Fund Scope | Scoreboard

It took Rodney Dangerfield more than 50 years to proclaim, “I don’t get no respect.” It’s taken exchange-traded fund executives less than 20.

With 19 years and $1.2 trillion in assets behind them, some ETF leaders have struck out from the fund industry establishment to form their own trade association, as distinct from the Investment Company Institute, or ICI, which has been lobbying on behalf of the broader fund industry for nearly 72 years.

Called the National ETF Association, or NETFA, the new group was created by a trio of executives from United States Commodity Funds, IndexIQ and ALPS. It will write position papers, testify before Congress and lobby regulators; it will also maintain industry statistics and talk to the press. In other words, it will do what the ICI does, with one critical difference, the founders say: While the ICI has a four-year-old committee to address the specific needs of ETFs, at NETFA, those are the only needs that matter.

“Those of us who are ETF issuers right now don’t want to wait 10 years to become equally important,” says John Hyland, NETFA co-founder and chief investment officer of United States Commodity Funds, which sponsors 11 ETFs, including the $1.2 billion U.S. Oil Fund (ticker: USO). “We want our voice heard now.”

It raises the question: What is there to say? The new organization hasn’t hammered that out yet. It will host its first membership call later this month, then begin to establish an agenda. The firms that will participate are also still to be determined; the biggest ETF firms, Blackrock, Vanguard and State Street, have said they will stick with the ICI.

“The F in ETF stands for ‘fund,’ ” says Joel Dickson, senior ETF strategist for Vanguard. “To separate ETFs from other fund-industry issues, to us, runs a huge risk of negating many of the protections and disclosures that have been in place for 70 years.”

ABOUT 90% OF ETF ASSETS are structured as traditional mutual funds or as unit investment trusts, which are both subject to the same set of regulations. For the other 10% of assets, though, the picture is murkier. The $67 billion SPDR Gold Trust (GLD), for example, is not technically a fund. It is what’s called a grantor trust, a structure common among what are usually called commodity ETFs, but one which is regulated differently and creates slightly different tax consequences for investors. Also in the non-fund category: ETNs, ETCs (or CETFs), ETVs and MLPs.

And while the regulatory patchwork has yet to be a big deal, stalwarts and upstarts alike agree that it can be confusing for investors and the regulators who protect them. A common definition—and possibly, a common regulatory structure—is on NETFA’s wish list, if only to make clear what risks may come from an investment’s structure, as distinct from its underlying assets.

“The real focus should be, ‘how does that particular one work, and does it matter to me,’ ” says NETFA’s Hyland.

Agreed, says Jim Ross, head of the ETF business at State Street Global Advisors: “They all have different risk factors, and that’s what an investor needs to understand.” Still, State Street won’t be joining NETFA. Ross will stay in his seat as chair of the ETF committee for the ICI.

Bonds Rule

Equity funds averaged $290 million in weekly outflows in the four weeks ended Wednesday, while money funds saw outflows of $8.5 billion, says Lipper. Taxable-bond funds averaged weekly inflows of $7.4 billion; muni funds gained $394 million.

JANET PASKIN is the Digital Editor, Markets, for The Wall Street Journal.

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By DAVID A. GRAHAM

Santa Maria, Calif. A year ago, Pedro Garcia and his terminally ill wife, Julia, were about to be evicted from their home of nearly 40 years after their mortgage lender foreclosed on the loan.

Today, Mr. Garcia is living in his Southern California home nearly payment free. The turn of events came after the lender, Bank of America Corp.,

employed an unusual tactic that is being used on occasion to help some debt-strapped seniors locked into exotic mortgages known as option ARMs from losing their homes.

“There are a lot of people who lost their houses [in the recession], so I’m fortunate,” says Mr. Garcia, a 69-year-old retired corrections officer. “We lived in this house since 1970 and this was our dream.” Mrs. Garcia died last November.

Mr. Garcia owed about $490,000 on his home, which a recent appraisal said is now worth only about $150,000. Bank of America wrote down about $405,000 of the loan. To account for the rest, the bank then issued a reverse mortgage for about $85,000. But instead of paying that amount to Mr. Garcia, as is usual with a reverse mortgage, the bank paid the proceeds to itself. A reverse mortgage is a form of equity loan available to older homeowners that generally doesn’t need to be repaid until after the homeowner dies.

