Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Reply to @TheShadow: I'm endlessly grateful for that impulse, by the way. I try to keep track for our monthly updates, but it's reassuring to know that someone else is checking and sharing. On a number of these, you found cool stuff way before me (if I'd have found them at all). And so, thanks!
I remember the Steadman Funds, as others may, which finally died a horrible death, way past the point at which they should have. But there were some investors that held on despite a 23% expense ratio and negative 20 year averages. So much for buy and hold and hide head in sand.
Reply to @slick: The biggest problem in dissolving the Deadman funds was achieving a quorum. So many of the shareholders had died before the funds did, that they (reputedly) couldn't get enough votes together to liquidate the funds. Little fund positions got passed on to heirs who couldn't be bothered, or ended up in an intestate estate. So they lumbered on, unstoppable.
I promised never to write another story about the van Wagoner funds, but they were almost as freakish.
Funny you should mention Van Wagoner. I bought into several of his funds when they first became available, because of his stellar performance with Govett Small Company Fund and made some money. Problem was I held on to them and lost may gains. Got out of his funds before the floor fell out from beneath them.
Reply to @Old_Joe: OK, maybe I was being a little severe. But let me tell you how bad it is...
Of the 7500 or so equity and fixed income open ended funds available, unique share class, excluding trading funds, consider this:
Over 700 have delivered less than cash over their lifetimes. Yes, negative Sharpe.
Nearly 400 fall in the bottom 20% of their risk adjusted return category EVERY period of their existence....EVERY period! Take a look at this list of consistently terrible 20 year equity funds, especially note Stonebridge Small-Cap Growth SBSGX:
And isn't seeing Dreyfus Large Cap Equity A DLQAX on this list reassuring? Some investors have actually had the privilege of paying 5.75% load for this sad fund. Really!!
Finally, a special group of over 70 funds have declined more than 3/4 of their value, that's -75% or less. These two are especially impressive:
Mkt Vectors Solar Energy (KWT) with MAXDD = -94.4% Guggenheim Solar (TAN) with MAXDD = -94.0%
Get it..."TAN"? Can you believe? BURNT would be more appropriate.
Reply to @Charles: Holy Toledo! Are you still active with or retired from the NSA? You've managed to reproduce my actual entire secret portfolio! (All of the other stuff that I've mentioned from time to time I just made up to impress everyone else at MFO.)
Next thing you'll be telling me that I'm really in Yemen, not SF. (oh-oh... damn! I did it again. Now I'll NEVER get promoted by our glorious leader... Hold on- I hear helicopters and someone's trying to break through our front door...)
Reply to @Charles: You were clear on expressing the idea of unique funds (as opposed to double or triple counting because of multiple share classes) when you wrote: "Of the 7500 or so equity and fixed income open ended funds available, unique share class ..."
But then you go and blow it by suggesting that investors have paid a 5.75% load for $265M worth of the fund. That $265M is for all the share classes, not just the A shares. In fact, for this fund (according to the latest prospectus, which gives YE 2012 figures), less than $1M was in A and C shares combined, and $226M was in I shares (no load).
The fund is already bad enough. No need for hyperbole.
I may as well pile it on though ... Even if this money were all A shares, the portion due to reinvested dividends and natural growth (yes, it really has positive returns over the past 1, 3, 5, and 10 year periods) would not have been charged a load. So the "loaded" investment is almost certainly somewhat less than the total value of the A shares. And to go one step further, there are load break points (starting at $50K), so even some of the few investors who did pay a load may not have paid the full 5.75%.
Reply to @msf: I just pulled the figures off M*, no hyperbole intended:
Thanks for correcting against actual prospectus. Certainly, the lower the cost this sad fund charges, through any vehicle or share class, the better. But honestly the fact that any investors are paying a load is indefensible.
Reply to @Charles: M* recognizes that different share classes just belong to the same fund, so it reports the total assets in the fund, not the share class.
Please correct me if I'm wrong, but I think you've been critical of loads in general (from a thread on American funds). There seems to be little point in saying "how dare such a bad fund charge people a load", when one is already saying about loads in general: "how dare any fund charge a load." See syllogism.
Reply to @msf: A sales load is a form of payment for a service that you've received. The payment is not for investment management (that's covered by the fund's expense ratio); the payment is for financial planning advice. If the advice you've received is "the best pay to put your money, trust me, is in Dreyfus Large Cap Equity" and you've taken the advice, you've got problems far greater than the economically inefficient acquisition of a single underperforming fund.
