How Unloved Is Active Management? Even Outperformance Is Being Snubbed IMHO this is good news, since it means we can expect less bloat, less of a headache for managers having to deal with hot money, and more good funds reopening.
The object is to do well over time, not each and every year. In this article, they looked at how many funds outperformed (defined as being in the top 25%) annually over the past year, and a year ago, and two years ago, etc. Surprise, surprise, no funds outperform every year. From this they concluded that that funds don't outperform for more than three years or so. Wrong.
I ran a similar screen - except instead of using years ending Jan 31, I used years ending Dec. 31. Similar (and useless) results. After 2 years (2016 and 2015) I found 1026 share classes (vs. the 1098 that the article reported using Jan 31 ending dates). After three years I came up with 455 share classes, that amounted to about 183 different funds.
After six years of this (2016-2011), I got 41 share classes amounting to a tad over a dozen funds. Over eight calendar years (as opposed to years ending Jan 31), I found 18 share classes (9 funds). That's nine more funds than the article reported for years ending Jan 31. FWIW: UTAHX, RSGYX, GMCDX, LLDYX, NCSPX, PFORX, PISIX, PIFZX, and VMPYX.
But it's an absurd exercise. Backing up to five years (since there's data on five year performance), there are only 72 share classes that outperformed each of the past five calendar years (34 funds). Yet obviously 1/4 of the funds that have existed for five years have outperformed their peers (defined at being in the top 25%). Over 1700 funds.
Even if we add in the requirements that the funds must also have performed in the top 25% over the past three and one years, we still get around 600 funds. Roughly 20 times the number of funds that this article suggests.
This is why one should be skeptical of anyone saying that a fund consistently outperforms. Just as one should be skeptical of articles using consistency (over relatively small periods like a year at a time) as a metric for long term performance.
How many index funds outperformed 75% of their peers year in, year out, for five, six, seven years? Hint: The only index fund that managed this feat for even five years is VSCSX.
Are You A Schwab Client? I am a Schwab enthusiast--banking, brokerage and retirement accounts all there. Some of my favorite things about Schwab:
1. Awesome customer service
2. An extensive list of NTF/load-waived funds, including T. Rowe funds now.
3. Minimum fund investments as low as $100
4. Cheap equity trades: $4.95
5. Seamless transfers between banking/brokerage
6. Intuitive website
I also have (and like) Vanguard, but Schwab is still my favorite.
Are You A Schwab Client? Is there a publicly accessible list of NTF funds available through TIAA? I'm curious because I sometimes see M* list a fund as NTF at TIAA that's not NTF at other discount brokers. (I find the M* brokerage availability pages among the least reliable data M* publishes, so it would be good to verify.)
Regarding TDA - we have an HSA account that lets us invest through TDA. No complaints, good selection of NTF ETFs. For retail investors TF fees are a bit high ($49.99 each way) and it has a 180 day short term trading fee on NTF funds (not of concern to me). Our fee schedule is different since it's through the HSA.
Rondure Funds now open @MikeM2Both funds and classes are available at TD with a 2K minimum. The N shares have no TF, but the I shares come with a TF of $49.99 unless one has a pricing agreement with TD for a lower TF -- in my case $
17.99. I will be holding the I class of both funds at Rondure with the option to use DCA if I wish at TD as opportunities become available.
Also, for what interest it holds, TD shows an additional purchase fee for ROSIX of 2% but not for RNWIX. I asked the TD mutual fund department to confirm that, and they said that the 2% fee was in error and will be removed at the end of market today.
As always,
openice
How did you finagle a different pricing agreement with TD?
How Unloved Is Active Management? Even Outperformance Is Being Snubbed
Muni bonds after Puerto Rico bancruptcy Just checked my EM bond fund, PREMX. The exposure to PR general obligation bonds (at least among the top 100 holdings, out of 407 total holdings, is 0.31%.) The fund was down today by -0.39%. Could have been much worse. PREMX has been reliable and good to me, since 2010. No reason to "bail" over this PR debacle.
Are You A Schwab Client? Many brokerages have improved significantly in the past decade or so. These days it seems to be (with a few exceptions) a choice between adequate, good, and really good. I put Schwab in that latter category.
Though I don't use Schwab much, I have been with them for many years - I even have an old "No annual fee - free for life" IRA there. (When's the last time you saw an IRA account with an annual fee?)
As others have said, they've got good execution, don't bother you (maybe that's because I don't have enough invested with them), a good selection of NTF funds. They seem pretty fast in making newly load-waived funds available NTF.