That means Mr. Garcia can remain in his home without having to make mortgage payments to Bank of America. (Mr. Garcia is making small monthly payments on a second mortgage that was modified by another lender.) When he dies, the house reverts to Bank of America, and his heirs can choose to buy it back for the $85,000 plus interest and fees. Or, if the heirs choose to walk away, the bank can sell the house, and any proceeds above the loan amount would go to Mr. Garcia’s family.

Under pressure from the government, banks in general have been stepping up efforts to work with financially troubled homeowners. The Treasury Department this month said it had met its goal of beginning trial loan modifications by Nov. 1 for 500,000 borrowers as part of the Obama administration’s $75 billion foreclosure-prevention plan. But many stretched borrowers complain it’s still hard to get help from lenders, and economists expect foreclosures to continue to increase.

In Mr. Garcia’s case, the big write-down Bank of America was willing to take highlights the controversy surrounding pay-option adjustable-rate mortgages. Option ARMS, as they’re known, have become the focus of investigations and a spate of lawsuits by borrowers who believe they were misinformed about the loans’ complicated structure. It also follows the bank’s settlement last fall of predatory-lending charges brought by several state attorneys general against Countrywide Financial Corp., which Bank of America acquired last year. Under the settlement, in which the bank neither admitted nor denied guilt, the bank agreed to, where possible, modify the terms of certain subprime mortgages and option ARMs serviced by Countrywide.

Michael Drawdy, Bank of America’s senior vice president for home retention, says the bank has issued approximately 20 reverse mortgages with write-downs to borrowers like Mr. Garcia who have “dire circumstances.” He says that though the bank loses money in this process, it would lose nearly as much by foreclosing on the home and selling it in today’s market.

Option ARMS are turning out to be nearly as toxic as subprime loans. According to Lender Processing Services Inc., 32% of option ARMs were delinquent or in foreclosure as of Aug. 31, compared with 48% of subprime loans. But unlike subprime loans, which typically went to people who had weak credit, option ARMs were generally given to borrowers with good credit, including many seniors who had significant equity in their homes and wanted to refinance to take money out to pay bills. They were lured partly by “teaser” interest rates—sometimes as low as 1.5%.

One feature of option ARMS is that borrowers can select among three or four different payment choices. Many borrowers opted for the minimum payment, not realizing that by doing so, their loan balances and payments could jump over time because the payments didn’t even cover the monthly interest. Most elderly borrowers who were put into option ARMs “didn’t understand how it worked,” says Jennifer Sinton, deputy director of the Foreclosure Prevention Project at South Brooklyn Legal Services. “They’re some of the most abusive loans out there.”

Difficult to Modify

Option ARMs are proving difficult to modify. The most common way that banks modify troubled mortgages is to reduce the interest rate on the loan. But many option ARMs already have low rates, so there isn’t much room to reduce them further. And with home prices having plunged in California, Florida and many other markets where option ARMs were popular, a growing number of borrowers with these loans owe more on their mortgages than the homes are worth, even as principal payments keep rising.

Housing counselors say Bank of America is playing a leading role in dealing with option ARMs, since its settlement with state attorneys general last fall. And a key tool the bank is using, at least for seniors, is the reverse mortgage. To qualify for such a mortgage, a homeowner must be at least 62 years old.

Mr. Garcia decided to refinance his home in early 2006 and use the proceeds to renovate his three-bedroom house, which was purchased in 1970 for $23,000. At the time of the refinancing, the house was appraised at $465,000, with the mortgage broker recommending that Mr. Garcia take out $400,000. He used $70,000 on renovations and much of the rest to pay his wife’s medical bills. After he quit a post-retirement job as a construction worker to care for Mrs. Garcia, he dipped into those funds for day-to-day living expenses as well.

Mr. Garcia said he initially sought a fixed-rate mortgage, but agreed to take an option ARM because the broker convinced him the payments would be low for a long period of time. “He said it would go up only $100 per year for five years,” Mr. Garcia says. That turned out to be untrue, as the rate immediately began to adjust, based on market interest-rate benchmarks.

