two cheers, or more, for activity Note: Fidelity's study covered the 23 year time-span, 1992-2014 (limited by availability of the data they sought).
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Excerpt #1 - "The average actively run U.S. small-company and foreign large-company stock fund beat their prospectus benchmarks over those 23 years after all ongoing fund expenses. The average margin was about 100 basis points. Active U.S. large-cap funds trailed their prospectus benchmarks but by a moderate 67 basis points, meaning that they did outperform before paying their expenses."
Reaction: I'm not surprised. The advantage of indexing appears most pronounced for large-cap domestic stocks. If you own a diversified managed fund (like PRSGX), diversified across global markets and holding smaller as well as larger companies, the performance difference between that type of fund, on average, and the appropriate indexes is likely negligible. (*The latest annual report for PRSGX shows the fund invested 33% in international assets with an ER of .78%.)
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Excerpt #2 - "Funds that feed in big, highly liquid markets and which follow buy-and-hold strategies may benefit from heft. A giant asset base gives them giant revenue streams, which may be used to staff large research teams, hire expensive talent, and receive [glances furtively] better access to company managements. Scale also leads to lower expense ratios, which of course most directly aid fund returns."
Reaction: I agree. I also think there's a popular misconception regarding the term "manager." It can refer to a single "hands-on" individual like the well known Peter Lynch and Garrett Van Wagoner - as critics of managed funds like to point out. However, more to the article's point, "manager" can also reference a team of highly capable individuals able to synthesize a variety of research-based insights into markets, revenue streams, management, market capitalization/value, and technological and geopolitical trends in ways a solo manager cannot. (The style is notable at Dodge and Cox.) As the author suggests, such companies tend to buy and hold for very long periods.
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Excerpt #3 - "There’s nothing in there to indicate that indexing is suboptimal. On the other hand, it does indicate that active investors aren’t dupes, as commonly portrayed. After all, most of them have been investing in the largest fund companies, and most of them have gravitated toward the cheaper funds."
Reaction: None. He says it very well.
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Excerpt #4 - "Clearly, funds that invest in niche, illiquid markets and that trade frequently will quickly struggle with incoming assets. So, too, will many funds that hold concentrated portfolios."
Reaction - This is outside the purview of most of the article, but reinforces something I've long suspected. Many funds with exotic strategies (long-short, market-neutral, hedged, multi-asset, etc.) outperform for brief periods only to disappoint investors later. As the author suggests, much of this erratic performance is related to "hot" money moving around. Initial inflows propel the funds upward, but (predictable) outflows later work to their detriment.
Fund Manager Focus: Michael Kass, Manager, Baron Emerging Markets Fund
Knowledge @ Wharton: Passive, But Powerful: How Index Funds Exercise Their Clout Since I think most company officers vote for measures that increase their income, I routinely vote against them with my proxies. I also presume that the independent directors, usually selected by other directors, are beholden to the board and the company, and are not truly independent, so I vote against them also. I can't imagine any company administration would select board members who would restrict management income.
If it is true that the independent PIMCO director, who voted against Gross' $200+ bonus when he ranked in the bottom 10-20% return for bond funds, was forced off the board of directors, it only solidifies my POV.
Seems to me, that index funds have an obligation to their shareholders to enhance their performance against the index, when it can be done cheaply. Therefore, they should vote against boards when companies underperform their peers, especially if the underperformance exceeds a pre-determined number of years. This allows activist investors, who usually enhance share-holder value, to have a greater impact.
The Wharton study is a bit disappointing; I would have hoped for a greater impact.
M* Biotech Fans Could Have A Hangover Scott, your own research and DD is good from what I've seen. Ignore the media, it's a time waster.
Thanks. It's not that the media usually bothers me and it's not that there aren't biotech companies that aren't overvalued based on the hopes of potential pipeline product. It's just that it's a little irritating that companies trying to solve considerable health issues are repeatedly lumped together as a bubble whereas all manner of ridiculous tech/social media nonsense is fawned over and no one questions that it could be a bubble until all of the sudden the major names (Twitter, Yelp, Linkedin) are down 30% all of the sudden and then they go, "Gee, was that a bubble?".
