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Reshma Kapadia, Time for Actively Managed Mutual Funds

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  • From the article’s comments:

    Alejandro M

    11 hours ago
    A quote from the article:

    "She found five actively managed mutual funds that own none or very little of the tech megacaps. And while that has hurt recent performance, these funds have terrific long-term track records and could serve as a good hedge if the giants start to stumble."

    If you click on the link to her picks, you get the funds below. Let's mine the data & compare their performance to the QQQ index fund:

    Fund YTD 1 yr 2 yr 3yr 5yr 10 yr
    QQQ 14.3% 42% 92% 108% 233% 528%
    AMCPX 10.5 27 34 30 66 116
    AKREX 15.7 28 45 77 160 385
    JENSX 12.3 23 23 28 59 118
    POGRX 17.6 28 27 25 93 201
    CAMOX 19.3 42 37 26 32 53

    VS
    SPY 15.9 39 48 60 107 229

    The numbers speak for themselves. The funds not only underperformed recently but for the past 10 yrs. The risk is grossly underperforming the unmanaged QQQ & S&P 500 index funds. If you own the funds recommended your probably not a happy camper knowing this data. Follow the data points.
  • edited July 5
    The article takes a contrarian approach. Their underlying premise is that they see a dangerously narrow concentration of only a few tech giants in the S&P. So, the idea behind the piece is to find funds that have little or no exposure to the five tech giants.

    I was able to excerpt a few passages from the lead-in to the story that might shed more light on the story and funds she picked. I’d never invest in specific products of any kind simply because Barron’s featured them. There’s an element of “fluff” and the elicitation of “eye-balls” in most of the feature stories - especially pertaining to actively managed funds, I think. That’s not to say Barron’s doesn’t do a fine job raising important issues for investors to think about.

    “The S&P 500 is generally considered to be the best proxy for the U.S. stock market. It represents about 80% of all U.S. stocks, and it is capitalization-weighted, just like the market itself. That means the largest stocks make up a bigger portion of the index. Today, the five largest companies— Apple (ticker: AAPL), Microsoft (MSFT), Amazon.com (AMZN), Facebook (FB), and Alphabet’s Google (GOOGL)—make up 22% of the S&P 500.

    “That isn’t diversified. Putting more than a fifth of your assets into five stocks isn’t diversification—and putting more than a fifth of your assets into five technology stocks is even less so. This isn’t a new phenomenon, and Barron’s has warned about the risks the tech megacaps pose to many portfolios, especially the $4.6 trillion that sits in S&P index funds. But the Big Five are showing some early signs of weakness, and those risks may be coming to bear soon, says Barron’s associate editor Reshma Kapadia.

    “So what’s an investor to do? Reshma has you covered: She found five actively managed mutual funds that own none or very little of the tech megacaps. And while that has hurt recent performance, these funds have terrific long-term track records and could serve as a good hedge if the giants start to stumble.”


    Excerpted from current issue of Barron’s - July 2021
  • edited July 5
    If you own (popular) PRWCX, the two largest equity holdings are Microsoft and Amazon. Those two, along with Alphabet (#5), comprise 9.1% of the fund’s holdings according to Lipper. Just for comparison, I looked at value oriented DODGX. Only one of the tech giants appears in its top ten (Alphabet #5 at 3.3%).

    There’s a tendency to judge a fund by its past performance - particularly the 3, 5 and 10 year numbers. I do that to some extent myself. But in trying to assemble a diversified portfolio that will stand up under various types of market stress, it’s a good idea to “drill down” and consider the stocks you are really purchasing when you buy a fund. Looking “under the hood” is another way of putting it.
  • Great point. The FAANG stocks (Facebook, Amazon, Apple, Netflix, and Google (Alphabet)) have dominated the broader US index for the past 10 years while the value stocks trailed by sizable margin until late 2020.

    As @hank suggested above, it would be a good idea to review the top 10 holdings in each funds in your portfolio on a regular basis. Case in point, the value oriented Wellington fund, VWELX, now holds: Alphabet Inc, Microsoft, Facebook and Apple among the top 10 holdings per 5/31/2021 reporting. The fund is now categorized as blend according to M*. In the same period, Wellesley Income, VWINX holds more the traditional financial, pharma and consumer staples stocks. Also Global Wellington holds only Microsoft as #4 position. Likely I will move fund away from Wellington.
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