ETFs do provide safety, diversification and an enviable track record. However, besides cost and diversification, investors have to be careful as to exactly what asset classes and strategies the ETF represents
One of the world’s most celebrated investors doesn't seem all that optimistic about the long-term prospects for his own fund. It was recently revealed that Warren Buffett’s estate plan recommends that 90% of his wealth should be invested in the Vanguard 500 Index Fund, an exchange-traded fund (ETF). What does he know that we don’t?
The reality is that it is exceptionally difficult for anyone to beat an index. Out of the 7,630 funds which have been around for at least 10 years, only 24% of the fund managers outperformed the benchmark indexes. The average management fee for an actively managed fund is between 0.5% and 1%. Which means that even before a single penny is invested, you rack up a loss of upto 1%. ETF fees on the other hand range from 0.14% for the Vanguard fund to 0.6% for some of the others.
Hedge funds are an even more extravagant affair. They charge a 2% fee for funds under management and 20% of any profits. Unlike ETFs some Hedge funds may not be very liquid and can have lengthy lock up periods when you can’t access your funds. For all their fees, hedge fund managers have not done much better than their regular fund manger counterparts. In the past year, hedge funds have risen about 8% before fees and after accounting for their fees have delivered a paltry 4.4% return(on an average?) In the same period the S&P 500 has gained 16%. A simple ETF like the Vanguard 500 Index Fund would have delivered four times higher returns than a hedge fund. In the 2007 to 2009 bear market, hedge funds lost 12% compared to the S&P's 39% drop, which may offer some solace to investors in hedge funds.
Assuming you want to invest in an ETF, how do you choose one? For example, you may want to buy into the financial services sector which you see as being undervalued but want the diversification and safety of an ETF. There are over 45 different ETFs for the financial sector alone. Some own as few as 20 companies, others include the shares of as many as 500. There are 50 different choices for large-cap ETFs. The ETF with the lowest diversification owns shares in 20 companies. The most diversified ETF has a basket of 1,400 shares.
Besides cost and diversification, investors have to be careful as to exactly what the ETF represents. ETFs are created out of thin air. They represent all sorts of different asset classes and strategies. There are ETFs for lithium mining companies, European covered bonds and Frontier markets. But often these ETF products, like other products, fail to generate sufficient interest. If they do not attract enough investors, they may be easy to buy into, but difficult to exit. A few orders can also change the price one way or another. It is important to be sure that the ETF has a large market cap and good trading volumes.
You also have to be careful that you know how long the ETF has been around and its sponsor. Does the ETF have a track record dating back to at least 2007? You need to know how it reacts in both good times and bad.
There are some serious problems with ETFs for certain asset classes. For example, since the taper tantrum, average weekly volume of high yield and investment grade bonds has fallen 6%. However trading volume in high-yield ETFs has risen 18%. It appears that traders are using ETFs to make up for the lack of liquidity in the underlying assets. This is fine until the market comes under stress when the investor would suffer greater losses or be unable to exchange their shares for cash. In contrast, if you owned the underlying bond, barring default, the investor will eventually get the money back with interest. Fixed income ETFs fluctuate with true market value of the market.
Choosing the right ETF provides low cost safety and diversification, but it also chooses an investment strategy. Obviously, if you buy an emerging market, China or Indian ETF, you are betting that these economies will grow faster than the S&P 500.
ETFs are pegged to indexes and how the index is structured will also determine your strategy. For example, buying an ETF that tracks the S&P 500 is a large cap momentum strategy, because the greater a company’s capitalization the more of the index it makes up. Fortunately you can easily solve this problem.
There are many ways to create a stock index. You can weigh the index by dividend payouts, total sales, net book value, annual cash flow or revenue. Over time these ETFs have not only tracked the more recognized indexes, but have also out performed them.
ETFs are one financial innovation that have truly helped the retail investor and as it may now seem, the Oracle of Omaha himself. They provide safety, diversification and an enviable track record. This does not discharge the investor from doing their homework and considering all the advantages and disadvantages, and strategy of an individual product.
(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first-hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and speaks four languages.)
Mindi has never harmed her daughter and is capably raising a son, but authorities took her daughter under a concept sometimes called “predictive neglect”
This story was co-published with The Daily Beast.
