Hi Ted,
The fund that you mentioned (SHRAX) likely never made it to my candidates list way back in the early 1990s. I avoided front-end loaded mutual funds like the plaque that they are. I was reading John Bogle’s “Common Sense on Mutual Funds” in those days, and indeed agreed that costs mattered greatly.
The front-loaded funds were immediately discarded by me from further consideration. I probably interviewed a half dozen financial advisors during that period, and every single one of them recommended portfolios populated only by these costly products.
Our potential retirement war-chest was modest, and I was sickened at the prospects of reducing it immediately by a composite 5% to 6%. It would take years of positive outcomes to replace those unnecessary highway robbery charges. I still feel that way, but less so as my wealth substantially increased. Even then, I believe that I recognized that I was summarily tossing away some excellent fund managers.
I do like Ricky Freeman’s record and his tenure. It is outstanding. He definitely is a talented and skilled stock picker. I am especially impressed by his low portfolio turnover numbers. The man makes his choices, and he stays the course with them. He sticks to his guns. Good for him, and the record shows that it is good for his investors too.
Automatically discarding front loaded funds will eliminate some superior active fund managers. However, I suspect that from an overarching portfolio strategy, it probably does more good than harm.
That’s more than a naked opinion since the cumulative fund management data consistently demonstrates that, on an annual basis, only 20% to 40% of active mangers outdistance passive Index management. Integrated over time, those numbers deteriorate even more, not including the upfront fee. It’s a hard uphill road to overcome fees, and the odds do not favor the individual investor.
Thanks for your input.
Best Wishes.

@MJG:How about Richy Freeman, SHRAX, 30 years !
Regards,
Ted
Without Sales Charge 12.58%
With Sales Charge 12.36%
(Fund inception 10/24/83)

Hi Bitzer,
Thank you for reading my post and for your question.
I’m sure you realize that, as a matter of personal policy, I resist divulging my specific fund positions. I believe it can do more harm than good because we all have different time horizons, life experiences, anxiety levels, investment proclivities, goals, family commitments, ages, and overall wealth. But since I introduced the fact that I’ll be scaling down my actively managed fund holdings, I feel the need to make an exception to that policy. So here goes.
Before I describe the short actively managed fund list, allow me to define the criteria that dominated my selection process. It was not a broad diversification goal or by sector selection. My primary selection criteria were to reward active managers who generated Excess Returns over a substantial timeframe. So Excess Returns and performance time were the key dimensions to shorten the field.
The Excess Returns were measured against the S&P 500 Index standard. The timeframe was the most recent 20-year period because I have owned the final candidates for from 17 to 22 years. I used the Portfolio Visualizer website as my data source.
My Final Five are provisional depending on the continuing tenure of the fund managers. Here are my Final Five with the mangers indicated:
FCNTX William Danoff since 1990
FLPSX Joel Tillinghast since 1969
VWELX Team Wellington since fund inception
VGHCX Edward Owens, Jean Hynes since 1984 and ????
DODBX Dodge and Cox Team with John Gunn leader since 1977
This is not a fully diversified portfolio. The missing pieces will be filled with passively managed Index products. The ordering is important since successful active fund managers are hard to find.
These mangers were chosen because they delivered annualized Excess Returns over the S&P 500 benchmark for the 20-year test period. They delivered these Excess Return outcomes with lower volatility as measured by each funds Standard Deviation. The correlation coefficients were not overly impressive, but they helped just a little to dampen total portfolio volatility. These managers have demonstrated more skill than luck over a very daunting investment cycle.
Earlier, I noted that this list is provisional. Several issues need further resolution. Ed Owens is mostly retired, so I’m closely monitoring Jean Hynes’ performance. She did assist Owens for 20 years or so, but it’s a different ballgame when you graduate from a secondary position to the top-dog managerial slot.
Also, the 20-year records of the balanced funds, VWELX and DODBX, are very similar. In a sense, they are on my bubble. At this juncture, eliminating one or the other is a vexing choice since both funds have served me well for 20 years. During that extended period they outdistanced the all stock S&P 500 Index with lower volatility. That’s a noteworthy accomplishment.
I recognize that these are pedestrian selections, but I’m a pedestrian sort of investor. I like plain vanilla ice crème. I get my excitement when visiting Las Vegas. Keeping things simple works best for me.
Of course, I reserve the right to be flexible as the opportunities develop over time. In the investment world, nothing is forever.
Best Wishes.

