We’re living in the information age, so it’s hard to imagine that an individual, claiming to be an investment professional, can get away with any type of scam. But it just happened again.

I am not talking about an advisor exposing your portfolio to undue market risk or failing to implement a stop loss discipline to limit any potential losses. I am talking about intentional fraud and deception.

A recent article in MarketWatch described a 38-year old, who was arrested in Las Vegas on charges of defrauding senior citizens of some $2 million. The “clients” were impressed by his obvious display of wealth via fancy automobiles and expensive watches. They did not know about his gambling debts, or his $5,000 per day strip club habit.

The article went on to say that none of the alleged victims had bothered to verify whether that individual was actually registered as any type of advisor. That’s hard to imagine.

Besides the obvious, what else can you do to avoid becoming a victim when selecting an advisor to manage your assets?

Here’s the most important advice I can give you. Any independent investment professional works with a reputable company that functions as the custodian for clients’ assets. There is no reason to ever make a check payable to anyone else but the custodian. Read that sentence again!

Most advisors work with well recognized custodians such as Fidelity, Schwab, Vanguard, TD Ameritrade and others. If it’s not a household name, you can certainly find out a lot by doing quick internet search or contacting the SEC.

In my advisor practice, it happens from time to time that a client sends me a check, maybe for an IRA contribution, and it is made payable to my company. I am not allowed to endorse it, I have to return it and get another one from him made payable to the custodian.

Bottom line is that, if anyone, pretending to be an investment professional, wants to have you make a check payable to him or his company name, run as fast as you can. You may have just avoided an expensive learning experience.

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

The markets meandered for most of the week, but retreated on Friday. Our Trend Tracking Index (TTI) for domestic funds followed suit and now sits +5.04% above its long-term trend line (red) as the chart below shows:

The international index also moved slightly lower and currently sits +9.47% above its own trend line, as you can see below:

With the explosion of Exchange Traded Funds (ETFs) over the past few years, there’s still some confusion among investors between the difference of buying an ETF or his close cousin, the CEF (Closed End Fund).

Unlike mutual funds, both of them are traded on stock exchanges as opposed to an open ended mutual fund, which is purchased directly from a fund company.

The main difference between the two is that ETFs represent mostly indexes while many CEFs have actively managed portfolios that allow the fund manager to adjust to changing market conditions. The fund manager’s job, in comparison to handling traditional open ended mutual funds, is made a lot easier.

How?

Since investors in traditional mutual funds can buy and sell shares at anytime, the manager has to deal with the constant inflow and outflow of money and liquidate or add to his positions during market conditions that may not be most favorable.

This can create even more of a problem in certain international markets that lack the liquidity which we are used to seeing here in the States.

With CEFs, however, the fund manager is not concerned with these issues. Once the original public offering of a closed end fund is completed, all further transactions are being handled on the secondary market. The fund manager knows exactly the size of the fund and how much money he has to work with. So he can focus on what he does best: Manage a fixed size fund to achieve the objectives as outlined in the prospectus.

Another advantage of CEFs is that they “can” trade at a discount (or at a premium) to the value of the underlying assets. This is not necessarily a reflection of performance but simply a function of supply and demand. But, before you rush out and buy any CEF that trades at a discount, be advised that they can stay at a discount for a long time.

It’s kind of like buying a new car at a discount from list price, because this model is out of favor. However, the quality or performance of that car is not impacted by the discount.

CEFs offer an advantage especially when investing internationally. As you may have found out, many conventional international mutual funds carry a sales load of some 5.75% and some are run by well know managers such as Mark Mobius from Templeton. While I personally don’t subscribe to the theory of picking a fund based on its manager, there are many investors who do.

CEFs can help you invest into funds run by such seasoned managers. For example TDF and EMF are 2 such funds that are run by Mobius and it only costs you a trading fee to buy into them (Neither I nor my clients have any holdings in those funds).

With all of these benefits, are there any disadvantages to using CEFs vs. ETFs?

First, both should be used when appropriate. Second, while ETFs have low annual fees of around 0.4%, expect to pay around 1.5% for CEFs, just like regular mutual funds. They are actively managed and therefore carry higher annual expense ratios.

Both, ETFs and CEFs have a place in an investor’s portfolio. Given the all too stringent holding and trading requirements of conventional mutual funds, ETFS and CEFS will gain more favor as investors understand and learn how to use them as a viable alternative.

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

The markets rallied sharply with Fed policy remaining accommodative. Our Trend Tracking Index (TTI) for domestic funds moved +5.37 % above its long-term trend line (red) as the chart below shows:



The international index still remains stronger and currently sits +9.88% above its own trend line, as you can see below:



For more details, please see the above link.

Lately, a frequently asked question in my advisor practice has been related to real estate.

Last week, the government reported that new homes sales fell 17% last year — the worst decline in 16 years.

However, sector real estate funds/ETfs gained on the day. In fact, the leader of the sector listings in my newsletter, based on a 4wk sorting, was real estate, as you can see from the following table:

The latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

The tug-of-war between bulls and bears continued this week. Our Trend Tracking Index (TTI) for domestic funds remains +4.06% above its long-term trend line (red) as the chart below shows:



The international index still remains stronger and currently sits +8.30% above its own trend line, as you can see below: