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Reply to @Hrux: When I was considering investing in WARAX, I found that WARDX is going to lag the GBMFX by more than 1%, rather than by 30bp. Indeed you can easily check using M* that since inception on 03/01/2012 $10 invested in WARAX would grow up to $10.713, whereas in GBMFX they would grow to $10.893. The difference, during a bit more than a year, is %1.8, which is a lot! During 10 years you are going to lose more than %15 as compared to GBMAX. And that is ignoring the load.
But my main worry is that the past performance of GBMFX does not tell you almost anything about the future. As I said, read the fine print of the prospectus. As for the tax inefficiency, at the time when GBMFX was functioning successfully, as an internal fund, its share price DID NOT GROW AT ALL. Which means that ALL gains were distributed to the shareholders. After this fund was reorganized, it suddenly became tax efficient, but this may be just another side of the same medal: It is a different animal now, so one cannot use his historical performance to look into the future.
I would be happy to be proven wrong. I was absolutely planning to invest in it, and they I decided against it.
Reply to @Hrux: "Many investors who understand the power of correlations will even buy an investment with dismal return prospects, if it can offer desirable correlations to a portfolio." Agree - and that's the reason I own & continue to hold a small position in PRPFX. For someone well into his second decade of retirement - like myself - and who's very fixated on portfolio stability, I think the fund's worth including in the mix for the reasons you just outlined (approximately 7% of total invested).
However, I would NOT recommend this fund for younger plan participants who are still contributing. Under those circumstances, I'd side with the more conventional wisdom that equities will provide the best long-term growth. I thought David did a splendid job highlighting the potential risks of this fund. Said it much better than I could. Thanks for your contributions here. Look forward to reading more of them. Regards
Hi Andrei, in response to your comments: 1) The appropriate comparison is WABIX. The A-share has an ER nearly 50bp higher. WARDX is the admin class with an ER in between I & A shares. WABIX is the institutional share. 2) A fund cannot use a track record that doesn’t reflect the same strategy as the new fund. They can’t make this stuff up like an unregulated private. 3) Past performance of any fund tells you nothing about the future. 4) If you look at YTD performance you will see that the difference in performance is actually less than 30bp. I did not check since inception, but if a difference exists I would assume it might be attributable to fund flows. The fund grew rapidly in a rising market. That could account for any difference that might exist. You cannot extrapolate over 10 years and infer anything about future incremental costs. 5) Tax efficiency will be a function of the future allocation. Funds must distribute their income and gains to maintain their tax status. GMO generally only makes a handful of changes in a year. Past tax information is virtually useless in determining what to expect from the future. That will float with time. 6) GMO believes this strategy can generate returns of CPI + 5 after expenses. They might officially state a lower number to control expectations. We will see if they can pull it off, but I at least like their chances.
Hope this helps. There is no doubt that this is my favorite fund and has the highest allocation of my portfolio.
Reply to @Hrux: I wonder how exactly do you invest in WABIX? If you have $5M to invest, then sure, no problem, but then you can get another $5M and invest directly in GBMFX:)
But I am mostly concerned by the fact that since inception WABIX was strongly outperformed even by such relatively conservative funds as FPACX. The only real reason for me to expect that WABIX will outperform looking into the future was the outperformance of GBMFX at the stage when it was not a mutual fund. One could argue that the strategy of the fund remained basically the same, but I doubt it. It is the same story as with other funds advertising their outperformance including their history when they were hedge funds. Look at the fantastic history of PIMCO EqS Long/Short Institutional PMHIX, which advertises its performance as a hedge fund, see http://quote.morningstar.com/fund/chart.aspx?t=PMHIX®ion=USA&culture=en-us It is just incredible, and yet its performance since re-packaging as a mutual found was absolutely unimpressive.
From my perspective, the fact that the share price of GBMFX was not growing at all during many years of its hidden existence, and it started growing only after it was reorganized is a clear indication that its strategy dramatically changed.
Comments
But my main worry is that the past performance of GBMFX does not tell you almost anything about the future. As I said, read the fine print of the prospectus. As for the tax inefficiency, at the time when GBMFX was functioning successfully, as an internal fund, its share price DID NOT GROW AT ALL. Which means that ALL gains were distributed to the shareholders. After this fund was reorganized, it suddenly became tax efficient, but this may be just another side of the same medal: It is a different animal now, so one cannot use his historical performance to look into the future.
I would be happy to be proven wrong. I was absolutely planning to invest in it, and they I decided against it.
However, I would NOT recommend this fund for younger plan participants who are still contributing. Under those circumstances, I'd side with the more conventional wisdom that equities will provide the best long-term growth. I thought David did a splendid job highlighting the potential risks of this fund. Said it much better than I could. Thanks for your contributions here. Look forward to reading more of them. Regards
Hi Andrei, in response to your comments:
1) The appropriate comparison is WABIX. The A-share has an ER nearly 50bp higher. WARDX is the admin class with an ER in between I & A shares. WABIX is the institutional share.
2) A fund cannot use a track record that doesn’t reflect the same strategy as the new fund. They can’t make this stuff up like an unregulated private.
3) Past performance of any fund tells you nothing about the future.
4) If you look at YTD performance you will see that the difference in performance is actually less than 30bp. I did not check since inception, but if a difference exists I would assume it might be attributable to fund flows. The fund grew rapidly in a rising market. That could account for any difference that might exist. You cannot extrapolate over 10 years and infer anything about future incremental costs.
5) Tax efficiency will be a function of the future allocation. Funds must distribute their income and gains to maintain their tax status. GMO generally only makes a handful of changes in a year. Past tax information is virtually useless in determining what to expect from the future. That will float with time.
6) GMO believes this strategy can generate returns of CPI + 5 after expenses. They might officially state a lower number to control expectations. We will see if they can pull it off, but I at least like their chances.
Hope this helps. There is no doubt that this is my favorite fund and has the highest allocation of my portfolio.
Happy fourth to all!
But I am mostly concerned by the fact that since inception WABIX was strongly outperformed even by such relatively conservative funds as FPACX. The only real reason for me to expect that WABIX will outperform looking into the future was the outperformance of GBMFX at the stage when it was not a mutual fund. One could argue that the strategy of the fund remained basically the same, but I doubt it. It is the same story as with other funds advertising their outperformance including their history when they were hedge funds. Look at the fantastic history of PIMCO EqS Long/Short Institutional PMHIX, which advertises its performance as a hedge fund, see http://quote.morningstar.com/fund/chart.aspx?t=PMHIX®ion=USA&culture=en-us It is just incredible, and yet its performance since re-packaging as a mutual found was absolutely unimpressive.
From my perspective, the fact that the share price of GBMFX was not growing at all during many years of its hidden existence, and it started growing only after it was reorganized is a clear indication that its strategy dramatically changed.
I have nothing further to say and we will agree to disagree. Good luck
By the way my advisor has access to the institutional shares. Most RIA firms do and from my perspective it's worth paying the 50 bps for access