Member News 2013
Model Portfolio Combines Mutual Funds, ETFs
AAII members trying to decide whether to invest in mutual funds or exchange-traded fundscan now look to the Model Fund Portfolio for guidance. This portfolio has been revised to take advantage of the strengths of both, by combining mutual funds and ETFs.
As AAII Founder and Chairman James Cloonan explained, ETFs offer the advantages of generally lower expenses, the ability to both get updated pricing information and buy and sell shares any time the market is open and the ability to tax-manage them according to individual requirements. What ETFs cannot do, however, is exploit the significant inefficiencies that currently exist.
Actively managed mutual funds, which are not tied to an index, can exploit these inefficiencies. Mutual funds add value when the investment approach used provides a post-expense return advantage or reduces risk for the portfolio.
Funds are grouped by category. This year we added new target date fund categories. We also expanded our sector listings to include new categories for funds investing in consumer discretionary, consumer staples, industrials, natural resources/commodities and global real estate stocks. To make comparisons easier, we publish averages for each category and bold those funds that rank the best among their peers for each characteristic (e.g., three-year return).
If you prefer instead just to see the best funds, each March we tell you. This popular AAII Journal article identifies the funds in each category that realized the highest five-year returns. We further explain the trends behind the good performance, so you can judge whether the performance advantage is sustainable.
Our Investor Classroom can also help you better manage a fund portfolio. We offer useful lessons on what exactly a mutual fund is, how to assess a fund’s risk, what to look for in fund statements and how to buy and sell fund shares. You can find these lessons and other useful information at www.aaii.com/classroom.
In addition to our mutual fund guide, we also publish an annual guide to the top exchange-traded funds. Last year’s guide covered 450 ETFs in the print version of the AAII Journal and 1,475 funds on AAII.com. We provided return data on all U.S. exchange-listed ETFs, including performance, yield, net asset value, expense and tax efficiency. Whenever possible, we use the same categories as our mutual fund guide to make comparisons. Also like the mutual fund guide, those ETFs that rank best among their peers are highlighted with bold type.
The best-performing ETFs are highlighted in the September AAII Journal. We highlight those funds with the best three-year performance by category. We also explain the factors behind the strong performance so you can judge whether the good returns are sustainable. Updates to the ETF Guide and the Top ETFs will be published in the August 2013 and the September 2013 AAII Journal, respectively.
The Mutual Fund Guide and the ETF Guide are just two of the guides available to you as an AAII member. On the AAII Guides page (www.aaii.com/guides), you can also find helpful information on taxes, investment websites and discount brokers. You can also read Jim Cloonan’s Lifetime Investment Strategy, which provides important guidelines for successful portfolio management.
AAII Financial Summary
Annually, AAII publishes its year-end balance sheet for members and life members interested in the finances of the association. Prior years’ balance sheets can be found online in the Member News sections of past AAII Journals.
|Assets||Liabilities and Fund Balance|
|Current Assets||$728,406||Accounts Payable||$285,530|
|Investments||6,583,842||Deferred Membership Revenue||4,241,933|
|Net Fixed Assets||10,508||Deferred Life Membership Revenue||12,768,061|
|Total Assets||$7,322,756||Total Liabilities and Fund Balance||$7,322,756|
|Note: Deferred membership revenue is recognized periodically as income over the membership period. Deferred life membership is recognized periodically as income over a 25-year period. This accrual method of accounting reflects the Association’s long-term obligation to its members.|
AAII Investor Conference 2013:Keynote Speakers This Fall in Orlando
This November, AAII will be hosting our Investor Conference in Orlando, Florida, and we are pleased to announce that we’ve arranged for two well-respected and prominent investment professionals to provide their view of the markets to our members.
The AAII Conference Keynote Opening Session will feature James O’Shaughnessy. He will discuss stock investing while using history and data as a guide to explain to attendees the key characteristics of investments that do and don’t lead to better returns. Jim is the chairman, CEO and CIO of O’Shaughnessy Asset Management.
Recognized as one of America’s leading financial experts and a pioneer in quantitative equity analysis, he has been called a “world beater” and a “statistical guru” by Barron’s. In February 2009, Forbes.com included Jim in a series on “Legendary Investors,” along with Benjamin Graham, Warren Buffett and Peter Lynch.
The Keynote Luncheon Session will feature Dr. Robert Shiller, Yale economics professor and renowned investor. Shiller is one of the most far-seeing economists of our time. He will discuss whether stocks are attractive or expensive at current levels. Using historical data and relative valuations, conference attendees will see how stocks are valued now and where investors should look for future opportunities.