In August 2009, Mindi, a 25-year-old struggling new parent, experienced what doctors later concluded was a psychotic episode. She had been staying in a cousin's spare basement room in De Soto, Kansas, while trying get on her feet after an unexpected pregnancy and an abusive relationship. She'd been depressed since her daughter was born and was becoming increasingly distrustful of her relatives.
Isolated, broke and scared, one Saturday morning, she cracked. She woke to change her 5-month-old daughter's diaper. When Mindi looked down, she believed the baby's genitals had been torn.
Mindi's mind raced for an explanation. The one she came to? That her baby had been raped the night before; that someone—she did not know who—had put sedatives in the air vents.
Mindi called her paediatrician's office. A receptionist told her to take her daughter to a children's hospital in nearby in Kansas City, Missouri. Doctors there found no evidence that the girl had been harmed or that any of what Mindi claimed had actually happened.
After Mindi started arguing, medical staff sent her for a psychological evaluation and notified local child welfare authorities, according to court records. (As is typical in child welfare cases, the court documents do not include the full names of anybody in the family. Mindi has asked ProPublica to use only her first name, as did other parents in the story.)
In 2009, Mindi had a psychotic episode—she believed her five-month-old daughter had been raped. But doctors found no evidence this was true, and called authorities to take custody of the girl. (Steve Herbert for ProPublica)
That night, authorities took emergency custody of Mindi's daughter, who is referred to in court documents by her initials, QAH A court-appointed doctor later concluded that Mindi had experienced postpartum psychosis.
But Mindi rebounded after the episode. She began to attend therapy and to see a psychiatrist, who prescribed an antidepressant. She found a job as a shift manager at Kmart and moved into her own apartment. Each morning, she'd call the foster home where her daughter had been placed and she'd read Q.A.H. a book.
In time, her psychiatrist, therapist and even a panel of judges concluded that Mindi should get her daughter back.
"I found the help I needed to be healthy," says Mindi, a wide-eyed woman with a round face and a chatty affect. "I was dealing with some mental battles at the time."
Dr. Stanley Golan, the psychiatrist who treated Mindi, diagnosed her with a mix of post-traumatic stress disorder—likely, a therapist later said, related to abuse—depression and possibly a kind of "mild delusional disorder." Still, the diagnoses, Golan said in court testimony, "do not interfere with her parenting and she is able to adequately care for Q.A.H."
"You can have these diagnoses and be symptom-free," he testified.
Indeed, in September 2011, Mindi, who was in another relationship, gave birth again, to a boy named Jace, whom she's now raising capably on her own. Citing Mindi's pending case over Q.A.H., Kansas authorities took Jace at birth and placed him in foster care. But they soon returned him after finding no evidence that Mindi posed any risk to her son. As a family therapist testified, Mindi has provided a "nurturing, loving environment and had met all of [Jace's] needs."
Yet four years later, after a protracted series of court fights, Mindi does not have her daughter back.
"I couldn't see how they could keep one while I had the other," said Mindi, sitting on the carpet in a living room with her son, surrounded by toy trains and a pile of books. "I don't think I should have to fight for my own child to come home." (Missouri and county child welfare officials declined to discuss the case.)
The question in Mindi's case is not about what authorities did when she plunged into a mental health crisis—nearly everyone involved in the case, including Mindi's own attorneys, agrees it was likely appropriate to remove her baby that day. Instead, the issue is whether a mental health diagnosis itself, in the absence of any harm, should be enough to keep Mindi from ever getting her daughter back.
Under a concept sometimes called "predictive neglect," Missouri and about 30 other states allow courts to terminate a parent's connection to a child if authorities conclude a mother or father has a mental illness that renders them incapable of safely raising the child.
Officials usually must present evidence that the illness poses a threat. Most cases involve significant mental illness, not run-of-the-mill depression or anxiety. Yet there need be no evidence of actual harm or neglect, just a conclusion that there is a risk of it.
