hate is that the Index is up while portfolio’s are down. Wouldn’t it be simpler and more profitable to own Nifty versus wallowing about how it’s all manipulated and stuff. How different otherwise are we then to folks who are bearish on Tesla and go about tweeting any and every conspiracy theory they can lay their hands upon.

Success in markets I have learnt comes in two ways. The first is to have a strategy that works on the long term for no strategy works all the time and will be wrong some of the time.

The second is behavior where one requirement is the ability to understand what is within our abilities and what is not. No point wishing for things which we cannot be influencing in any way.

It’s been 2 years since my portfolio saw an all time high. In my own past world, I would have already jumped through at least 2 if not more strategies to try and compensate for the chronic under performance I am observing.

But data I have tells me that this move has been well within the boundaries of what I should have expected. The risk was known and is well under control. As long as you have control of the risk and its not exceeded preset limits, there is no reason to switch to what is working today for tomorrow even that may stop working.

The reason for me to follow this strategy versus buying a Nifty ETF was to get a return which is greater than say buying and holding Nifty 50 and there is no reason for me to quit the same. This is one way to look at your portfolio when your strategy differs from the one everyone is tracking.

Kingfisher Airlines stopped operations in mid 2012. The stock continued to trade till September 2014. More recently we saw similar trading in Jet Airways long after the company had shut the door. I remember the same enthusiasm when Global Trust Bank botched up and it was to be acquired by Oriental Bank of Commerce with all equity being wiped out.

Investors continue to lap up even dead stocks in the faint hope that maybe one day it will all work out okay.

I am a strong believer in trends and regardless of how great a stock is, having learned my lessons at great cost, I would not wish to hold it once the stock starts to trade below its 200 day moving average. A 200 moving average is no different from say a 199 day moving average or a 201 day moving average. What all of them offer though is a defined exit that I can rely upon.

If you were short Tesla with a stop above the 200 day moving average, you would have been out of your short position when it traded at $300. Today its trading 3 times that number and we haven’t seemingly done yet.

Risk Management is critical for any Investor or Trader. If you don’t manage your risks properly, all it requires is for one to hurl you towards financial ruin for it’s a slippery slope with very little support on the way. The funds and individuals who are short Tesla today are those who ignored the Risks. Some may survive, but the harm it does in terms of psychology alone is Irreparable.  

Don’t fall in love with the stock is an adage as old as the hills. It works well to remember every time we try to defend a stock we are holding for we are just side-car participants in the company’s boom or bust.There are no additional points for you just because you happen to love them more. Have a plan on containing the risk a stock can do to your portfolio and stick with it. It’s that simple to avoid financial ruin.

Backtesting Asset Allocation

Asset Allocation is the cornerstone of every investor. A good asset allocation is something that allows you to comfortably sleep at night. A bad asset allocation on the other hand gives you heartaches with higher volatility while not exactly meeting your goals either.

When it comes to basic asset allocation, you can go in two ways – the fixed method where you decide on an split between equity and debt and keep it that way by re-balancing once a year or go the tactical way with your asset allocation dependent on other factors – how cheap or expensive the market currently is for example. The Portfolio Yoga Allocator is a tactical asset allocator.

These days I find asset management companies pushing towards Hybrid funds as a way to smoothen the volatility. A few years back, the same funds were being pushed as a superior investment owing to their continuous dividend paying policy which provided cash flow to the end customer. When the markets change, I change my Narrative. What do you do, Sir 

Across fund houses, as on date we have 180+ schemes that match the Hybrid / Balanced fund category managing over 3.8 Lakh Crore. The wonderful part of the whole equation is that they charge asset weighted around 1.65% for the pleasure of providing you some level of asset allocation split.

While the choices are many, just 28 of the 180+ schemes account for 80% of the total assets under management with HDFC Balanced Advantage Fund being the biggest of them (11.6% of total assets).

In the United States, Vanguard offers portfolios with fixed asset allocation split with expense ratio being below 0.10%. Interestingly you can devise your own fixed asset allocation portfolio here in India with the end cost being just around what Vanguard is providing its US clients.

SBI ETF that tracks Nifty 50 for example has an expense ratio of just 0.07%. While there has been Liquid Bees that has been in existence for long, Axis Liquid with assets under management of nearly 30 thousand crores and expense ratio of 0.11% is just as suitable.