Bonds are definitely a mystery for most investors. For years I concentrated on stock funds. When I turned 45 I started to think about bonds and decided to $cost avg into them. At that time I was listening to Bob Brinker on the weekends and he was all for Ginnie Mae's so I bought BGNMX which was the Benham Ginnie Mae fund. Benham was a well run firm and later American Century took them over. Those funds had excellent returns during the 90's and beyond 2000. I would use that fund as a sweep account when I swept profits from gold funds and other investments I was planning on using it as my core bond holding until the fiscal crisis hit. Everything changed.
I still track BGNMX and it seems to hold its own. But if and when rates do rise those funds do very poorly from what I hear and read.
Nothing is sure but at least we can try to minimize damage to our portfolios. If stocks drop 30% and bonds drop 10-15% then that is a success in relative terms.

Bonds seem like they should be simple, but for some reason my mind turns off when trying to understand them. I get the basics on duration, quality and bond sectors that are more or less volatile. But my decision is to give the money to managers who have demonstrated results and have flexibility to buy the different types of bonds they think best. Unconstrained, multisector, whatever - not even sure the difference there.
So I decided on splitting most of my bond allocation to 2 multisector funds, a somewhat aggressive fund/manager, Ivascyn/PONDX and to what I see as a more conservative multisector fund, Sherman/RSIVX.
As a side note, I chose PONDX over LSBRX because returns have been as good with less volatility. I could of held both but my mandate is to hold a minimal number of funds. But I did hold LSBRX for years and was very happy with Fuss.

Hi MikeM,
One of the things I came to realize many years ago is that investing for the average retail investor, like myself, is a marathon and not a sprint although I do, at times, do a little trading around the edges within my own portfolio (sprint) when I feel inclined to do so.
Often times the conserative well thought out avenue is the better choice over an agressive all in avenue type approach that throws caution to the wind.
It's your money ... Put it to work as you feel best!
I wish you the very best in the coming years.
Old_Skeet

Hi John and others,
Here is what I have done to help manage an anticipated rising interest rate environment within the income area of my portfolio. I have two investment sleeves within this area … an income sleeve and a hybrid income sleeve. The income sleeve consist of the more traditional fixed income funds while the hybrid income sleeve consist of funds with a broader spectrum of assets whose focus is to generate income.
In the income sleeve I have selected good fund managers that I believe have the experience to effectively manage changing market conditions along with looking for funds that have short durations and are commonly known as short term bond funds. The funds that I own in this sleeve are EVBAX, LALDX, LBNDX, NEFZX, THIFX & TSIAX. Combined their duration is 3.5 years while their combined yield is about 3.7%. I feel, if these fund manages can not effectively manage interest rate and other risk associated with fixed income investing risk … well it probably just can’t be done.
In my hybrid income sleeve I feel I have selected good fund mangers that I believe again have the experience to use an even broader spectrum of assets to generate income along with using non traditional tools and means that aid them in the management of associated investment risk. Funds that I own in this sleeve are AZNAX, CAPAX, FKINX, ISFAX, PASAX & PGBAX.
My thoughts are that diverfication in of itself provides a certain amount of risk protection. To substantiate this thinking I am linking a recent Morningstar article that addresses this in more detail.
http://news.morningstar.com/articlenet/article.aspx?id=661823
In closing … and in short words … Rather than trying to do this through my own talent window I have chosen to seek out others to manage this for me.
I wish all … “Good Investing.”
Old_Skeet

........ but I think there will be an entry point in the next 6 months that even I can recognize.
.......one-time contribution to my new grandchild's retirement fund. $3K now presumably produces over $4M at 70, if it's shifted into a Roth when she starts earning money.

Yeah, the math is pretty compelling. Assuming any taxable distributions are paid from outside the account. Here's what happens to a one time investment of $3,000 assuming a rate of return of 10%, allowing for 70 years of compounding:
$3,000 invested at 10.0% annually for 70 years yields: $2,369,241
Interesting, that $3,00 is just the amount needed to invest in the Vanguard Total Stock Market Index Fund.......and imagine if the person holds that investment for 70 years. [Actually, you can invest in VTI, the etf version, with no minimum].
Regarding "I think there will be an entry point in the next 6 months".....just wondering what gives you this confidence of what will happen in the next 6 months? How much of a drop are you expecting, and how much would be an acceptable entry point for you?

Listen to Dan Fuss explain how it's done (He's a bond manager who was around 30+ years ago). He is a fund manager who looks and, more often than not, finds risk adjusted opportunities :
fuss-trounces-bond-rivals-by-thinking-like-a-stock-picker

The new Unconstrained funds everyone is jumping into?
Considering we are in a rising interest rate environment, which bonds if any will do better that others? What if you are close to or in retirement age? What to do.