States typically do not track how many parental termination cases are related to mental illness, or how often parents have lost children based on a diagnosis. New York, one of the few states that does tally such cases, has about 200 parental terminations annually based on mental disability, a category that includes both mental illness and "mental retardation." If there were a similar rate nationally, that would amount to several thousand cases per year. The cases are typically sealed, and there's no way to know how many involve court overreach.
But if it's impossible to know how many parents lose children unnecessarily because of the stigma of mental illness, it's clear that the process for deciding such cases is deeply flawed.
Courts' decisions rest on the recommendations of evaluators who often do not observe parents at home or examine their actual record of parenting. Instead, they rely on psychological tests and case notes.
Incomplete evaluations are an "endemic problem," said Joanne Nicholson, who directed a unit that conducted parenting assessments for Massachusetts child welfare agencies and is one the country's leading researchers on parents with mental illness.
"Parents are often evaluated without a real analysis of their supports, of the life they actually live," said Nicholson, currently a psychiatry professor at Dartmouth College. As a result, "the diagnosis starts to speak louder than real life."
Children can also pay a price when courts overstep. Research shows that forcing children in and out of different homes can leave lasting emotional scars.
The logic of removing kids from parents with serious mental illness is straightforward. Studies have shown that serious mental illness correlates with higher rates of child neglect and abuse. Parents who can't take care of themselves aren't going to be in a position to take care of a child. And delusional thinking can lead to irrational, dangerous behaviour.
"You have to put protection first," said Mary Kay O'Malley, who worked for years as a foster care caseworker, is now a professor at the University of Missouri Law School and has dealt with many cases like Mindi's.
When officials fail to intervene to protect children from mentally ill parents, the results can be tragic, irrevocable and front-page news. In one notorious 2008 case, a Long Island, New York, mother drowned her three children after county officials failed to respond to repeated warnings from relatives that she was dangerously unstable.
But O'Malley says she's seen agencies and courts unnecessarily cut off parents from their children. She says that's what happened to Mindi.
Six months after Mindi brought her daughter to the hospital, in February 2010, a parenting counselor reported that Mindi "is ready to be there for [QAH] emotionally, mentally, and [she] can support Q.A.H."
"The parent changed in this case," said O'Malley, who consulted for Mindi's attorneys for free after learning about the case. "But the court didn't."
The laws permitting termination of parental rights were mostly written in an era when serious mental illness was assumed to disqualify patients from participation in normal life, including parenting. Parents like Mindi may have been institutionalized. In many states, the mentally ill or intellectually disabled could be sterilized. The phrasing in the law has often changed—states have removed words like "feebleminded" and "depravity"—but the same concepts echo.
Indeed, a 2012 presidential commission report found that "parents with psychiatric disabilities experience the most significant discrimination when they attempt to exercise their fundamental right to create and maintain families."
"When [mentally disabled] people were institutionalized, they could not keep their kids. Now they're living on their own, and they're not allowed to keep their kids," said Patrick Yewell, who recently retired from a career as a foster care caseworker, supervisor and administrator in Kentucky's child welfare system.
Rudy, a 42-year-old West Indian-born man in the Bronx, New York, was also denied custody of his daughter. His chance to raise her now rests largely on a psychiatrist's evaluation consisting of two visits and a review of Rudy's records.
Rudy has long struggled with chronic bipolar disorder, for which he has been repeatedly hospitalized. Rudy is also intellectually delayed—an IQ test placed him at the borderline of intellectual disability.
He has no history of violence, abuse or neglect. His only child, J, who is now 3, was removed from the hospital immediately after she was born and placed in foster care. Rudy has been asking to be allowed to raise his daughter with help from his mother and sister.
Authorities first took J because of significant concerns about her mother. J's mother, from whom Rudy had separated before J was born, had already lost three other children to foster care. One of the children removed from J's mother and placed in foster care later died at the hands of a relative of J's mother. And like Rudy, J's mother suffers from mental illness and intellectual delays.
On June 28, 2010, Rudy watched as two Nassau County caseworkers and a cop walked out of the hospital with 4-day-old J. (ProPublica confirmed details of the case through court documents and multiple interviews.)
