Individual Investors’ Reaction to PIMCO Shakeup? 85% Stayed Put

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It’s been nearly a month since Bill Gross’s sudden departure from PIMCO rattled the investment world. Analysts predicted investors would pull billions out of the funds — and were right.

The reaction was swift: investors withdrew $23.5 billion from PIMCO Total Return in September, the lion’s share of which happened Friday after the news broke, according to the Wall Street Journal. This represented about 10% of the fund. Meanwhile, nearly $550 million left PIMCO Total Return ETF (BOND), which was also under Gross’s management.

What about individual investors? Since the news broke on September 26, nearly 4.5 times more dollars tracked by SigFig have flowed out of PIMCO funds than into them. But this activity was concentrated among 15% of owners of PIMCO — 85% of PIMCO holders have not engaged in any trading in this timeframe.

Investors seem to have moved that money over to other bond funds, with Vanguard’s Bond Index fund (VBTLX) and the iShares Barclays Aggregate Bond Fund (AGG) among the beneficiaries. With an expense ratio of 0.08%, the low-cost VBTLX and AGG are bargains compared to the bulk of bond funds that charge 0.45%-0.90%.

What Women Can Teach Men About Investing – And Vice Versa

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Who invests better, men or women?

Academic research is nearly unanimous: women do. Why? Because men trade more often, incur unnecessary fees and taxes, and suffer inferior performance. (Guys, don’t worry. We’re only talking about investment performance.)

Or, as the title of a popular book put it: Warren Buffett Invests Like a Girl.

One of the most widely cited studies of investment performance by gender is a 2001 paper by Brad Barber and Terrance Odean called “Boys Will Be Boys.” In it, the authors look at the performance of over 30,000 households with accounts at a large brokerage. They found that men significantly underperformed women in their investment accounts. The difference was most pronounced—over 2 percentage points per year in returns—between single men and women.

But the data behind that study is now nearly twenty years old, collected before the advent of robo-advisors, online discount brokerages, and exchange-traded funds (ETFs). At SigFig, we were curious whether we’d find the same trend in our data set, collected from all types of accounts (taxable, 401(k), IRA, and so on) over the last 12 months.

The answer is mixed. Women definitely still invest better than men on a variety of measures — but men have a couple of habits worth emulating, too.

Trading and Performance

Men trade much more than women, executing 33% more trades, on average, in the last year. (If we measure by portfolio turnover, men have 50% higher portfolio turnover than women.) We’ve confirmed that trading more is associated with inferior performance.

Indeed, our data suggests that women earned higher returns (net of fees) than men in the last year, for portfolios of similar or even lower risk. The difference is on the order of 25-50 basis points, however, and the time period short. We’ll keep an eye on it.

Security selection

Here’s where the story gets more mixed.

Men tend to hold more individual stocks than women as a percentage of their portfolios (29% vs 24%). But they also hold more ETFs than women (17% vs 12%). ETFs tend to be cheaper than traditional mutual funds and less likely to be actively managed.

Indeed, when we look at the fund expenses our users are paying, women pay slightly more, 0.48% for women vs 0.42% for men annually. That doesn’t take trading fees or taxes into account, however, which is probably why women still outperformed men.

Not so different

We’re stereotyping here. Male and female investors are more similar than different. It would be easy to find an individual woman who day-trades or a man (such as this writer) who sits on a low-cost portfolio and rebalances it once a year.

But the differences are real. Women who have to endure lectures about investing from the men in their life have every right to smirk and ignore them.

How to Navigate a Market Downturn

The hardest part about being a disciplined investor is maintaining a patient, thoughtful approach in the face of market headwinds. It’s tempting to sell your portfolio and wait out the storm, at least until things seem to have settled down.

Worldwide, stocks have fallen significantly and volatility is higher. Developed equities have fallen 10% from their highs and the S&P 500 dipped 7.5% in the last month; 10-year bond yields briefly fell back under 2%. Over the last month, a 60/40 stock/bond portfolio — a common asset allocation benchmark — is off more than 4%.

Common reactions are to hit the panic button and liquidate everything and wait. When our investment decisions are made on fear, however, we’re running from the smart, calm approach that should guide our rational long-term planning. Instead, the smart, long-term approach is to stay the course.

The chart below shows the S&P 500 over the one-month period from July to August 2011. The S&P 500 fell almost 15% in the month. The market had been on a tear through mid July, up 50% from its 2009 lows.

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If you jumped out of the boat in August 2011, nervous that stocks were overvalued, you’d have missed a big chunk of a great market rally. Over the next three years, the market was up 68%.

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The research says stay the course. Don’t try to time the market. Invest, confirm your risk tolerance, harvest available tax losses.

  • Don’t try to time the market. Attempts to time the market, by jumping out at initial signs of market tops, or jumping in at signs of market bottoms, underperform a disciplined, buy and hold, stay the course approach.