Reply to @Ted: Yes and no. Mutual funds are justified either on investment grounds or business grounds. "Investment grounds" define funds that have a reason to exist, they do something useful, they do it exceptionally well and the thing they do is distinctive. The first long/short fund could be justified on investment grounds, the 20th could not.
"Business grounds" define funds that exist because the advisor needs them, not because the investors do. If you're a bank and you want to keep the greatest possible fraction of your investors money, you need them to invest in in-house funds (Wells Fargo makes more money selling Wells Fargo fund than it does selling Chase funds) and so you need to have one fund in each of the boxes they're looking for (domestic large cap, domestic small cap, money market, intermediate bond, real estate ...).
Sometimes funds created on business grounds turn out to be exceptionally solid (several of the Tributary funds, for example) but that's not typical; these things are generally cash cows designed to cost as little and return (to the advisor) as much as possible.
So, you're right - there are clearly 7000 of the 7500 extant funds that couldn't be justified on investment grounds. They're of no use to you and me, except in that they help create the market inefficiencies that better managers might exploit. But they are critical elements of the system that keeps lots of financial services firms, banks and others, alive.
Reply to @David_Snowball: Well, the relationship that you've outlined is certainly true in some cases, as for instance with American Funds, where I believe that you need to access through an adviser, at least to establish an account.
But what about those funds that allow you to buy through an independent broker (Schwab, for example) or even directly (some funds of American Century, for instance)? Where does this "financial planning advice" happen? If an individual chooses to pay a load without benefit of an actual adviser it must be because he did the due diligence and financial planning himself. How come he doesn't get that load?
Reply to @David_Snowball: As OJ noted, the relationship you described is one form that a load supports, but not the only one. OJ went in one direction - asking about the investor who pays the load without getting the service. (Rationale for this law is best deferred for another day).
To address your comment, I prefer to go in the other direction - that loads can be used to pay for discretionary accounts, where one is in fact paying for investment management. I agree with you that the person who works with a lousy investment manger (aka financial adviser) has bigger problems than the performance of a particular investment.
But given such a relationship, it seems the problem is virtually identical to that of paying the fund manager for doing a lousy job. In both cases, the person being paid (one by the load and trailing fees, the other by ongoing management fees) is not earning his keep. And in both cases, there's little to no flexibility in the payment based on that performance. (Management fees infrequently have performance adjustments, but they're almost always miniscule.)
Reply to @Old_Joe: If you knowingly pay for a service you have not received, you have chosen poorly. See Raiders of the Lost Ark: The Last Crusade for the consequences of choosing poorly. David
Reply to @msf: Not sure, but that might have been my point. If you're taking such poor care of your money that you're buying loaded funds without receiving good financial direction in return, there's evidence of a pretty serious problem in your thinking. While I don't expect that everyone will become financially literate, I do think that once you start handling large sums, you have an obligation to develop a basic set of clues. Or maybe it's just the lateness of the hour. As ever, David
Comments
David
David
How about...
GAMCO Mathers AAA (MATRX)
Nysa (NYSAX)
Newmark Risk-Managed Opportunistic (NEWRX)
Fidelity Advisor Financial Svcs A (FAFDX)
Invesco Pacific Growth B (TGRBX)
Rydex Electronics Inv (RYSIX)
Midas Magic (MISEX)
or even
Hussman Strategic Growth (HSGFX)
I promised never to write another story about the van Wagoner funds, but they were almost as freakish.
David
Funny you should mention Van Wagoner. I bought into several of his funds when they first became available, because of his stellar performance with Govett Small Company Fund and made some money. Problem was I held on to them and lost may gains. Got out of his funds before the floor fell out from beneath them.
The front of the fund's website has not been updated since December 2011.
http://quotes.morningstar.com/fund/teamx/f?t=teamx
Here's TEAMX multialternative fund by the numbers for past 1 and 3 years:
Of the 7500 or so equity and fixed income open ended funds available, unique share class, excluding trading funds, consider this:
Over 700 have delivered less than cash over their lifetimes. Yes, negative Sharpe.