The mortgage, which was originated by a third-party lender and sold to Countrywide, offered four payment choices. The lowest of them, the only one Mr. Garcia says he could afford, was less than the interest on the loan, meaning the principal grew even as he made payments. After struggling to stay current, Mr. Garcia finally quit paying when the mortgage payment eclipsed the $2,600 a month he was receiving from California Public Employees’ Retirement System and Social Security.

Eviction Stayed

When a judge granted an eviction order in October of last year, Mr. Garcia contacted California Senior Legal Hotline in Sacramento. Lawyers for the group persuaded the judge to stay the eviction, basing their argument in part on the settlement agreement reached between Countrywide and several state attorneys general. Mr. Garcia’s case wasn’t subject to that settlement, however, because his home was already in foreclosure proceedings. Still, Bank of America’s Mr. Drawdy says the bank agreed to grant the reverse mortgage and write down the difference after hearing from the legal hotline group.

Who can fill Warren Buffett’s shoes?

The chairman and chief executive of Berkshire Hathaway,

who has run the conglomerate since 1965, announced this week that he has prostate cancer. The disease was detected early, and the 81-year-old Mr. Buffett is otherwise in excellent health. His prognosis is good.

WSJ’s Jason Zweig visits Mean Street to handicap the succession plan at Berkshire Hathaway to fill Warren Buffett’s shoes. Photo: AP.

But the news brought renewed attention to the question of who ultimately will succeed him. A skilled bridge player, Mr. Buffett is keeping his cards close to his vest. He has said the members of Berkshire’s board have chosen a successor whom they know and admire, as well as two backups.

Yet he hasn’t disclosed the successor’s identity—even to the chosen person. Nor would he reveal anything during my brief conversation with him this past week.

From the Mouth of Warren Buffett

See how often Mr. Buffett has mentioned current division bosses in annual shareholder letters, plus see analysis from two research groups on how positively he speaks of each, and read highlights.

Just the Documents, Please

Explore the Berkshire Hathaway annual shareholder letters, from 1977-2011.

View Interactive

Publicly naming his successor wouldn’t just make it hard for Berkshire to change its mind later if circumstances warrant; it would demoralize the two backup choices and make them more prone to poaching by competitors.

The successor will “probably be somebody who surprises us,” says David Winters, a shareholder for more than two decades whose mutual fund, the Wintergreen Fund,

holds $67 million in Berkshire stock. “I would bet on somebody who doesn’t have a high profile and who is not in the rumor mill.”

In hopes of unearthing some of those surprising names, I asked two independent teams of financial researchers—Paul Tetlock and Tim Scully at Columbia Business School and Richard Peterson at Los Angeles-based investment firm MarketPsych—to analyze what Mr. Buffett has written about Berkshire’s divisional executives in his annual letters.

Both groups of researchers specialize in “textual analysis,” or the use of mathematical formulas to measure the frequency and positive or negative tone of language. In previous studies—for example, of the wording in companies’ financial filings—these methods have been shown to improve forecasts of profitability.

Since 1977, Mr. Buffett has written nearly 400,000 words in his annual letters to shareholders. Messrs. Tetlock and Scully found that Mr. Buffett has mentioned Ajit Jain, head of Berkshire’s reinsurance group, far more often than any other current division boss—102 times, versus 60 for the next most-cited, Tony Nicely of Geico.

They found that Mr. Buffett referred slightly more positively to Mr. Jain than he did to any other Berkshire manager. However, Tad Montross, CEO of General Re, scored a close second for overall positivity and nudged out Mr. Jain in the proportion of financially positive words Mr. Buffett used. (For example, in his 2002 letter, Mr. Buffett wrote of “enormous progress” under Mr. Montross.) Not far behind were CEOs Brad Kinstler, of See’s candy; Greg Abel, of MidAmerican Energy; Don Wurster, of National Indemnity; Mr. Nicely; and Kevin Clayton, of Clayton Homes.

Christophe Vorlet for The Wall Street Journal

Using a different methodology that scores words by their association with happiness, Mr. Peterson found that Mr. Jain ranked considerably lower.