I do think that there is an aspect of financial media that does "sell" companies that are easily grasped by even the most uneducated retail investor. Jim Rogers called CNBC a "PR firm for stocks" - I do think it is sort of a marketing agency for stocks in a way and it becomes what's the easiest and most marketable sector that they think is "sexy" and will get retail interested. This often leads to eventual bagholders, as rather than getting people into quality companies with consistent performance, it's hyping whatever name or names have momentum. Financial media does little in the way of financial education, it's - and I think it's gotten worse in recent
years in terms of hype over substance. Perhaps if CNBC went further in creating longer-term investors, its ratings would be better.
Yeah, there's some focus at times on the dull and boring, but the majority of time is spent fawning over the Ubers of the world, at least until reality sets in.
Why Buy A Large Cap Growth Fund For Retirement?
M* A Short List Of Funds That Invest With Conviction I charted an investment in FCNTX on the day Will Danoff became the funds manager (09/17/1990) vs. LEXCX.
I wanted to indulged your chart a bit further. 1990 was about the time when I first invested in Vanguard Healthcare, VGHCX. Here are LEXCX, FCNTX, and VGHCX over the last 25
years:. All three seem to have great market cycle performance (30ish
years).
DAILYALTS: A Choppy Week… 361 Capital Weekly Research Briefing: Blaine Rollins Why do soe people who havw demonstrated they cannot do their jobs gdt hired to do other jobs. Or is it the same job?
It wouldseem the investment managemet, pretending to do it, or writing and talking about it, has been the place to be over the last, almlst forever years. Absolutely no barrier to entry, and the outcome is ake hundreds of hundreds of billions or zoewhere in between.
Blaine Rollins still has a paycheck...great...I keep wondering how my kids will suffer throught their lives
3 Best Bond Funds For Rising Interest Rates The floating rate funds do look promising.
John, I think they do look promising from the viewpoint of their lack of sensitivity to interest rate increases. For example, the fund below has a duration of 0.40
years.
T. Rowe Price Floating Rate PRFRX
However, look at the credit quality.
So if the economy does well, they probably do well.
If we have negative surprises and the economy does quite poorly.........that's a different matter entirely.
Tax Bills on the Rise for Fund Investors One of the practices that I adopted years back, for better or worse, is to take short term and capital gains distributions (taxable accounts only) in cash. I am already paying taxes on them, so why not simplify things by avoiding reinvesting.
Hi Maurice,
What are you referring to when you say "why not simplify things by avoiding reinvesting"?
Best Regards,
Mona
3 out of 4 retirees receiving reduced Social Security benefits Hi Junkster,
In a very short space, your comments managed to be vituperous, tasteless, and inaccurate. That’s quite a trifecta for a single entry.
Good health is an essential ingredient to the likelihood of an extensive longevity. I hope you enjoy your hiking and continue to do so for a long time. That exercise program is a major contributor to a positive lifespan outcome. I too hike, but for much shorter distances these days.
I’m surprised that MFO’s own Mini-Me hasn’t joined your diatribe just yet. But I’m patient (that’s a characteristic of old age); that too is likely to happen. On the happenstance that you don’t recall, Mini-Me is a comic nemesis to Austin Powers in the movies of the same name. Here is a short clip:
http://www.google.com/search?q=mini-me+austen+powers+movies+videos&hl=en&gbv=2&oq=mini-me+austen+powers+movies+videos&gs_l=heirloom-serp.3..30i10.25394.28156.0.31414.7.7.0.0.0.0.379.1102.0j6j0j1.7.0.msedr...0...1ac.1.34.heirloom-serp..0.7.1098.CVtdvDNOrfoIt surely is a “hard knock life” if you choose to make it so. I don’t.