Nearly 400 fall in the bottom 20% of their risk adjusted return category EVERY period of their existence....EVERY period! Take a look at this list of consistently terrible 20 year equity funds, especially note Stonebridge Small-Cap Growth SBSGX:
And isn't seeing Dreyfus Large Cap Equity A DLQAX on this list reassuring? Some investors have actually had the privilege of paying 5.75% load for this sad fund. Really!!
Finally, a special group of over 70 funds have declined more than 3/4 of their value, that's -75% or less. These two are especially impressive:
Mkt Vectors Solar Energy (KWT) with MAXDD = -94.4%
Guggenheim Solar (TAN) with MAXDD = -94.0%
Get it..."TAN"? Can you believe? BURNT would be more appropriate.
Next thing you'll be telling me that I'm really in Yemen, not SF. (oh-oh... damn! I did it again. Now I'll NEVER get promoted by our glorious leader... Hold on- I hear helicopters and someone's trying to break through our front door...)
But then you go and blow it by suggesting that investors have paid a 5.75% load for $265M worth of the fund. That $265M is for all the share classes, not just the A shares. In fact, for this fund (according to the latest prospectus, which gives YE 2012 figures), less than $1M was in A and C shares combined, and $226M was in I shares (no load).
The fund is already bad enough. No need for hyperbole.
I may as well pile it on though
Thanks for correcting against actual prospectus. Certainly, the lower the cost this sad fund charges, through any vehicle or share class, the better. But honestly the fact that any investors are paying a load is indefensible.
http://www.sec.gov/Archives/edgar/data/878719/000113542813000430/ua_497.txt
UNITED ASSOCIATION S&P 500 INDEX FUND
M* recognizes that different share classes just belong to the same fund, so it reports the total assets in the fund, not the share class.
Please correct me if I'm wrong, but I think you've been critical of loads in general (from a thread on American funds). There seems to be little point in saying "how dare such a bad fund charge people a load", when one is already saying about loads in general: "how dare any fund charge a load." See syllogism.
Regards,
Ted
http://money.usnews.com/money/personal-finance/mutual-funds/articles/2013/06/10/are-there-too-many-mutual-funds
David
"Business grounds" define funds that exist because the advisor needs them, not because the investors do. If you're a bank and you want to keep the greatest possible fraction of your investors money, you need them to invest in in-house funds (Wells Fargo makes more money selling Wells Fargo fund than it does selling Chase funds) and so you need to have one fund in each of the boxes they're looking for (domestic large cap, domestic small cap, money market, intermediate bond, real estate ...).
Sometimes funds created on business grounds turn out to be exceptionally solid (several of the Tributary funds, for example) but that's not typical; these things are generally cash cows designed to cost as little and return (to the advisor) as much as possible.
So, you're right - there are clearly 7000 of the 7500 extant funds that couldn't be justified on investment grounds. They're of no use to you and me, except in that they help create the market inefficiencies that better managers might exploit. But they are critical elements of the system that keeps lots of financial services firms, banks and others, alive.
For what it's worth,
David
But what about those funds that allow you to buy through an independent broker (Schwab, for example) or even directly (some funds of American Century, for instance)? Where does this "financial planning advice" happen? If an individual chooses to pay a load without benefit of an actual adviser it must be because he did the due diligence and financial planning himself. How come he doesn't get that load?
As OJ noted, the relationship you described is one form that a load supports, but not the only one. OJ went in one direction - asking about the investor who pays the load without getting the service. (Rationale for this law is best deferred for another day).
To address your comment, I prefer to go in the other direction - that loads can be used to pay for discretionary accounts, where one is in fact paying for investment management. I agree with you that the person who works with a lousy investment manger (aka financial adviser) has bigger problems than the performance of a particular investment.
But given such a relationship, it seems the problem is virtually identical to that of paying the fund manager for doing a lousy job. In both cases, the person being paid (one by the load and trailing fees, the other by ongoing management fees) is not earning his keep. And in both cases, there's little to no flexibility in the payment based on that performance. (Management fees infrequently have performance adjustments, but they're almost always miniscule.)
New Frontiers KC India Fund
JPMorgan Global Opportunities Fund
http://www.sec.gov/Archives/edgar/data/1217286/000119312513344972/d587105d497.htm
JPMorgan Russia Fund
http://www.sec.gov/Archives/edgar/data/1217286/000119312513344914/d586928d497.htm
JPMorgan Credit Opportunities Fund