Among the current executives to whom Mr. Buffett has referred in emotional terms at least eight times, the one who scored the highest is Danny Goldman, chief financial officer of Iscar, Berkshire’s Israeli-based cutting-tool division (“incredible,” wrote Mr. Buffett in his 2009 letter, for example).

Mr. Nicely of Geico comes next (“stellar,” as the 2005 letter put it), followed by Mr. Abel of MidAmerican (“terrific,” 2008), Mr. Kinstler of See’s (“extraordinary,” 2007), Tom Nerney of U.S. Liability Insurance (“fabulous,” 2002) and Mr. Jain (“amazing,” 2006).

Among divisional CEOs to whom Mr. Buffett has referred at least four times in emotional terms, Mr. Peterson gives high positivity scores to Paul Andrews, of electronics distributor TTI; Jacob Harpaz, of Iscar; Grady Rosier of supply-chain manager McLane; and Matt Rose, of Burlington Northern Santa Fe railroad.

By far, the person to whom Mr. Buffett has referred the most is Ajit Jain. “This is true whether you look at the number of references, number of words or simply the number of years that he’s mentioned,” says Mr. Tetlock. Nevertheless, he warns, any inferences based, as these are, on a relatively small number of references “should be taken with far more than a grain of salt.”

To be sure, being praised isn’t the same as being crowned. Several executives Mr. Buffett has lauded lavishly in the past—including David Sokol, Joe Brandon and Rich Santulli—are no longer at Berkshire.

Still, textual analysis “is better than a plain guess, because it has some statistical underpinning to it,” says Mr. Peterson. “The probability should at least be higher than experts’ random estimates.”

Berkshire’s board, at least, knows who Mr. Buffett’s successor will be. That is more unusual than you might think.

“Succession planning at most companies is a hollow exercise,” says David Larcker, an expert on the topic who teaches at Stanford University’s business school. “It’s rare to have a plan in place where you know the next day [after a CEO dies] exactly what you’re going to do.”

—Rob Barry contributed to this article.—
intelligentinvestor@wsj.com; twitter.com/jasonzweigwsj

A version of this article appeared April 21, 2012, on page B1 in some U.S. editions of The Wall Street Journal, with the headline: And Buffett’s Successor Is….

By SARAH E. NEEDLEMAN

CitySquares Online Inc. saw sales start to decline dramatically in late 2008 as some of the local-search-engine provider’s customers could no longer afford its advertising services.

So the small business turned to its board of six volunteer advisers—experts in areas such as sales, marketing, finance, entrepreneurship and venture capital—who suggested expanding the Web site beyond its northeast footprint.

CitySquares followed that advice and now has four national-advertising customers, up from zero a year ago. Last month, the search engine saw roughly two million unique visitors, compared with 500,000 in September 2008. “The advisory board helped us come up with a plan” and “ultimately arrive at safer shores,” says Ben Saren, co-founder of the Boston firm, which launched in 2005 and has 11 employees.

Some small-business owners say their firms are surviving tough economic times thanks in part to advisory boards they regularly turn to for fresh perspectives and support. Yet a number of organizations that pair up small businesses with these volunteer-adviser groups say they haven’t seen more firms take advantage of their programs since the recession began.

Athena International, a Chicago nonprofit, runs an advisory-matching program for women small-business owners who meet certain qualifications. It is offered through local chambers of commerce in 30 U.S. cities and most don’t charge a fee. So far this year, the program has attracted about the same number of small businesses as it did by this time last year, says Dianne Dinkel, president and chief executive officer of Athena; she declined to disclose the exact figure. Past participants have seen their firm’s revenues increase on average 88% within 12 months of completing the program, she adds.

Ms. Dinkel says demand for advisory-matching programs might not be increasing despite the recession because some business owners are too proud to accept help. Others may be uncomfortable exposing proprietary information to outsiders, though confidentiality agreements can help ease such concerns, she says.