Shiller is known around the world for his brilliant forecasts of financial bubbles and his penetrating insights into market dynamics. His presentation is a “must see” for anyone who has money in the markets.
The 2013 AAII Investor Conference is being held at the Loews Royal Pacific Resort in Orlando, Florida, from Friday, November 15 to Sunday, November 17, 2013. The event features over 25 educational presentations and 30 investor workshops. The member attendee fee is $345. Attendees receive full access to all presentations, the keynote luncheon, the welcome reception, a Forbes panel discussion, the Smart Investor Exhibit Hall and complimentary continental breakfasts.
To learn more about this special AAII event, please visit www.aaii.com/conference.
Supplemental Benefit: The AAII Discover Bank Program
AAII is partnered with Discover Bank to give you access to certificates of deposit, IRA CDs, money market accounts and online savings accounts earning preferred members-only rates that are higher than the nationally advertised rates on comparable Discover accounts.
Though you may know the company for its credit products, Discover has actually been in the banking business since 1911—and today, it’s emerging as one of the nation’s leading direct banks. As an AAII member saving with Discover, you’ll benefit from:
- Rates that have consistently exceeded the national average1
- No minimum opening deposit requirement
- Easy and convenient online account management
- 24/7 customer service, both online and by phone
- Accounts insured up to FDIC limits, currently $250,000
Visit https://aaii.discoverbank.com or call Discover at (800) 347-7513 to learn more about these products and the preferred members-only rates you’ll earn.
1 Based on top 50 U.S. banks by deposit provided by Informa Research Services Inc. as of 5/1/2013.
Academic Awards: Fostering Investment Education and Research
Six papers won awards for investment research from AAII in 2012. The awards are presented as part of AAII’s ongoing effort to encourage education and research in the area of investments and are given for papers that provide insight into investing.
The awards are made in conjunction with the meetings of major finance associations around the country. The best academic paper in investments presented at these meetings is selected by a committee of investment research experts.
AAII awards the writers of winning papers $1,000, and papers are selected based on the quality and thoroughness of research and on the contribution to shaping effective investment decisions.
Since the program began in 1983, over 150 awards have been presented. The award-winning papers and recipients for 2012 include:
“Can Large Pension Funds Beat the Market? Asset Allocation, Market Timing, Security Selection, and the Limits of Liquidity,” by Aleksandar Andonov and Rob Bauer of Maastricht University, and “Unknown Unknowns: Vol-of-Vol and the Cross Section of Stock Returns,” by Sjoerd Van Bekkum and Guido Baltussen of Erasmus University Rotterdam, both awarded by the Eastern Finance Association.
“Understanding the Term Structure of Credit Default Swap Spreads,” by Bing Han of the University of Texas at Austin and Yi Zhou of Florida State University, awarded by the Midwest Finance Association.
“The Impact of Leveraged and Inverse ETFs on Underlying Stock Returns,” by Qing Bai, Shaun Bond and Brian Hatch of the University of Cincinnati, awarded by the Southwestern Finance Association.
“Public Versus Private and Focused Versus Conglomerate Mutual Fund Companies,” by Fan Chen, Gary C. Sanger and Myron Slovin, awarded by the Southern Finance Association.
“A New Asset Pricing Model Based on the Zero-Beta CAPM: Theory and Evidence,” by Wei Liu, James Kolari and Jianhua Huang of Texas A&M University, awarded by the Financial Management Association.
These papers are technical; however, the AAII Journal does publish the findings of papers that are of particular interest to individual investors. If you would like a copy of a paper, you can contact Fareeha Ali at (800) 428-2244 or firstname.lastname@example.org.
AAII offers several supplemental benefits to members. These include discounts on financial publications, an insured money market deposit program from Discover Bank and an affinity credit card program provided by Capital One.
We view these programs as supplemental benefits and do not want to lose sight of our main purpose. However, many of these programs are helpful to a significant number of our members; in some cases, they provide AAII with additional income. For example, with the Discover money market program, AAII receives 0.05% per year on the outstanding deposits. These funds help us to support our investment research grants and to educate individual investors.
Future supplemental benefits will also be offered as opportunities, and not as recommendations. Only you can decide what is best for you.
Our goal at AAII is to offer you the best investor education in a simple and secure manner over the Internet. We gather member information in order to provide an investor-friendly service.
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