Rudy, who has closely cut hair and often dresses in baggy sports jerseys, recalls the day his daughter was taken as the saddest of his life. "I asked them why they took my daughter, and they didn't respond," Rudy remembered in a soft stuttering voice with an accent left over from his childhood in St. Croix. "I asked them if I could hold her before they took her, and they wouldn't let me hold her."
Rudy began what would become a weekly ritual: Riding two trains and a bus every Tuesday from the Bronx to Long Island to spend 75 minutes with J in a room in the county child welfare office. Some caseworkers were suspicious of Rudy. "The major concern for the family is both parents' mental health issues," child welfare officials wrote in a court document.
Others described him as a loving, if inexperienced, father. One caseworker note from a visit in September 2011 described Rudy as "gentle and caring," rocking J to sleep on the couch at the county office. Two weeks later, a different worker wrote that he was "getting more adept at caring for the child." J's mother, meanwhile, stopped showing up for visits and failed to appear in court.
But just over a year after J was first placed in foster care, two Nassau County officials pulled Rudy into a meeting room after a visit with J and told him that the county planned for J to be adopted by her foster family, case documents show.
"They said I have a mental illness, they were trying to see if I would sign away my rights," Rudy said as he sat one recent evening in his Bronx apartment, a pot of rice steaming on the stove. "They expected it to go smoothly, they expected me to surrender my rights."
In New York, counties are required to appoint an attorney for parents at risk of losing their kids, but Rudy hadn't yet been given one. Unsure of what was happening, Rudy went home and called his sister Rubeka, in Tampa, Florida.
"He sounded really upset. Not really angry, but more hurt," said Rubeka, who works as a psychiatric nurse.
Rudy and Rubeka consulted a lawyer and came up with a plan in which Rudy would move in with his sister and mother in Florida so they could raise J together. J's mother, who was also facing the termination of her parental rights, and whose mental health, according to case notes, was deteriorating, agreed to the plan. (J's mother declined to discuss the case with ProPublica, except to say she supported Rudy's effort to get custody.)
But Nassau County officials told Rudy that he should have laid out the plan months earlier and that because so much time had passed, federal child welfare law required them to request termination of his parental rights. The county's records suggest that caseworkers had warned Rudy about this; Rudy said he did not understand he could lose his rights so rapidly and that he waited because he believed J's mother was going to regain custody. Caseworkers also noted that visits between Rudy and J had gotten harder as she grew older—she would often cry inconsolably; she knew her father only as the man she saw on Tuesdays and considered her foster parents her real mother and father.
But these were not the reasons Nassau County authorities listed when they petitioned a county court to sever Rudy and J's legal ties. Instead, the county filed to terminate his rights based on his mental illness. Under New York law, parents can lose their children if courts decide their mental disabilities render them incapable of parenting for the "foreseeable future."
The Nassau County Department of Social Services would not respond to questions from ProPublica about the case or any related policy issues. The county referred ProPublica to the New York State Office of Children and Family Services. That office declined to comment as well and referred us back to Nassau County. The foster parents' attorney and the attorney appointed to represent J also declined to discuss the specifics of the case.
In the summer of 2012, a judge sent Rudy to Dr. Joseph Scroppo, a psychologist and attorney who has held appointments at several New York universities. Scroppo has a contract with Nassau County to perform forensic psychological evaluations and make recommendations about whether parents should keep their children.
Scroppo's evaluation was exhaustive compared with many in other parental rights cases. He met with Rudy alone for nearly 10 hours. Then Scroppo watched Rudy interact with J for 30 minutes. He gave Rudy an IQ test, asked him to define words, stack blocks and read a few sentences. He reviewed Rudy's mental health records, including his hospitalizations for manic episodes, and case notes from the child welfare department.
Scroppo concluded that Rudy could not be trusted to raise his daughter.
Rudy's "score indicates that he is probably capable of semi-independent living but would experience significant problems if he were to attempt fully independent living," Scroppo wrote. Citing Rudy's hospitalizations, Scroppo concluded that Rudy "is now, and for the foreseeable future, unable to adequately care for the subject child."
During a hearing in May 2013 in Rudy's continuing parental rights case, Rudy's lawyer, who was appointed to the case when the county filed for termination, grilled Scroppo on his evaluation.