There can also be much work involved in establishing unpaid advisory boards on top of identifying and recruiting members. “You have to choose very carefully,” says Dennis Ceru, an adjunct professor of entrepreneurship at Babson College in Wellesley, Mass. A small business might want the sage advice of a retired executive, paired with the experience of a professional who is tapped into current market trends, particularly in industries such as technology or fashion. Common tasks include outlining goals, defining term limits (usually for two or three years) and scheduling meetings.

Advisory boards can benefit small businesses in most industries after they’ve started operating, says Mr. Ceru. But for those still in development, he recommends a single adviser or mentor instead. Advisory boards differ from formal boards of directors because they only provide advice and entrepreneurs “don’t necessarily have to take it,” says Mr. Ceru. By contrast, boards of directors have a say in a firm’s leadership and more. “They can make decisions beyond the day-to-day operating structure of the company,” he says.

Professionals are often willing to serve on advisory boards without pay because the jobs offer a chance to network, learn and give back to their communities, says Maria Coyne, who oversees an advisory-matching program for women entrepreneurs offered by KeyBank NA in Cleveland. “It’s as beneficial for the business as it is for the advisers,” she says.

Flip Brown, owner of Business Culture Consultants, a management-consulting firm in Burlington, Vt., last year agreed to become one of five volunteer advisers to True Body Products, a maker of unscented natural soaps in Richmond, Vt. “I get to help someone realize their potential,” he says.

Some entrepreneurs show appreciation by offering stock options, free products or donations to advisers’ favorite charities. They also cover dining and travel expenses for when meetings take place, says Ms. Coyne. Some invest in professional liability insurance for advisers in case the company experiences problems as a result of following their advice, adds Mr. Ceru.

Dog Day Afternoon Inc. in Orlando and Sanford, Fla., is one of just 25 firms participating in an advisory program offered for free through the University of Central Florida’s Small Business Development Center, which says it has about 250 advisers willing to volunteer their services. Owner Emily Schlansky says she signed up last November because her doggie-day-care business was starting to lose customers and incur credit-card debt for the first time after 10 years of steady growth. “We didn’t know what to do,” she says. “A lot of people lost their jobs so they didn’t need us anymore.”

Ms. Schlansky says Dog Day Afternoon was assigned five advisers with expertise in finance, online marketing, traditional marketing, sales and operations, and they began meeting quarterly. The group suggested surveying the firm’s customers and tweaking marketing strategies. Following that tip, Ms. Schlansky discovered she had more senior-citizen clients than she thought and launched a “bark mitzvah” party on a Sunday afternoon to appeal to kids, grandparents and their pooches. “We got a lot of new customers out of it,” says Ms. Schlansky, who previously only hosted an annual party for young, single dog owners.

Meanwhile, the advisory board came up with a plan to reduce Dog Day Afternoon’s financial debt and pay off the balance. Ms. Schlansky says she now expects the company’s annual revenues for 2009 to be up 5%, compared with no growth in 2008.

Scott R. Gingold says he created an unpaid advisory board last year for his 18-year-old market-research firm, Powerfeedback, by tapping his network. The board includes three retired marketing and research executives, a serial entrepreneur and a media professional who meet monthly over lunch or dinner on the firm’s tab.

Mr. Gingold says his initial goal was to find out if the company should invest in updating its technology to be on par with a growing number of competitors. At the time, Powerfeedback was a provider of market-research technology and related professional services. Mr. Gingold says the advisory board shot down the idea because it would have forced the company to raise its rates for clients and reduced its profitability. Instead, they recommended beefing up the consulting side of the business.

Mr. Gingold says Powerfeedback followed that advice and is now performing well, with revenue up 18% from this time a year ago.

“We could have made a turn down a one-way street,” he says. “Our advisory board kept us from doing that.”

Write to Sarah E. Needleman at sarah.needleman@wsj.com

WSJ’s Jason Zweig checks in on Mean Street to explain the current battle in Washington over whether the SEC should be relieved of overseeing the nation’s 28,000 investment advisers. Photo: Getty Images.

Politicians and regulators are bickering again over who should oversee the nation’s 28,000 investment advisers, who manage some $50 trillion.

A bill introduced in the House of Representatives at the end of April would take that job away from the federal Securities and Exchange Commission and regulators in 48 states—and could hand it to the nongovernmental Financial Industry Regulatory Authority, which already oversees securities brokers and dealers.

