FPACX or FPAG + FPAS?

Level5

I’m hoping you will help me think this through…

I have a small position in FPACX/FPCSX. I like that it includes a global cast as well as a hefty pool of dry powder for potential opportunities. I also like the lower sd of 10.65 (3yr) and 12.08 (5yr). I’m not in love with the er (.99 / 1.01).

The global equity allocation for FPAG is quite similar, with the exception of higher percentages in each stock. It holds much less dry powder (2.79 vs 36.71%), so can’t be as nimble as FPACX/FPCSX ( I already hold 20% in mmkt for safety and potential reinvestment at market drops). The er is quite different (.49 vs .99 / 1.01).

I’m wondering if combining FPAG (60%) with FPAS and/or FPNIX (40%) would be a reasonable substitute at a lower er, and ability to rebalance come RMD time.

Your thoughts are most welcome.

larryB

@Level5. A great question. The stuff I have been going over and over and over again lately. I assume you know that the great Romick is no longer on the management team of FPAG. You might want to run the numbers for the one fund vs 2 ETFs at Portfolio Visualizer and play with various allocations. Also check out a deep look at FPAG on Seeking Alpha. I am doing Wellington Global, VGWLX plus MM.

Level5

@larryB - thanks for your suggestions. Ran the numbers on PV and surprised to find FPACX outperformed on sd, drawdown, and total return (?) Seeking Alpha was interesting. Secret sauce? I dunno.

Sven

Here the Seeking Alpha article that @larryB was referring to.
https://seekingalpha.com/article/4810400-fpa-global-equity-etf-actively-managed-for-the-long-term

Similar to David Giruox, FPA managers are very opportunistic in their tactic positioning of their core holdings. That is part of the magic behind active management. In my opinion, this nearly impossible to emulate FPACX as retail investors.

Level5

Thanks for the link @Sven - The SA article was helpful, but from the PV results I got, I don’t think separating into the parts will equal the whole of FPACX.

Sven

You are welcome. The FPA managers are really good on how they weave in and out so to add value to FPACX. Have a large cash position is where their secret sauce lies.

In that article, FPAG is competitive to several active ETFs that is worthwhile to consider too.

Level5

Before retiring I was very much an equity fund indexer, so stepping out into FPACX was out of my comfort zone, but appreciated their careful approach. Keeping the large pile of cash while the equity market appears so highly valued, just makes sense to me. They’re careful with other people’s money. I like that.

larryB

Or you could do FPAG and MM to your own risk level and save the very high ER on all that cash.

Sven

Agree. There are many low cost short term bond funds/ETFs.

At present, FPAG is trading at relatively low daily volume, so be patient to build to your target allocation.

Level5

That’s just it. I ran the numbers on PV with 60 and 70% FPAG and mmkt or short term bonds and FPACX came out on top - sd, total return, drawdown. So unless I totally screwed the data entry, FPACX, even with the higher er came out ahead.

Level5

Okay, ran the numbers again on testfol.io and the outcomes were extremely close. Must have botched my PV inputs. Thanks, @Sven and @larryB.

Vegomatic

65% FPAG / 35% BINC?

Fairly similar, FWIW.

https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=3swyJ96bDWKq3uq1wk4T0x

Level5

Thanks, @Vegomatic.

Vegomatic

Portfolio Visualizer ("PV") has option to display distributions from the various back-tested portfolios.

Per PV...

On an initial $10,000 investment for the common time interval, looks like FPACX has distributed total $1,684 (or about 17% of the initial investment.)

On an initial $10,000 investment for the common time interval, looks like the FPAG/BINC blend has only distributed total $652 (or about 7% of the initial investment.)

If the alternative portfolios were held in a taxable account, looks like FPACX would be much less tax efficient than the ETF blend, and that this could/might "tip" the decision in favor of the ETF blend, even if the returns (before tax) were otherwise similar.

Vegomatic

One last thing.

PV also has option to not reinvest the distributions.

While tax rate is not typically 100%, think (unsure) you could look at the difference in terminal values in the two portfolios without dividend reinvestment (i.e., 100% tax), and close the gap between the two by 2/3 or 1/2, depending upon if - for example - your tax rate was roughly equivalent to 33% (1/3) or 50% (1/2).

This might ballpark the tax impact,, etc. of the mutual fund structure vs the ETFs.

Level5

@Vegomatic - appreciate your diligence. Our investment of FPACX is currently in our T-IRA and set on reinvestment. For now, we’ll stay put.

Sven

@Vegomatic, nice example! The only difference is that Steve Romick is no longer part of management team in FPAG while the other two managers still run FPACX.