Scott Burns: It's Twilight For Managed Mutual Funds cman, you are right on. The active fund industry often uses ETFs to enhance their portfolios or to place sector, regional, or momentum bets. And they certainly use them to play out their short strategies.
Another thing that has happened, which is indeed good, is the demise of most B and C class shares, which are nothing more than cash cows for the fund and commission brokerage industry. They were shameless when they started (easy to see that in hindsight, less so at the time decades ago), and the industry fought to continue using them, all the while marketing them as 'no-load' products.
Well-managed, active funds are in no way destined to disappear. But a number of poorly-run, expensive funds will disappear, which is a very good thing. My Morningstar Office software lists more than 28,000 mutual funds this morning, many of them different classes of the same fund. Even so, there is a lot of garbage, whether it be from Vanguard, Fidelity, BlackRock, and other biggies to a lot of the small, one-or-two fund shops.
M* also lists more than 1,500 ETFs. My hunch is that 60-70% of them are pretty poor investment vehicles, too.
Burns' article says investors could managed a three-part strategy using index funds for twenty years before expenses would equal one year in actively-managed funds. That may be true, but I know of no one who would not fidget with their portfolio more than a few times a year, let alone 20 years. In, out, new strategy, out, in, change strategy, out, in, etc. That is why the average investor in any fund or ETF has a much lower net return than what the fund does.
Warning Signs Are Flashing For Junk-Bond Investors
Most Of The World Overbought
Getting Rich – Slowly
Most Of The World Overbought
still buyin HY? Why yes, since you asked, I am still buying HY, since I'm a 3/4 glass full kind of guy. Just the other day, I made a ginormous commitment to Bryan Krug's new Artisan fund, slamming in $500 as my initial position and establishing a very aggressive AIP of $50/mo. I had to transition from boxer briefs to jockeys for a few days--- out of concern for the safety of those around me--- but the initial "euphoria" has receded enough to return to normal wear without discomfort now.
Scott Burns: It's Twilight For Managed Mutual Funds I think it is a bit too much wishful thinking to assume these flows are caused primarily by fee differences or index vs active ideology choices.
A long term trend has been the demise of load funds and very high ER funds (much higher than category average). Increased investor knowledge and the replacement of such funds in 401k plans, I think, were the main drivers. Of course, most such funds were active. It is fund managers and families of such funds that should be worried. Not the funds with category average ERs whose assets seem to keep increasing even if they are 5-10x more expensive than category average of index funds or ETFs.
2008 was a watershed year for change in investor thinking regarding portfolio strategy. I believe allocation and alternate funds, as a strategy, were the winners of conscious selection rather than fees or active vs passive style as people got disillusioned with their own fund picking success. This is consistent with the flow data. I suspect this is true even amongst members of forums like this. People who have been here longer than me may be able to opine on this.
Funds of funds allocation funds like target date funds, the biggest winner as a category, primarily invest in index funds. But even those that invest in active funds like the ones from TRP have seen huge growth which suggests that it was the strategy change that was driving this than fee or management style. Target date funds have been very popular in 401k plans since they were introduced. Vanguard has benefited greatly from this flow much of which has passed on to its index funds.
In addition, index ETFs have become trading vehicles for hedge funds and alternate active funds that allow them to place huge macro bets or to play momentum with better liquidity and lower costs than picking individual stocks. I expect this to increase even further going forward also affecting fund flow numbers.
still buyin HY?
time to increase bet on EM?
still buyin HY?
Q&A With Activist Investor David Winters
Scott Burns: It's Twilight For Managed Mutual Funds I think part of the problem is that the average management fee for "actively" managed funds is between 0.5% and 1.0%. With $5.5 trillion in those funds in the U.S. it means fund companies are scalping somewhere between $28 and $55 billion from our investments every year while on average they struggle as a group to beat index funds that charge much less. They may be adding real value compared to indexing, but most or all of that value is going straight in their pockets rather than ours.
If you believe the hype that lower costs are predictive of better long term results, then it would seem active funds should reduce their costs, improve their returns and potentially take back some of the market share flowing to index funds, thereby offsetting some of the salary their losing by cutting the management fee.
Getting Rich – Slowly
Getting Rich – Slowly Hi Guys,
I admire the trustworthy advice and honest work ethic of Scott Burns and Bill Bernstein. Both have morphed into strong passive Index investment advocates.