    Most finance research indicates it is nearly impossible to figure out where the market is going (minutes, days, weeks, months, or years from now). It is impossible to know if the markets will move higher in the coming days or continue with volatility. (Even the so-called experts do not beat the market reliably.) Still, markets historically reward smart, disciplined risk-taking over the long-term: investors take on risk by investing in companies and are rewarded with capital gains and dividends.

  • Invest. We’re big proponents of setting up regular, recurring deposits. These serve three purposes: They build your account value, getting more of your assets to work for you. Deposits enable a simple rebalancing of your portfolio to pick up small relative under-valuations between asset classes. They enable you to invest when the market has experienced a larger decline. These factors combine to lower your portfolio volatility and your overall risk.
  • Confirm your risk tolerance. If you’re watching the market downturn nervously, it’s a signal to rethink your risk exposure. Take (or retake) our questionnaire and see if your portfolio’s risk level matches your current comfort with market volatility. Your portfolio should be aggressive enough to achieve the long-term returns you want, while still enabling you to be comfortable living through short-term market pullbacks.
  • Harvest tax losses. Our investment team carefully reviews market conditions for opportunities to reduce your taxes. We automatically look for conditions to lock in a lower cost-basis and capture tax losses for our clients, who can use that loss to offset other gains (and even income) to reduce their taxes. We purchase a similar asset class ETFs so our clients remain fully invested for a market rebound.

At SigFig, we work to deliver the optimal investing tools and asset management services for our clients and their portfolios in any market conditions. Choppy market waters can frighten even the most seasoned investors, but with the right tools and investment partners, even a market downturn can be an opportunity to invest better.

The People Marched for Climate — But Are Investors Buying It?

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There’s some dispute about how many people attended the People’s Climate March in New York in September. But it’s clear that Americans are convinced climate change is real, and it’s a problem. In the most recent Pew Research Center polls on the subject, 61% of respondents believe there’s good evidence to show climate change is happening, and 48% believe it’s a major threat to the country.

What about putting their money where their “march” is, though? Do investors believe in renewable energy enough to make the sector a part of their portfolios?

We set to find out. Based on the top holdings in sector ETFs, we created a list of 20 traditional energy stocks, including oil and gas giants like Exxon (XOM) and Chevron (CVX), and 20 ‘clean’ or renewable energy stocks, including Tesla Motors (TSLA) and First Solar (FSLR). Then we checked what percentage of Sigfig users – investors who track their portfolios on SigFig – owned any of the securities on either of those lists. We also placed users into age buckets, to see if there were any differences between generations.

One trend jumped right out: older users are more likely to have energy stocks, while younger investors are more likely (than older ones) to own alternative, or clean energy stocks.

Yet, SigFig users as a whole are still betting more on traditional energy companies than on newer renewable energy companies. About 26% have a traditional energy company in their portfolio, while only 8% have invested in a renewable energy stock.

If investing in traditional vs clean energy companies is any indication, younger users are more invested in change than their elders. Traditional energy stocks are in the portfolios of 14% of users between 30 and 39, compared with 30% of investors in their 50s, 37% of investors in their 60s, and 43% of investors in their 70s. And the opposite trend holds for renewable energy stocks: 11% of investors in their 30s own a ‘clean’ energy company, with TSLA being the most popular choice, but that number drops to 8% for investors in their 40s and 50s, and 7% for those in their 60s and 70s.

Of course, this trend may be as much a reflection of younger investors’ tolerance for risk — and thus willingness to invest in smaller, non-dividend paying stocks — as of their belief that the way we power our cars and gadgets has to change. Oil giants like Exxon, Chevron, BP (BP) and ConocoPhillips (COP) pay dividends, which is both a sign of stability and a source of income: something of particular importance to retirees, as they begin to rely on their portfolios for cash flow. Most alternative energy plays like Tesla, First Solar, SunEdison (SUNE), or SolarCity Corp (SCTY) are younger and likely riskier investments.

People of all ages joined the call for action on climate change in September, but only younger investors have enough time to recover if their riskier bets don’t pay off.

Despite Recent Dip, Tesla Investors Sit on Supercharged Gains

In a much-anticipated event Thursday night, Tesla CEO Elon Musk announced — among other automated-driving and safety features — a new dual-motor all-wheel-drive system that can go from zero to 60 mph in 3.2 seconds.

For Tesla (TSLA) investors, gains seem to be similarly supercharged.

SigFig users who own TSLA are now sitting on an average 215% unrealized gains, according to our data. And for those who bought into the IPO in 2010, unrealized gains top a whopping 738%.

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So it should come as little surprise — especially considering the potential tax consequences of selling a big winner — that the stock now represents quite a big chunk of some investors’ portfolios. It is the single largest holding for 23% of SigFig users who own TSLA. And for those investors, it represents an average 25% of their worth.

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Betting so much of one’s portfolio on a single stock can be risky. Though as usual, we can’t be sure these users are syncing their entire portfolios with SigFig — we could be getting a partial view of a more diversified picture.