I fully understand that Monte Carlo simulations are not everyone’s cup of tea. I merely offer it as one candidate financial planning tool. If it is not attractive from your perspective, the functional solution is simple: just ignore it. I really don’t care if you do or you don’t. You’re always free to choose.
Twenty
years ago I developed my own retirement Monte Carlo code because none existed at that time. In that same timeframe, Bill Sharpe was developing his version. It’s now accessible on his Financial Engines website. I called Professor Sharpe to help in a few tricky programming places. He graciously provided guidance. I recognize that you have little interest, but other MFOers might, so I’ll link to his Financial Engines website now:
http://corp.financialengines.com/Sharpe also offers a Social Security planner on his site. I have not used it.
You do yourself a disservice with your insipid submittal. I’m baffled by the animosity displayed by a few MFO members. Question the message, but don’t disparage the messenger based on pure personality conjecture.
Regardless, I do extend you Best Wishes for a long, a happy, and a prosperous life.
Quick Edit: It happened as anticipated!
CNBC Going After Frank Holmes Big-Time Re: Clinton "And all a result of a couple years I spent as a futures broker way back in the early 70s."
If you were a futures broker, what do you think of futures exchanges (ICE, CME) as investments?
Scott, stocks are not my bailiwick. Plus, based on the wide disparity in our ages, we would have different time horizons. I do note CME is still far below its 2007 highs, a rarity in this market. Albeit it had a spectacular run prior to its 2007 highs. You would know this more than me, but aren't there bears saying that exchanges like CME and ICE will become obsolete at some point in the future because of technological advances? Speaking of the CME, one of the biggest personalities I ever met and had a long conservation with was Leo Malamed. Probably one of the few times I was ever intimated with anyone in the financial industry.
M* Mutual Fund Family Data Pages @bee: This is a recent format change for M*. The fund family page at one time was accessed by clicking a box in which you scrolled in alphabetical order. Its a great tool tha the Linkster has used for
years.
Regards,
Ted
CNBC Going After Frank Holmes Big-Time Re: Clinton "And all a result of a couple years I spent as a futures broker way back in the early 70s."
If you were a futures broker, what do you think of futures exchanges (ICE, CME) as investments?
CNBC Going After Frank Holmes Big-Time Re: Clinton Franks Holmes loves to talk. His free e-newsletter is one example of excessive "word-smithing". Most of his funds have been destroyed by commodity deflation.
Here's a link to all of his funds and their performance...nothing but poor performance and high fees.
usfunds.com/our-funds/fund-performance/month-end-returns/
Amen!!! But then I am heavily biased against commodity/precious metals funds of any stripe or color. And all a result of a couple
years I spent as a futures broker way back in the early 70s.
3 out of 4 retirees receiving reduced Social Security benefits What's all the hellavalo over?
The snippet is a short, simple, multi-pronged piece presenting one financial advisor's view on the subject we've all been discussing. If you're interpreting it as "heavy" reading, you're probably over-reacting. Yahoo is good at tossing out short and incomplete attention-grabbers like this one. I guess that's how they sell ads. If you read Yahoo's business pages you already know this.
There's a few interesting facts: The number of recipients taking SS early has been growing (although we hardly needed to be informed of that). A Gallup Poll survey showed "... more non-retirees ... than at any point in the last 15 years are planning on Social Security to be a major source of their retirement income ..."
The advisor's main point is, I think, offered a bit tongue-in-cheek in the form of a "paradox". A good paradox often expresses an underlying truth contained within an apparent absurdity. Perhaps that's why the reactions are so divergent.
The underlying truth here is that those at 62 are, health wise, better able to enjoy the extra income from early SS payments by engaging in travel, hobbies, and other life-enriching experiences (and the adviser thinks they should avail themselves of the opportunity.)
The obvious absurdity is that only those who don't need the money can afford to take it early.
Best wishes
Chuck Jaffe: Index Funds Killed The Mutual Fund Star: David Snowball Comments Hi Guys,
Probably like most of you, there are financial writers I like and trust, and others I do not. Jaffe falls in the positive category, but not without reservations.