The new unconstrained bond funds are in response to the fact that interest rates have gone down since September 1981, and they can't go down forever. We have been in a bull market for bonds lasting 33 years. On September 8, 1981, the 10-Year Treasury had a yield of 15.59%. Those who bought and held it made 15.59% each and every year for 10 years, risk free, then got their full principal back.
https://research.stlouisfed.org/fred2/series/DGS10
The same 10-Year Treasury has a yield of 2.4% today.
The unconstrained funds typically have a lower duration, with the express purpose of decreasing interest rate sensitivity. A bond fund with a duration of 6 years will experience a 12% loss of NAV if the corresponding interest rates of those bonds rise 2%.
Add in the yield to that loss of NAV and the total return is calculated.
Full disclosure: I have no interest rate forecast nor will I ever have one.
In exchange for interest rate risk, the unconstrained bond funds, flexible income funds, "tactical income funds", or whatever you wish to call them, take on more credit risk.
Why do they have to take on more credit risk as a result of decreasing their duration/maturity? Because very high quality bonds, such as Treasuries, have such a low yield, that when you shorten the maturity of the bonds and subtract the expense ratio of the active bond fund, you are not left with much yield. Therefore, bank loans and junk bonds and other high credit risk securities enter into the portfolios of these mutual funds.

Hi STB65,
Good stuff! I especially liked your revision to Gresham's Law. There is indeed much drivel generated by various elements of the investment community.
But there are also some infrequent gems. It does take a little unpleasant digging to separate the rare diamonds from the heaps of dung. The diamonds are there. A second level of complexity and uncertainty is introduced to characterize if these rare gems are the products of luck or skill.
Over the last few years Michael Mauboussin has contributed much to uncovering how to distinguish between luck and skill. His “The Success Equation” book does yeomen work on this subject. He is an engaging speaker. Here is a Link to a one-hour video that focuses on “Untangling Skill and Luck”:

I also agree with your assessment that the general investment skill level in both the professional and amateur ranks has remarkably improved over the last two decades. Low hanging fruit is a rapidly disappearing commodity as the knowledge base has expanded both in its depth of understanding and in its wide distribution.
Benjamin Graham recognized this trend many years ago, and reported his belief in the fifth version of his famous “The Intelligent Investor” book. He cautioned the “Superinvestors of Graham and Doddsville” about the challenges of finding the far fewer improperly priced investment opportunities.
I’m a much slower learner. About a decade ago, my mutual fund portfolio was almost 100% populated by actively managed products. Today, that concentration has been reduced to roughly a 50/50 mix of actively and passively managed holdings.
I do plan to reduce my actively managed funds still more, but I also plan to retain some active elements. Some managers do outperform their benchmarks for an extended time horizon. There are superior fund managers.
So, although I agree with much of what Charles Ellis and Jason Zweig advocate, I am not as hard over to the Index end of the spectrum that these gentlemen represent. I respect our differences; that’s a needed part in the marketplace’s price discovery mechanism.
Best Wishes and thanks for your viewpoint.

Two quick notes:
1. so far as I can tell, BottomLine articles are only available in print.
2. this is probably my third byline for them. The key is that these are "as told to" articles. Mark Gill, frequently, runs a question by me, I offer some suggestions, and then he writes the actual article. That reflects BL's crazy space constraints and their desire to be very responsive to their readers.
The question here was "how quickly should you dump a faltering fund a/k/a how much slack should you give a once-great manager?" I suggested that most good funds suffer back to back trailing years without noticeable problem, but that funds with three consecutive weak finishes rarely rebound. From there they asked for some really solid funds that have suffered lately but on which we'd still counsel patience.
I've offered some names. They've occasionally said "yeah, but we've had some negative reader feedback on that fund so we probably won't go with it." You get a sense of the constraints when you look at the size of the funds highlighted, which is rather higher than we'd normally target.
For what it's worth,
David

He wrote an article "Daring Investor Faltering Fund," for the above publication.
The article basically discusses briefly how the Homestead Small Company Stock Fund and Mairs & Power Growth Fund have surpassed the S&P 500 over the past 10 and 15 years, but stumbled as of late.
We cannot find a link for the article.

Thanks AndyJ. That makes it clear to me. M* has the duration of ACCNX at 4.8 years. I'm not sure how accurate that is. I think it's closer to 4 years.
I also opened a positioned in ASDVX which a brand new fund at AC. Short Duration Strategic Income. Duration is supposed to be three years and under. It's one of those Unconstrained do everything go anywhere bond funds that are popping up all over. There is another fund with the same game plan but longer duration. I have it on my watch list but am not sure if it fits a need at this time. I'm still riding this bull until she croaks. Hopefully I will know when that is.