For me, the biggest plus, outside of the high quality service, is the rebate ATM card that expatsp mentioned. What wasn't mentioned was that not only does Schwab rebate the ATM fees, but it also eats the
1% foreign exchange fee imposed by the network (VISA/MC) when you use the card abroad.
A small plus is that Schwab bank is a real bank. That matters in a few situations where other financial institutions only allow EFT linking to a real bank. (Sometimes you can't link a third party to a Fidelity account, since Fidelity doesn't run a bank.) Be aware though that virtually no Schwab branches are Schwab bank branches. I don't know if this list is accurate, but it shows just
11 bank branches:
https://www.branchspot.com/charles-schwab-bank/The biggest minus for me is that Schwab doesn't seem to have a backdoor like Fidelity where you can buy shares of a TF without paying a large fee (here, $76) per purchase.
Finally, since Vanguard Brokerage Services was mentioned - it's true that they offer fewer funds, but they seem to sometimes offer institutional class shares with lower mins than Schwab or Fidelity. Notably PIMCo ($25K vs. $
100K at Schwab/Fidelity.)
Are You A Schwab Client? To be honest, I don't have a comparison to reference. When I left my employer of 40 years, I pulled a good portion of my 401k proceeds (not all) and put them in a Schwab IRA. The 401k is with T. Rowe Price who I like very much, but no brick and mortar presence. I already knew Schwab had a good reputation. I could see they had a boat load of NTF funds plus their own brand of ETFs with zero trade cost. I didn't need it then or now to be honest, but they have plenty of other banking options too. But the most important criteria for me was they had a local branch. I prefer 1 on 1 contact when talking to someone about my investments. Screw the phone and email conversations. I like to sit across from a human and explain my thoughts and listen to theirs. I welcome a second opinion as a sanity check. If you are into seminars and work shops, which I am, they have plenty.
After I had already transferred assets to Schwab, they came out with their robo-portfolios. This may not be a plus for you, but I did like the idea. I acknowledge I have made plenty of fund buying and portfolio management mistakes. I wanted a side by side, disciplined approach to compare. I put 1/2 my money into the Intelligent Portfolio and it has worked out well.
I would suggest you go to 1 or 2 of the branches in your area just to talk with them. See if there is a connection or not. Yes, their prime goal is for you to move your money to them, but knowing that you can still get a comfort level and gain knowledge to see if they are a good fit. Reading through your criteria, I think Schwab would be a good choice for you.
Good luck with your choice Mark.
Muni bonds after Puerto Rico bancruptcy From that Oppenheimer puffpiece:
"The total returns on securities issued in Puerto Rico were highly attractive in 2016, according to Bloomberg Barclays Municipal indices that measure performance.1 Overall, Puerto Rico securities had a 2016 total return of 8.6%. High-yield bonds issued by the Commonwealth performed even better, offering a total return of 11.4%."
And so on. But NOT ONE WORD about the quality of that crap or possible repayment issues!
Muni bonds after Puerto Rico bancruptcy @Sven - you CNBC link has a problem. What's displayed is correct, but the embedded link has an extra "http//". In these posts you don't need to embed a link, just type the URL and the server will take care of the rest for you. Such as:
http://www.cnbc.com/2015/06/30/is-your-bond-fund-invested-in-puerto-rico.htmlTechnically PR isn't allowed to go through bankruptcy. It's using Title III of PROMESA. That looks like a duck, walks like a duck, quacks like a duck, but isn't a duck.
http://www.businessinsider.com/puerto-rico-seeking-title-iii-bankruptcy-for-public-debt-2017-5Oppenheimer Rochester funds have always played fast and loose, well before PR had problems with its bonds.
Six of its funds settled a class action lawsuit for this. "The [six suits, combined here] all alleged that Oppenheimer said it would invest the majority of the money in the funds in investment-grade municipal bonds, but actually invested much of it in low-rated junk bonds and derivatives."
https://www.law360.com/articles/468793/oppenheimer-reaches-90m-deal-in-municipal-bond-caseOPCAX is the target of a separate ongoing class action law suit for its investments in the same time frame (2006-2008).
https://oppenheimercalmunilitigation.com/Home/FAQMany PR bonds were already in default. I received letters last year on PR bonds I own saying that they would be missing payments. So any action, even "bankruptcy", that would improve the likelihood of future payments in any amount would be expected to increase the value of these bonds immediately.
Improved prices would decrease YTW, even though the next coupon date had not arrived. Similarly, as bond prices rose, the NAV of funds holding them would rise immediately, and thus the SEC yield of the funds would fall. YTW and SEC yield are functions of price as well as payment amounts.