Our goals are dependent on the future growth of our portfolios and while fund managers talk about high expectation of return, I for one felt that looking at the past data should provide us with a clue on what we should expect in the future.

For this exercise, I have chosen Nifty Bees as proxy for Equity and HDFC Liquid Fund as proxy for Debt. Portfolio’s was created in January 2002 and rebalanced once every year. The rebalance was subject to a variation of 5% from our target allocation. For instance if Equity shot up during the year and we ended the year with 65% Equity and 35% debt vs starting point of 60% Equity and 40% Debt, the additional equity is sold off and used to buy Debt to bring it back to the 60/40 ratio.

60 – 40 (Equity – Debt) Rolling CAGR

First up is the predominant asset allocation split. 60 / 40 is universal & the simplest asset allocation with a slight tilt towards equity. Do note though that since we have 60% in equity which is of much higher volatility than debt, if you were to measure the asset allocation in terms of volatility, this would seem more like a 80 – 20 split.

As on date, the 3 Year CAGR for this mix comes to 11%, its 7% for 5 years and 9% for 10 Years.

We measure risk by looking at the composite draw-down of the portfolio from the peak. As the chart below shows, most of the time the draw-down was limited to 10% or lower with the maximum being seen as expected in 2008 when markets dropped more than 50% and this portfolio dropped around 25%

Inverting the Ratio – 40 – 60 (in favor of Debt)

What if we tilted the ratio in favor of Debt vs Equities. How would that impact the returns and the Risk?

The chart below plots the same and as can be observed, the difference is minor. But do note that compounding on the long term can meaningfully change the end values for a 60/40 split vs a 40/60 split if the equity premium continues to remain strongly positive.

With Equity taking a back-step, we see a slight reduction in the draw-down as well. 14% is something one can live with given the rarity of such events.

The Aggressive Investor – 80 – 20 Split

If you are young with limited savings and a long road ahead, you may opt to be aggressive when it comes to equity allocation. While you can always go with a 100% allocation to equities, given the uncertainties in life, having a small allocation to debt can help during the bad days.

There is no free lunch and a 80 – 20 Asset Allocation also has a higher draw-down and higher volatility. But at the right time, high allocation to equity can boost your returns significantly.

The Reluctant Investor, 20 – 80 Split

But what if on the other hand you are retired and dependent on the savings for the rest of your life. You wouldn’t want to take unnecessary risks. Yet, with dropping interest rates, it does help to have a small allocation to Equities that can push up the overall returns in good years while not dragging them down substantially in bad years.

Thanks to the fact that our equity exposure is just 20% and one that is re-balanced regularly to keep in shape, the draw-downs is something you can sleep comfortably with even when the rest of the world is seemingly jumping off the ledge.

Asset Allocation is specific to each individual, this goals and his risk taking capacity. While we all wish for the largest gains, we cannot easily digest the large draw-downs that occasionally come with it.

Panic is certainty for everyone of us, but with the right allocation rather than panic we can take advantage of the opportunities provided by the market.

Before I conclude, lets take a look at the Equity Curve of all the above allocation strategies. It goes without saying that higher the equity exposure, better the end result.

One observation from the data is that returns are trending down for a long time now. While the future maybe bright, this data to me provides a perspective on what is possible and what is not.

Compared to fixed, I continue to believe that tactical can provide you with a larger advantage but since its requires monitoring of a regular nature and one can go wrong as well, its not everyone’s cup of tea.

Hope this post provides you some food for thought on how to approach your asset allocation from the perspective of future returns. If you have any queries, do drop me a mail or comment below.

Thoughts on the Union Budget

The Union Budget is a statement of account of the economic performance of the year gone by and the expectations of the year ahead. Thanks to the impact it has on literally all sections of the society, it is watched, debated and analyzed for days on end. 

From Twitter to Newspapers to Blogs, its filled with Analysis of every statement and line that is found in the Budget Documents. In this post, I don’t wish to go down the same road and drown you with more of the same.

Once upon a time, we used to have the Budget at 5 PM on the last day of February, This practice was inherited from the Colonial Era when the British Parliament would pass the budget in the noon followed by India in the evening of the day. It took more than 50 years till the time was changed to a more manageable 11 AM.

 Since the budget lays out the taxation for products and services, the direct impact on companies can be substantial and to ensure that the markets are not caught off-guard, the markets have been open during the presentation of the budget.

