David Winters: Index Funds – Dangerous Bubble

David Winters: Index Funds  – Dangerous Bubble
Image source: Wintergreen Funds

As investors’ move in droves to passive, low cost index funds, one veteran money manager is sounding the alarm. Wintergreen Fund’s David Winters says index funds are a dangerous market mania, akin to other market bubbles.

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WEALTHTRACK Episode #1202; Originally Broadcast on July 03, 2015


As we celebrate our tenth anniversary year on WEALTHTRACK we have been taking an in depth look at one of the biggest investment trends of the past  decade, the huge migration of both institutional and individual investors from actively managed funds to  passive, index-based ones, especially ETFs.

This Top Energy And Infrastructure Fund Is Bullish On U.S. Utilities

UtilitiesThe Electron Global Fund was up 2% for September, bringing its third-quarter return to -1.7% and its year-to-date return to 8.5%. Meanwhile, the MSCI World Utilities Index was down 7.2% for September, 1.7% for the third quarter and 3.3% year to date. The S&P 500 was down 4.8% for September, up 0.2% for the third Read More

As we have reported before, index funds now account for a third of fund assets, up from 14% ten years ago.  And recently exchange traded funds, or ETFs, have seen the lion’s share of the fund flows.

As Morningstar recently reported, U.S. ETFs have more than $2 trillion dollars in assets compared to nearly $13 trillion for all mutual funds, excluding money market funds. That means 14% of fund assets are now in ETFs, up from a mere 4% ten years ago.

During the current six year bull market index funds have outperformed the vast majority of actively managed funds. In addition, the cost benefits of index funds are considered to be overwhelmingly in investors’ favor, especially when compounded over time. The asset-weighted expense ratio for passive funds was just .20% in 2014, compared with 0.79% for active funds.

Even investors in active funds are opting for lower cost ones. During the past decade the lowest cost quintile of active funds received $1.07 trillion of the total $1.13 trillion dollars of the net new flows into actively managed funds.

With better performance and lower costs it’s hard to find anyone concerned about these developments. However this week we have an interview with a critic of the surge to passive investing. Not surprisingly, he is an active fund manager.

David Winters is CEO of Wintergreen Advisers and Portfolio Manager of the Wintergreen Fund, which he launched in 2005. He was nominated for Morningstar’s International-Stock Manager of the year award in 2010 and 2011.

He has been a WEALTHTRACK regular since the beginning because his traditional value–oriented, global approach worked for years. However the last five years have been rough. The fund has underperformed its benchmark and Morningstar World Stock category. I spoke with Winters about why he thinks the move to index funds is a dangerous market mania, which puts retirees at particular risk.

If you miss the show on air this week, you can always catch it on ourwebsite.  We also have an EXTRA interview with David Winters about the challenges of being an active manager during a six year bull market. Its available exclusively online.  As always, we welcome your feedback on Facebook and Twitter.

Have a great 4th of July weekend and make the week ahead a profitable and productive one.

Best Regards,


Look For Independent-minded Managers Who Think Like Owners

"Patient Capital" Outperforms

High “Active Share” Portfolios


Trade Infrequently

= 2%+ average annual outperformance

Source: “Patient Capital Outperformance” by Martijn Cremers & Ankur Pareek

David Winters: Best Property

Sun Hung Kai Properties Ltd ADR (SUHJY) Price: $16.22 on 7/1 52-week range: $13.61 – $17.73

David Winters: A Different Drummer

More often than not, WEALTHTRACK guests march to the beat of a different drum. Wintergreen Fund’s David Winters, a value investor who describes himself as the opposite of an index hugger, has more than 60% of his portfolio invested in companies based overseas and has recently taken a stand against Coca Cola management and Warren Buffett!

David Winters: First Class Merchandise At Bargain Prices!

Emerging markets have substantially underperformed the U.S. stock market over the last two years. There is one area however where emerging markets, particularly those in Asia, South America and China continue to shine: demand for luxury goods. Bain & Company reports that the so called “HENRYs” (High Earnings, Not Rich Yet) consumers in those markets are becoming a “new baby boom sized generation” for luxury goods. That is the sweet spot for this week’s Great Investor guest, David Winters. Winters is the Portfolio Manager of the value-oriented Wintergreen Fund which he founded in 2005. Since inception this go anywhere, invest in anything fund has outperformed the market and its mutual fund category.

David Winters: The Optimist Portfolio Manager

Central bankers are clearly worried about global growth. From the U.S., to Europe, to Asia, we have seen unprecedented levels of easing in recent weeks. By independent research firm ISI Group’s count, there have been more than 250 stimulative policy initiatives announced over the past 13 months. The firm also points out that we are less than 100 days from the famous fiscal cliff in the U.S., when numerous Bush era tax cuts expire and automatic spending cuts take effect if Congress and the White House can’t reach a budget compromise. If they don’t, estimates are that GDP growth could be reduced by as much as 3.5%, sending the economy into recession.

Additional Appearances By David Winters From The Wealthtrack Archives:

David Winters: Active Opportunities

How hard has it been to be an active mutual fund manager, during a six year bull market, when you and most other active fund managers have underperformed passive index funds? That’s the question we put to Wintergreen Fund’s David Winters.

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