Some skepticism is a practical defensive device whenever accessing any financial opinions. I mostly find Jaffe’s columns informative, but buyer beware since there is a tendency to distort presentations to buttress a position.
Jaffe shows promise as a financial commentator. Proof of that is in this referenced column. He wisely chooses to close his assessment by liberally quoting MFO’s own David Snowball. Jaffe’s choice in this regard is spot on-target.
Congratulations to Professor Snowball. The reference to his perspective on this subject gives him a wider, more diversified audience exposure.
But care must be exercised when reading Jaffe’s documentation. It seems as if he is playing loose with statistics. Instead of measuring a manager’s performance over an integrated timeframe, Jaffe resorts to a far less meaningful measure of 8 consecutive years of outperformance to generate his position. He says: “just four actively managed funds …. have current streaks of eight consecutive calendar years of beating the S&P 500, according to Morningstar.”
So what? The meaningful measure should be the time integrated end portfolio value of active management over the entire selected timeframe; a given bad quarter or a substandard annual return is acceptable if recovery is in evidence. Also, why an 8 year period? That specific a timeframe has the unhealthy likelihood of data mining.
Understanding the reasons for making any investment decision is necessary for success.
Remember the infamous 1720 South Sea bubble when one absurd trading company attempted to sell its shares with the following goal: “For carrying on an undertaking of great advantage; but nobody to know what it is.”
History may not repeat itself, but many times it rhymes. For example, recall Speaker Nancy Pelosi’s quote: “We have to pass the Health Care Bill so you can find out what's in it”.
Even Isaac Newton fell victim to the lure of South Sea profits. He lost a ton of money. A brilliant mind is no guarantee of investment foresight.
So the cautionary lesson here is that financial articles, even those from writers who are mostly respected, must be carefully read and aggressively challenged to recognize nuances in the presentation, and biases in the perspective.
Best Regards.
Weakest Year Three Since 1947 Were all the other 3rd years since 1947 preceded by a 6-yr rising bull? Also, if I'm not mistaken, we still have roughly 7.5 months to go in this 3rd year.
Even Vanguard’s Mutual Funds Cost More Than You Might Think Hank, I agree with you about the past 15 years don't have anything to do with the coming 15 years. But let's not attribute that only to the James fund. That statement covers ALL funds. Assuming Vanguard has a better research department than James for arguments sake, that in itself doesn't mean that the Vanguard fund will get a better return with less risk. There are plenty of Vanguard actively managed funds that aren't great, notwithstanding their deeper bench. (more researchers means better research?)
Hi Soupkitchen,
You are correct that there are no absolutes.
However, lets not forget two important things that you can probably bank on in the future with VWINX and GLRBX.
First, the 75 basis point difference in the ER. That creates a significant headwind for GLRBX (or tailwind for VWINX) and if I am flying from New York to Atlanta, my bet is I will arrive sooner with the tailwind.
Second, to overcome the headwind, GLRBX must take increase risks to achieve equal returns. As you know, Sharp and Sortino Ratios are measures of risk adjusted returns. Looking at these, VWINX is the winner in the past 3-Yr, 5-Yr, 10-Yr, and 15-Yr periods. And Standard Deviation has already been addressed.
Just for clarification purposes, I think GLRBX is a very good fund, and I see nothing wrong with owning both. That said, I personally do not see the need to own both in the same (very similar) space and I want to put the odds in my favor to achieve the same or greater return, with less risk.
Mona
Weakest Year Three Since 1947 FYI: The third year of the Presidential Cycle has historically been the equity market’s best year in terms of performance, but with a gain of less than 3% YTD, 2015 has gotten off to a slow start. In fact, this year’s returns are the weakest for the third year of an election cycle in nearly 70
years (1947).
Regards,
Ted
https://www.bespokepremium.com/think-big-blog/weakest-year-three-since-1947/