One commonality among literally all budgets is how much of expectation is built into the budget and how most people somehow are disappointed at the end. This year was no different other than for the fact that somehow the finance minister has seemingly angered literally everyone.

The stock market was upset because Long Term Capital Gains Tax was not removed and more importantly the tax liability on dividends shifted back to the investor. Worldwide, the poor aren’t greatly represented when it comes to investments in equity, it’s the rich who are able to divert a substantial part of their savings to equity.

90% of India’s population has no participation in markets. Yet, like the tail wagging the dog, the small minority of investors who get impacted by bear markets seem to believe that the prime function of the government is to keep the stock market happy.

The main line indices are often said to be barometers of the economy. If that is true, Indian Economy is in great state with Nifty 50 and Sensex being less than 7% away from their all time highs. Then again, whom are we kidding.

It had been 325 trading days since Nifty 50 fell 2.5% or more and the disappointment in the budget was evident when this spell was broken. Stocks which were seen to have a negative impact fell even more. But this is not the end nor the beginning, it’s just one more random day in a random year. 

Flush with savings that have shifted from other asset classes to equities, we had bid our stocks  too high even as the earnings showed no sign of catching up. The chickens have since 2018 have been coming home to roost. While it’s easy to shift the blame for the fall to the introduction of Long Term Capital Gains tax, the reality is that the rot had set a long time ago and all it needed was a little push.

The issues facing the country are many and yet we shall thrive somehow. Markets are mean reverting in nature and currently in a downphase but at some point will start moving higher regardless of whether the government acts big or not.

Markets get cheap – Markets become expensive – Markets get cheap again. It’s a cycle that has lasted time and again and something that is bound to continue in the future as well. The path forward is not to get disheartened by setbacks but see them as opportunities. 

The disadvantage of being a democracy has meant that very few politicians want to take the long call with everyone focussed on the short term calls that can boost their popularity. This has meant that we have missed opportunity after opportunity to set right the course. This ain’t getting solved in this budget or the next. 

To conclude, a Budget that seems bad for the stock market may actually be a good for the real economy. If the real economy flourishes, markets will turn on a dime. A growing pie is what we need for once the pie is growing, opportunities come to the fore despite government floundering.

Chart: Savings in Expense Ratio

Everything Is Relative said Albert Einstein. In stock markets, this is done by way of Bench marking our performance against another Portfolio. In the United States, ETF assets have grown at a compounded rate of 25% in the past decade as investors have shifted big time from Active Funds to Passive driven by consistent under performance by Active funds against the Benchmark Indices.

While the flow into ETF’s in the US is into the Top 500 stocks, in India much of the flows is into the Top 50 stocks. Having said that, the interesting data point to not here is that the returns of Nifty 500 since its Inception actually matches that of Nifty 50.

Performance of Nifty 50 vs Nifty 500 since Inception of Nifty 500

The biggest advantage of Passive is the savings on Fees which over time can be a huge. If you were to start your investment journey and save say a Lakh of Rupees for Retirement per year and add another Lakh per year which goes up by 6% every year, this is the difference between paying 0.10% or 1.25%  which is the approximate average of Direct Mutual Fund Fees versus Regular Mutual Fund Expense Ratio which is around 2.25% over a period of 30 years.

Comparing the Life time Expense (based on current expense ratios)

The differential itself is pretty incredible. Where is paying 3.60 Lakhs versus paying 45 Lakhs or 81 Lakhs. If you are investing in Large Cap funds, it makes very little sense to invest into any Mutual Fund and yet the truth is that 20% of Equity Mutual Funds are Large Cap oriented.

While on Twitter we find a lot of ETF warriors, the issue lies with the fact that financial products are more of a Push Product than Pull. This means that some-one has to paid to sell mutual funds or ETF’s or Insurance or for that matter any other product that asks for your savings.

ETF’s despite their growing popularity are an abandoned child. The biggest advantage of Mutual Funds lie in not just their commission model that allows others to benefit from the sales but also the fact that there is a fund manager who you can point fingers to in case of under-performance.

In case of the ETF, there is none other than maybe a couple of Fee only Advisors.

With RIA’s rules getting changed in favor of the big boys, I doubt this shall change. The benefits will be limited to the few while the majority will continue to pay a higher fee for a inferior product that serves them better neither on Return or on Risk.