Weekly Wrap: Buffett Buys, Falling Fund Fees, and Retirement Tips

Editor's note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

For longtime professional wrestling fans, everything old is new again. Last week, my hometown's favorite wrestler and former WWE superstar C.M. Punk came out of a seven-year retirement and made his return to the ring with a new wrestling company. It was déjà vu but with a twist. Investors are experiencing something similar. How so? In what seems like a throwback move, exchange-traded fund providers have been launching scads of new active strategies. That may leave some scratching their heads. After all, haven't investors continued to shun actively managed U.S. diversified stock funds in favor of index funds? Yup. But as my colleague Katherine Lynch pointed out in a recent article on fund flows in 2021's first half, some of the newfangled active approaches in the ETF space are gaining traction. Active ETFs aren't new: They first debuted in 2008. But Morningstar's global director of ETF research Ben Johnson has noted that the number of active ETFs has doubled since 2018. There are the standard flavors of active ETFs, including broadly diversified active bond ETFs from well-respected bond shops like Fidelity and Pimco and diverse active stock ETFs from the likes of T. Rowe Price--and, in early 2022, from Capital Group. There are also active thematic funds. Thematic funds--which invest in trends like clean water, cannabis, and artificial intelligence, for instance--aren't all actively run, but the group's poster child, Ark Innovation ETF ARKK, is. Does this flurry of interest around active ETFs signal a rebirth for active management overall? Probably not. Morningstar's biannual active/passive barometer research illustrates that most active managers have underperformed their passive counterparts over the long term--even in difficult markets such as 2020's, when one might expect active managers to shine. It's therefore hard to imagine that active strategies, as a group, can return to glory. Rather, the emergence of active strategies in the ETF space--particularly those from well-respected active shops like the ones mentioned above--is another salvo in the showdown between ETFs and mutual funds for investor dollars. Morningstar columnist and longtime industry observer John Rekenthaler expects ETFs to eventually overtake mutual funds as the industry standard, arguing, "ETFs offer several advantages that mutual funds cannot match, without counterbalancing drawbacks." Although mutual funds are unlikely to tap out to ETF pressure anytime soon, it is, as C.M. Punk would say, clobbering time.

--Susan Dziubinski

Editor's Picks

How Coinbase Is Different From a Standard Financial Exchange The firm is well-positioned for success, but there's still much to unpack about the nascent cryptocurrency trading space.

Do You Really Need to Save That Much for Retirement? We take a closer look at popular retirement savings estimates.

4 Warren Buffett Stocks to Buy These undervalued stocks are among the holdings in Berkshire Hathaway today.

How Low Can Fund Fees Go? Our research shows the average expense ratio for investors has fallen by more than half since 2000.

8 Financial Do's and Don'ts for the 7-Figure Retirement Spending your nest egg carefully is just as important as building it.

3 Stock Funds to Watch This trio of new stock funds added to Morningstar Prospects may someday come under full coverage.

Portfolio Planning and Personal Finance With Christine Benz

Forget Income Replacement, Focus on Supplying Cash Flow Needs Income-replacement rates are a convention whose time has come--and gone.

Mega Qualified Charitable Distributions: Now or Never Learn about qualified charitable distributions and their "mega" version, only available this year.

Don't Neglect the Softer Side of Your Estate Plan Document and share your wishes for end-of-life care, the care of your pets, the disposition of your tangible assets, and more.

Tips for Late-Start Retirement Savers Working longer can't be the only part of your plan.

Mutual Funds and Exchange-Traded Funds

Chinese Tutoring Stocks' Harsh Lesson in Risk Management Funds from Davis and Virtus SGA took the biggest hits.

Are Water Funds Too Watered Down? Climate change has underscored the need for clean drinking water. Does that make investing in water funds a compelling option?

3 Bond Funds to Watch These three bond funds added to Morningstar Prospects may someday come under full coverage.

These ETFs Offer Durable Dividends These funds aren't flawless, but they are solid options for income seekers.

Stocks

Where Are the Opportunities in P&C Insurers? Moats and management make the difference.

3 Sectors With the Biggest Fair Value Increases As second-quarter earnings season winds down, we take a look at our analysts' valuation changes across sectors.

Our Ultimate Stock-Pickers' Top 10 High-Conviction Purchases Several funds see value in technology, energy, and communication services.

Stock Analyst Updates

FDA Gives Full Approval to Pfizer COVID-19 Vaccine The mRNA technology that formed the basis of the vaccine provides support to Pfizer's established wide moat and also contributes to BioNTech's positive moat trend.

Lower California Court Rules Prop 22 Unconstitutional We are maintaining our fair value estimates for Uber, Lyft, and DoorDash, and we expect the appeals process to be lengthy.

New GM Battery Recall Affects Bolt, Bolt EUV Crossover The Chevrolet Bolt battery fire recalls are disappointing but necessary to ensure safety for GM's all-electric future.

Salesforce Tops Expectations; FVE up to $292 We are raising our fair value estimate for wide-moat Salesforce to $292 per share, from $273, based on quarterly strength and higher guidance, and continue to see shares as undervalued.

Term Deals Drive Solid Results for Splunk Although we expect increasing cloud penetration and an evolving product suite to lead to healthy long-term growth, we are maintaining our fair value estimate for Splunk at $164 per share owing to near-term cloud transition-related top-line pressures.

Advisor Insights

Good Savers Should Be Good Allocators When It Comes to Retirement Spending Spending your nest egg carefully is just as important as building it.

The Long View Podcast

Michael Falk: 'Retirement Planning Can Be Done More Simply' The author and financial expert discusses what target-date funds get wrong, how investors should navigate the low-yield environment, and whether active management can add value.

The Short Answer

How to Teach Kids About Money Here are three simple tips to help kids understand important money lessons.

Commentary

Are ESG and Private Equity Competing Ideologies? This potentially contentious intersection will likely be the focus of some of the most heated investment debates of the next decade.

Should You Buy Starbucks? The pumpkin spice latte may be getting attention, but here's what we think of the stock.

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