There is a better way. Investment advisers are being examined infrequently, inconsistently and incompletely—largely because regulators are outnumbered and reliant on outmoded technology. In a business world that routinely runs on “big data,” it’s time to put computers on the case.

Christophe Vorlet for The Wall Street Journal

In fiscal 2011, the SEC examined just 8% of the 12,600 advisers under its jurisdiction. Roughly 5,000 advisers have never been audited by the SEC.

State regulators, who are responsible for inspecting smaller investment advisers, look a bit nimbler. Two-thirds of the states say they examine advisers at least once every four years.

Finra inspects brokerage firms roughly every two years. Those more-frequent inspections, however, didn’t detect Allen Stanford or Bernard Madoff‘s Ponzi schemes. “Finra clearly could have done better,” its chief executive Richard Ketchum said last year, “and we deeply regret we did not.”

“An adviser being examined in L.A. faces very different requirements than one being examined in Dallas,” says Brian Hamburger, managing director of MarketCounsel, a firm based in Englewood, N.J., that helps advisers comply with financial regulations.

Norm Champ, deputy director of the SEC office that examines advisers, concedes that there is some regional variation. “We are addressing that with several steps to make sure the process is more transparent, orderly and consistent,” he says, including a manual issued in January that should standardize exams across all of the SEC’s 12 offices.

Still, regulators might be overlooking the most important issue of all—that your adviser could steal your money while reporting that it’s safe and sound.

Several advisers and consultants say regulatory examiners don’t always ask for independent proof that clients’ account balances are accurate. “Many of these guys go through an entire exam without verifying assets,” says Mr. Hamburger of MarketCounsel.

Troy Daum, head of Wealth Analytics, a financial adviser in San Diego, says his firm has been examined both by SEC and state auditors. “They spend a lot of time looking at minute bits of detail,” he says, “but they miss the boat when they don’t make sure your performance reports line up.”

The SEC says it is standard practice for examiners to ask advisers for evidence that clients’ account values are accurate. “We generally verify assets on exam visits,” says Mr. Champ, “but we may exercise discretion when the circumstances warrant.”

At the heart of these gaps are antiquated databases and other crude technology that one person who deals regularly with regulators calls “right out of the Raiders of the Lost Ark warehouse.”

The Self-Regulatory Organization for Independent Investment Advisers, an organization in Oxford, Miss., established last year as a potential alternative to existing oversight agencies, says regulators need to embrace “data analytics.” Computers should be parsing vast quantities of information in search of overall patterns and potentially risky exceptions.

Imagine that advisers would have to upload standardized reports on all their clients’ assets—with personal identification removed—to a national data repository each month. Software would probe for any gaps between the reported account values and independent records from the custodian firms where the money resides.

Then, examinations would be driven by what pops out of the data, not by what pops up on the calendar—regardless of which regulator runs the show.

To be fair, regulation is inching into the electronic age.

An operation at the SEC, the “aberrational performance initiative,” uses software to analyze data about hedge funds to look for unusually high or suspiciously smooth relative performance. The API project has already led to four fraud cases—with more in the pipeline, according to people familiar with the matter.

Another team at the SEC electronically analyzes large amounts of data on more than 10,000 advisers—but much of the raw information isn’t yet in automated form.

But much more could be done—at not much higher cost.

“The next step is getting information more routinely and broadly from firms at the transactional and customer level in a consistent format,” says Stephen Luparello, vice chairman at the Financial Industry Regulatory Authority, which already uses data analytics to monitor how brokers sell annuities, among other things.

To extend existing systems to investment advisers, costs would probably run “a few million dollars a year,” reckons Mr. Luparello.

That’s a lot cheaper than the countless people-hours frittered away by regulators and advisers alike under today’s system—or the costs of leaving the next Madoff on the loose.

—
twitter.com/jasonzweigwsj

Write to Jason Zweig at intelligentinvestor@wsj.com

A version of this article appeared May 5, 2012, on page B1 in some U.S. editions of The Wall Street Journal, with the headline: Should Robots Replace Regulators?.