"Your testimony...suggested that [Rudy] would have difficulty functioning fully independently; is that correct?" Rudy's lawyer, Lauren Broderick, asked.
"Yes," Scroppo replied.
"[But] wasn't it your understanding that [Rudy] was cooking his own meals at the time of your evaluation?" Broderick said, looking down at her notes.
"I'm not sure whether he was cooking his meals or not," Scroppo said.
"Did you inquire?" Broderick asked, looking up.
"No, I did not," he said.
"Wasn't it true at the time of your evaluation that [Rudy] was paying his bills?" she went on. "He was responsible for his own hygiene?"
"As far as I knew, yes," Scroppo said.
Broderick continued to push Scroppo to offer evidence from Rudy's life. Instead, Scroppo said, "I based the [categorization of] semi-independent status on the test that I administered to him."
New York's law allows mothers and fathers to present alternative evaluations in court, though funding is not always made available to pay for them. Rudy's sister and brother scraped together several thousand dollars to hire an evaluator for a second opinion.
Dr. Barry Rosenfeld, a psychologist who directs clinical training at Fordham University, did not just administer tests. He spoke to the people in Rudy's life to get a better sense of him—and pieced together a very different picture.
Ajit Doval, the National Security Advisor of India, is not a run-of-the-mill officer. He comes packed with abilities to conceptualise strategies and plans that shall realise Prime Minister Modi’s dreams and national goals
Just as Prime Minister Narendra Modi assumes office after a blitzkrieg electoral offensive that saw Congress and its allies vanquished as never before, the dishonest and inefficient bureaucrats in the South and North Blocks are scurrying for cover. At the same time, there are officers of unimpeachable integrity and enormous potential who were thus far ignored by a scam-ridden, dysfunctional regime headed by a gentleman who would perhaps be remembered as the most unheard and unseen Prime Minister of India. Whereas there would be many brains of excellence in the Modi Team, India’s new National Security Advisor (NSA), Ajit Doval distinguishes himself from the rest in many ways. His appointment as India’s NSA sends a clear signal – nationally and internationally. It is a pointer to the Modi government’s resolve to free India from the internal and external anxieties so as to create an environment of peace and progress on which the idea of ‘good governance and development for all’ shall flourish.
Ajit Doval is a man of exceptionally high IQ and uncanny abilities. He is doer, a fighter and achiever who has ventured and accomplished missions where few would dare. And it is not just ‘one of’ type of successes in his case. The chain of his incredible success stories runs through some of the most dangerous and unlikely situations. Here is one incident that explains how he stunned us by giving a simple solution to a complex problem fraught with far reaching ramifications. The National Security Guard (NSG)—widely known as ‘Black Cat Commandos’ was flown in at night to flush out the terrorists from the Golden Temple Complex at Amritsar in May 1988. There were conflicting reports about the number and identities of terrorists inside the Golden Temple complex. There was no clarity as to what weapons they had and how many innocent civilians were inside the premises. Our initial brief from the local police and state administration left crucial questions unanswered. This irked us. Nevertheless, operational plans were drawn up and by late night, we were readying to storm the complex. Just as the assault was about to go, it was suddenly cancelled. “Tiger for Two, Billa cancelled. Stand down and get back to your cordon positions,” Tiger (the Group Commander) ordered the assault squadron commander. (Billa was the code word to signal ‘launch’ of phase I of the operation). The operation was called off even before it took off because the Force Commander had received a rider from the Home Ministry – “No civilian casualties and damage to buildings will be accepted!”
Back to my position atop Temple View Hotel overlooking the Parikrama, we went into a huddle. All of us were eager to finish the operation as soon as possible and did not relish these restrictions being now imposed upon us from Delhi. Officers were now required to tell their Hit commandos – equipped with high precision shooting lethal weapons and trained to kill – to shoot but not kill! When Ajit Doval arrived there, not everyone knew him. Only a select few of us knew about this super cop’s incredible role in this operation. He gave us a first-hand account of all that was going on inside the Golden Temple Complex – the terrorists, sevadars, civilians, women and children; their falling morale, waning resistance, duels over options to surrender or fight and die and so on. These were valuable inputs. He had been inside the Golden Temple Complex rubbing shoulders with the most dreaded terrorists like Surjit Singh Penta, Karaj Singh Thande, Bhag singh, Chanchal Singh (all self-styled ‘Lt Generals’ of Khalistan Commando Force or KCF) and Gurjit Singh, the All India Sikh Students Federation (AISSF) leader. In utter disregard to personal safety, he moved around all over the complex even as bullets were raining from all directions. Much later, we learnt that he had disguised himself as an agent of ISI sent for their aid.