This is a follow-up posting to an earlier MFO submittal that referenced a recent Scott Burns article. The internal Link to that article is:
http://www.mutualfundobserver.com:80/discuss/discussion/13537/scott-burns-it-s-twilight-for-managed-mutual-fundsBurns endorses a recent short publication by Bernstein titled “How Millennials Can Get Rich Slowly”. This very recent Bernstein work is directed at young, neophyte investors. Here is a Link to that 16 page document:
https://dl.dropboxusercontent.com/u/29031758/If You Can.pdfI recognize that most MFO participants are beyond the early stages of their investment careers, but you all might benefit by perusing this easy guidebook that features a
5-step program. It is a very practically oriented roadmap. The included recommended reading list for each phase of the
5-steps is useful, albeit not especially surprising.
The booklet is filled with pragmatic wisdom. I particularly liked the following quote, which has appeared in several other financial tomes.
To precisely quote Bill Bernstein, “When all is said and done, there are only two kinds of investors: those who don’t know where the market is headed, and those who don’t know that they don’t know. Then again, there is a third kind: those who know they don’t know, but whose livelihoods depend on appearing to know”.
Bernstein is not kind to market prognosticators. I have managed to find a pathway to a persistent theme that has dominated some of my recent postings. Forecasters can’t forecast.
Please access the referenced Bernstein booklet. It is likely not sophisticated enough for most MFOers, but it might be profitably passed-on to younger family members.
Best Regards.
Miller: Gundlach's Bearish Housing Position Is Wrong Hi! I'm From The Government and I'm Here to Help
U.S. private lenders not ready to replace Fannie, Freddie: regulatorFederal Housing Finance Agency Director Mel Watt said the two companies, which own or guarantee about 60 percent of all U.S. home loans, needed to remain in the housing finance market to make sure it was liquid and resilient.
Watt said last week, in his first public speech since taking office, that he did not want to shrink Fannie and Freddie's footprint, marking a sharp departure from his predecessor.
"It's not that I'm opposed to it and we will certainly allow it to happen," he told C-SPAN's "Newsmakers" program, when asked about the prospect of shrinking the lenders' activities.
"But if the private sector is not ready to step into the space, and you shrink what Fannie and Freddie are doing, you do damage to housing finance in this country and that does damage to the economy and that does damage to the possibility of affordable housing and home ownership."
http://www.reuters.com/article/2014/05/18/us-usa-housing-idUSBREA3N1T820140518And speaking of inequality and affordability......
The city's Human Services Agency has released a new report filled with startling data about a rapidly changing San Francisco, where the rich are getting richer and more educated, the poor are falling further behind and the middle-class is skipping town altogether.
http://www.sfgate.com/bayarea/article/Income-inequality-on-par-with-developing-nations-5486434.php
Miller: Gundlach's Bearish Housing Position Is Wrong The housing market will never pick up until the Working Stiff starts working for 2014-sized dollars. That poor Working Stiff is working for 1974-sized dollars, still. And from the "Let them eat cake" Dept. .....
Only in the Wall Street Journal? My heart bleeds for him. Let them eat cake...... From the article: "Nick Paron,
57 years old, said he's been paying more for utilities, health insurance and steaks, limiting his discretionary purchases. "Much of our recreational income has been sucked up by these extra costs," said the Saginaw, Mich., physician."
Yes, steaks. Steaks are not discretionary. Everyone got that?
http://online.wsj.com/news/articles/SB10001424052702303908804579563631910438594?mg=reno64-wsj
This, as well as a ton of other factors (more and more student debt, etc.)
Miller doesn't get it.
Small Stock Funds Win Big In Emerging Markets Back in January, I added an international small cap OSMYX with some emerging market exposure (15%), but will admit it is still primarily developed market. I was a little late to the party, but thought it was a space that could use a place in my portfolio since WAEMX was closed.
15 yr 11.3%
10 yr 15.67%
5 yr 25.18%
1 yr 25.86%
Just over breakeven ytd, but this way I am diversified with small caps into domestic and intl. Quite honestly, before I went to ML, would never have considered load funds or have access to load families without paying a load, so always stuck with no loads and preferrably ntf. Oppenheimer does seem to have a strong international team, I also hold their emerging market fund ODVYX.