As I lose neurons, myocytes, and fast twitch fibers, I slowly realize that the age of mega-data means that the areas of inefficiency which smart people with lots of research time to exploit "the market" become smaller. That allows smart managers of all asset, all authority funds a narrowing window of opportunity to exploit specific areas of the market and world. Small cap foreign or frontier funds have several years left, but big data will flatten that world fairly soon also.
I think the remaining decision left for indexers is whether to indulge in market timing. Is there a presidential cycle effect? should you sell in May? Do you believe Schiller and go to cash, or at least add no new money?
Running a mutual fund is a lucrative profession, if one can find investors (That's why there are so many of them). OTOH, why should I allow a failed mutual fund manager to advise my investments? Is he or she now more adept because smaller amounts are involved? Will they work for $500/hr for 2 hours, which may be all the advice I want for the next 6 or 12 months?
I doubt mutual fund managers will go the way of travel agents, but some salaries may decrease. Maybe this will attract people who enjoy the challenge of "beating the market" more than the desire for a 7 figure income, and I REALLY hope I find a couple of them.
Obviously, I do not believe we are entering a new age of active managers, although I do believe that some managers of small funds can out-perform until they become larger funds.
Depending on one's point of view, everything is drivel; and absolute drivel drives out pure drivel, which drives out relative drivel (such as this). I think that's Gresham's Law of Drivel.

An entire article, based on he said, he said...
Mr. Ellis sounds a lot like our MJG.
It would help for active managers to lower their fees.
Suspect there will be more all asset, all authority fund managers in years ahead.

@Ted and @MJG, thank you for your posts. This is great information that I've seen before but never spent more than a short while analyzing (shame on me).
Anyway, having done some work to review the data, I find it most interesting that if you'd completely avoided developed international markets (MSCI EAFE) for the last 20 years or the last 10 or 15 years, you would have had a very good chance of doing better with that money almost anywhere else. Considering the demographics and the economic challenges that both the Europeans and the Japanese face, I'm wondering why we should think the next 10 or 20 years will be any different? Would anyone take the chance of an all US/Emerging Markets portfolio (considering just equity)?
Another interesting, but maybe not surprising, tidbit is that small-caps in developed international markets, and I only had data since 2001, were much better performers in the last 13 years and outperformed their large cap EAFE colleagues by far more than small-caps in the US or emerging markets outperformed those markets' large cap indices. So then a follow-up question... if you wouldn't avoid developed international markets totally, would you consider focusing investments in developed international markets on small-caps?

FYI: (Click On Article Title At Top Of Google
It's the investing equivalent of "don't run with scissors": Nearly all advisers agree that trying to time stocks is futile. Naturally, people do it anyway.
Research firm Dalbar earlier this year published 30 years of data on what typical mutual-fund investors earned and the results weren't pretty: An annualized return of 3.69% in stock funds and 0.7% in bond funds. Yet someone fully invested in the S&P 500 over that period would have earned eight times as much as a typical equity-fund investor. Results for bonds were similar.
Regards,
Ted
https://www.google.com/#q=yes,+you+can+time+wsj

VTI and VBMFX, just for the heck of it, U.S. centric, buy and hold for the past 15 years = 7.12% annualized.
At the below chart, right click on the "200 day" icon in the slider bar and select "all" for the period back to July, 1999.
Insert tickers (separated by a comma) of your choice, for your own checks.
http://stockcharts.com/freecharts/perf.php?Vti,vbmfx#
Just my own humble opinion, with charting for the fun of it.....; of which, saved our monetary bacon in July of 2008.
Have fun,
Catch

Gah, have we not been over this many times? Think about it unaggregated. Chart GABEX, AMANX, PRBLX, YACKX, and FLPSX against SP500 from August 08 to August 2012. All different outfits and approaches. Pay attention to dip depth and then time to recovery. SP500 is the laggard --- by far.
You can always plead selection bias, 'Well, someone has to outperform'. But the point is that all of the managers of those prudent funds were bruited bigtime well before 2008, well before, some of them for the 20 or more years preceding. I did not get into these funds or recommend them to my wife and parents and children and friends in 2009 or whenever; I did it in 2003, or 1997, or some of them 1990. Based on reading and research and backtesting such as it was possible to do back then. I have no gift for this kind of thing, but these managers certainly do. And I stuck with them except for Gabelli, when I switched all of those holdings over to Ahlsten, based solely on dip protection.
Most of this holds for Danoff/FCNTX too.
So either stick with indexing and all it entails, or do your due diligence and look for active managers who demonstrate smidgens of prudence and foresight and protective behaviors. I (overly diversified like so many here) used to be in D&C, Fairholme, and Weitz also, but over time came to see that they did not show the judgment I valued.