By BEN LEVISOHN

Much of investing is based on a simple premise: When an asset’s price gets too far out of whack, it eventually will return to a more “normal” level.

But no one knows when that will happen. When investors get the timing wrong, they could end up waiting far longer for a payoff than they ever expected—and miss out on other opportunities.

Recently, some investors have been wagering against German government-issued bonds, knows as “bunds, on a rise in natural-gas prices, among other bets.

“People are looking for the big trade when it may not be there,” says David Ader, head of government bond strategy at CRT Capital Group. “The market can be wrong longer than you can hold a trade.”

Here are three ways investors could get burned by waiting for a return to normal.

The VIX and Stocks

The Chicago Board Options Exchange Volatility Index measures expected price swings in the stock market. When the VIX is deemed to be too high, investors often bet stocks will rise; when it is considered too low, they often bet stocks will fall.

But timing it can be a killer. By the end of December, when the VIX had fallen from 48 to 26, murmurs began that stocks were poised for a setback, and they grew louder as the VIX continued its slide. It ultimately fell as low as 14.3 on March 26.

The VIX finally surged higher—to 20.4 by April 10—and the Standard & Poor’s 500-stock index fell 4.1% over that period.

Yet investors who heeded the early warnings missed out on a 13% rally during the first three months of the year—the largest first-quarter gain since 1998.

Even now, with the VIX back down at 18.4, it is unclear whether the market is heading higher or lower.

“The VIX will spike when the market falls,” says Andrew Cumming, a portfolio manager at Blackheath Fund Management. “But I’ve always been stunned by how long the VIX can stay low.”

Government Bonds

Investors for years have been predicting an end to the long rally in U.S. Treasurys, often citing low yields as the reason.

On Wednesday the 10-year yield, closed at 1.98%, near its recent low of 1.76% and well below its long-term average of 4.96%, as prices stayed high. (Bond prices move opposite to yields.)

Just because yields are low doesn’t mean they can only go up. Last month, Treasury yields surged nearly half a percentage point to 2.39%, causing many observers to call the end of the 30-year Treasury bull market.

Then worries about Spain’s ability to pay its debt, coupled with concerns about slowing economic growth in the U.S. and China, sent yields down below 2%. Few experts are talking about the end of the Treasury bull market now.

“The bull market may be over, but the bear market is not about to begin,” says Mr. Ader.

German bunds have also attracted skepticism from those who think that investors will bail on everything European as the debt crisis unfolds. Hedge-fund manager John Paulson, for one, recently disclosed a bet against the bonds.

Others take a more cautious view. Andrew Wilkinson, chief economic strategist at Miller Tabak & Co., says Germany’s situation is akin to that of the U.S. around the time of the debt-ceiling debate last July. Bund yields, which currently sit at 1.68%, might rise in the future, he says, but no one knows when.

“It’s like saying I’m going on the roller-coaster thrill ride despite having an aversion to heights because at the end of the day I expect the car to come to a standstill,” Mr. Wilkinson says.

Natural Gas

The price of natural gas continued its downward slide this past week: On Thursday, it fell to $1.95 per British thermal unit, its lowest price since 2002. The depressed price has some investors betting that it has to rise soon.

Some investors were placing the same bets a year ago.

Energy traders use a simple method to tell whether natural gas is undervalued. They take the price of oil, divide it by the price of natural gas and compare it to its historical level.

One year ago, when natural gas cost $4.20 per BTU and oil cost about $110 a barrel, the ratio was 26, well above its 15-year average of 11. Now the ratio is more than 50, and natural gas dropped 54% during the past 12 months.

What have traders missed? Technology has made it so easy to produce natural gas that there isn’t enough storage, forcing some producers to burn the excess. The upshot: It might take longer than many investors expect for natural gas to rebound.

As Rebecca Patterson, chief markets strategist at J.P. Morgan Asset Management in New York, puts it, “Sometimes things really are different.”

Write to Ben Levisohn at ben.levisohn@wsj.com

A version of this article appeared April 21, 2012, on page B10 in some U.S. editions of The Wall Street Journal, with the headline: When Trends Won’t Die.