In addition to "Be Opportunistic" and "Avoid the Big Mistake," one of the time-honored investment maxims investors need to apply is "Use Common Sense."

In practicing common sense in the investment process, I rely not only on the wise teachings of my father, (a "common sense" district court judge for 30 years), but also that sage philosopher of the sandlot, Yogi Berra.

One of the many "Yogi-isms" that has stuck with me in my 26-year career is: "You can observe a lot just by looking around."

Taking A Look Around

If you think that change is occurring only in Washington D.C., have you looked at what is going on inside investment portfolios all over the country?

In September and August alone, investors withdrew a staggering $75.6 billion from mutual funds, while investing $62 billion into exchange-traded funds, according to the Investment Company Institute.

As the chart below demonstrates, in 2008 through September, $104 billion has flowed into ETFs and $31.1 billion has been redeemed from long-term mutual funds, which include stock, bond and hybrid mutual funds.

The disparity in flows is even more pronounced if we look only at equity stock fund flows. Stock funds alone have seen over $124 billion flow out through September. It is possible October flows will be even more disparate. Clearly, change is afoot in investor portfolios as the recognition that ETFS are a smarter alternative for most investors continues to grow.

What Would Yogi See Lately?

Trying to use your "left brain" as much as possible can be particularly useful in an industry where it is easy to fall into the trap of using only your "right brain."  

When I look around the industry today, what do I see? Below are a few of the events and happenings I observed recently. I think they all have meaning. All of the actions below are also manifested in the chart above:

• Harvard announces that eight of their top 10 individual holdings in their $36 billion endowment are ... ETFs. Connecting the dots here, it is easy to conclude that one of the smartest investors in the U.S., former Harvard CIO Mohamed El-Erian, is a pretty big fan of ETFs. Having joined PIMCO as CEO from Harvard earlier this year, guess which firm will soon be rolling out a suite of ETFs? Yes, PIMCO.

• American Century Investments, a 50-year-old mutual fund complex, cuts 270 of its 1,500-person work force.

• J.P. Morgan states they will offer ETFs on the Mexican Stock Exchange.

• Barclays Global Investors introduces 11 new iShares ETFs, priced in the 31-34 basis point range, that will compete directly with the age-based (target) and risk-based "packaged asset allocation products" offered by mutual funds. (These new iShares, by the way, are a brilliant introduction for a whole host of game-changing reasons ... but that's a column for another day.)

• Vanguard announces its ETFs have taken in $18.4 billion in flows in 2008 through October, with $2.6 billion in October alone. This surpasses the $18 billion taken in by its ETFs all of last year, and is 20% ahead of 2007's pace. 

What these events tell us is that something significant is going on. The flow data alone is simply startling.

Previous Page

1  |  2

Next Page