After explaining the situation, the task and the restrictions imposed from top, we sought his views. He heard our predicament attentively. “Now, tell us”, the Force Commander asked him, “How the hell can such an operation be accomplished without collateral damage?”
After listening to our problem silently, Ajit Doval smiled and looked around. His affable countenance, cool glance and naughty smile indicated he had something funny to say – and he did. He offered a solution that appeared too simple to be operationally effective. What would stun everyone later, however, was not the spectacle of battle but the simple, subtle tactics that culminated into a success that was lauded all over the world. Not only did we compel all the terrorists to surrender but also ensured zero collateral damage. There was no casualty or injury to any commando either. Doval became the first IPS officer to be honoured with ‘Kirti Chakra’ (a peacetime equivalent of the second highest military award ‘Mahavir Chakra).
Op Black Thunder is but one of a long trail of incredible feats accomplished by Ajit Doval. Idiosyncratically propelled from within, he has frequently endangered himself going beyond the call of duty and jumping into the jaws of Death. So often, he has infiltrated into the core of militant organisations and delivered crippling blows to disintegrate them. His role in disintegrating the Mizo National Front (MNF) Army humbled the ferocious Lal Denga, who himself attributed his defeat to Ajit Doval’s shrewd moves. His idea of befriending and converting terrorists in Jammu & Kashmir (J&K) into counter-terrorists was another unorthodox masterstroke that was initially criticised but proved to be a very effective measure in suppressing the rising tide of militancy there. Kuka Parray and his pro-India outfit Ikhwan-ul-Muslemoon were borne of this out of the box strategy launched by Ajit Doval in the terror torn state. Often described as a super spy, he does not reveal all he has been through including the years he spent in Pakistan. The humility and the ethical code he has followed all through will perhaps never allow us to peep deeper into all corners of his secret world. (NOTE: Specific details of Doval's subtle advice and operational plans are part of official secrets, which cannot be revealed even today.)
Thanks to his diplomatic proficiency and deft crisis handling abilities, India has often retrieved many a critical situation from the verge of catastrophe. He was the Chief Negotiator to rescue the hostages aboard Indian Airlines flight IC 814 that was hijacked to Kandahar in December 1999. His deft negotiating skills resulted in safe return of the aircraft and the hostages from the clutches of hijackers enjoying connivance of Taliban.
In his retired years, Ajit Doval has led a very fulfilling engagement as founder Director of Vivekananda International Foundation, New Delhi where you would find him always surrounded by a galaxy of research scholars, writers, retired bureaucrats, defence officers, diplomats – foreign and Indians alike. Workshops, seminars, panel discussions, book launches and presentations are the routine activities at this Think Tank. A voracious reader, thinker and analyst himself, Doval is a storehouse of knowledge. His personal library at home would be envied even by academic institutions. To hear him speak on subjects as diverse as national security, international relations, socio-religious matters, trade and commerce, economy, energy, development and so on is always an enriching immersion from where participants emerge adding a new dimension to their knowledge.
Prime Minister Narendra Modi is a man with vision and dreams for a prosperous, powerful Bharat. He is no run-of-the-mill politician. He has the capacity to visualise a distant lofty future and the will to achieve it. Ajit Doval, the National Security Advisor of India, is likewise no run-of-the-mill officer. He comes packed with abilities to conceptualise strategies and plans that shall realise the Prime Minister’s dreams and national goals. Undoubtedly, India is in safe hands on its way to a glorious future.
(Author and social activist Col Karan Kharb is a military veteran,who commanded an Infantry battalion with many successes in counter-terrorist operations.He was also actively involved in numerous high-risk operations as second in command of the elite 51 Special Action Group of the National Security Guard—widely known as ‘Black Cat Commandos’.)