Mutual Funds' 5-Star Curse: MFO's David Snowball Comments >> whole article is good reading.
>> The referenced article is indeed excellent.
Omg, how the heck so? Seems extremely feeble to me, even by the feeble standards of WSJ and MW service pieces. The rules are lame, not really or demonstrably or consistently true, the quotes from Kinnel and Snowball highly selective (you can always find such an example), the absence of broad data lazy and troubling, and the whole thing a yawn and worse, useless, unhelpful, unactionable. 1 - Sure, some hot managers ain't no more. Maybe most. Oh, but wait, Danoff ahead. Oh, wait, he's longterm. 2 - Sure, GLRBX has been good forever, and you shoulda bought and held, period, full stop, you dope. 3 - Everyone has been writing forever about size, which matters absolutely, sure, yes, except when it doesn't, and most managers say it doesn't, but they are wrong, or are they? Wait, Danoff ahead. Good thing Tillinghast and D&C were overlooked. 4 - KIS, okay, so indexing is best. Or is it? And cherish sc and value, oky-doky and all righty, then. Twas ever thus. 5 - duh. 6 - Balance and blend and mix are important. Wow. And 7, the last rule, the future, well, read those last three questions out loud and see if you can do it without laughing.
The whole thing is a weak, but actually worse than weak, September yawn, to my eye. I worry when smart people here reflexively write that something is good or excellent. Is there anything whatsoever in this article that would not have occurred to any regular visitor to this forum??
SCMFX or DHMCX?
Vanguard Index Funds vs. Vanguard ETFs
PRWAX or VWNFX or both I am familiar with many of these funds as my 403 offers some, and I am also invested in my own IRA accounts.
The current holdings break-down looks like this, and I think she picked all the good active funds. Although PRWAX may bear watching as a new manager took over in 2013.
PRWAX: domestic large growth
ABMIX: domestic mid blend
OTCFX: domestic small growth
DODFX: foreign large blend
PTTRX: intermediate term bond
60% : US, 22%: foreign, 18%: bond
A few interesting notes:
VINIX is just the Vanguard institutional version (low cost) of S&P
500 Index.
ABMIX is closed to new investor. I have the investor version (CHTTX).
OTCFX is closed to new investor.
RERGX is foreign large growth with .49% expense. Both DODFX and RERGX are fine choices for foreign exposure.
I am not familiar with the others.
I hope she's comfortable with 82% stock and 18% bond levels:
https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocationsHope this helps.
Mutual Funds' 5-Star Curse: MFO's David Snowball Comments Hi Guys,
The referenced article is indeed excellent. However, it really contains no surprising information. It just reinforces a wide body of earlier research findings that grow more compelling with each year’s additional data.
Mutual fund performance persistence is largely a myth, with a few outstanding exceptions. The game plan should be to find and stick with those noteworthy exceptions. The article identifies a few of them.
In physics, the law of gravity dominates. Although not quite as universal, within the investment community, a regression-to-the-mean law seems almost as pervasive.
The evidence against fund persistent outperformance is overwhelming. In its early years, the Morningstar
5-star rating system proved so vulnerable to performance decay, and subsequently to star erosion, that the firm was forced to modify and expand its ranking methods to salvage its fading reputation.
The numerous periodic table of returns published annually by a host of industry giants demonstrate the fragile nature of last year’s winners. The rotations are swift. Buying last year’s top performers has proven to be a Loser’s game.
Each year, Fortune magazine issues a list of the most respected and the most despised companies. The list does have some stability year over year. However, the market returns from owning the most accomplished companies over the long haul do not match those yielded by the least honored outfits. From an investment rewards perspective, this is yet another illustration of a regression-to-the-mean pull.
All MFO regulars should be familiar with the often referenced Standard and Poor’s SPIVA and Persistency reports. These documents have registered fund persistency failures for many years. Here is the Link to those data rich reports:
http://us.spindices.com/resource-center/thought-leadership/spiva/If motivated, you can click on the specific SPIVA and Persistency items to explore more deeply. The SPIVA mid-year report was just released. I have not yet accessed it.
Michael Mauboussin has written extensively about the tradeoffs between luck and skill in determining outcomes. He concludes that as the skill level of professional money managers has escaladed over time, the luck component becomes the more dominant factor. There are fewer and fewer Excess Return opportunities. Hence, expect that persistent superior performance should degrade even more in the future and should be more difficult to identify.
That’s an imperfect signal that favors an Index-like approach. Institutions have recognized that signal, and are moving more aggressively in that direction. Perhaps we should too?
Best Wishes.
The Closing Bell: U.S. Stocks Turn Lower FYI: S. stocks eased Monday, as investors took a breather following last week's gains.
The Dow Jones Industrial Average fell 41 points, or 0.2%, to 17096 recently. The S&P
500 index eased 10 points, or 0.
5%, to 1998. The Nasdaq Composite Index declined eight points, or 0.2%, to 4
57
5.
Energy companies posted the biggest losses, as oil prices fell to an eight-month low.
The pullback follows strides by major indexes last week. On Friday, the S&P cruised to its 33rd record close of the year, as investors viewed the disappointing August jobs report as leeway for the Federal Reserve to keep its easy-money policies in place longer.
Regards,
Ted
http://online.wsj.com/articles/u-s-stock-futures-lower-1410179074#printModeMarkets At A Glance:
http://markets.wsj.com/us
GPROX, effectively; a buy and hold....yuck We prefer not to hold less than 5% of a particular investment area; with the understanding that smaller amounts won't do much for a portfolio; to the plus or minus.
GPROX, effectively will become; a buy and hold investment.
Our current "toe-hold" is via Fidelity brokerage.
Still pondering the future of this fund, at this house.
Take care,
Catch
PRWAX or VWNFX or both Kaspa said "She has only two decent large-cap funds in her 401k" (prwax, vwnfx)
Thank you everyone for their comments.
Sorry, I did not notice the index fund :-), but it is there.
BobC: With the availability of index fund, would you still prefer Price New America?
Ted: Regarding other funds, there are these three LC funds (PRWAX,VINIX,VWNAX).
There are three in small/midcap space (ABMIX, CAMZX, OTCFX),
two international (RERGX, DODFX), three bond funds (PTTRX, VFIUX, VBIRX).
She is in her late fortys and currently invested in
PRWAX (18%), ABMIX(27%), OTCFX(1
5%), DODFX(22%), PTTRX(18%).
SCMFX or DHMCX? Any reason you would choose one over the other? I was really impressed with David's write-up about SCMFX from a few years ago and I like the more reasonable expense ratio, but the performance and volatility are very close to one another. The downside in 2008 was very similar. DHMCX has 6 times more AUM and 62 holdings rather than 35 but neither is running into any issues with size. Or is there another small/mid-cap value leaning fund you'd prefer? Many of the others I'm aware of and find appealing (relatively focused portfolios, smaller AUM, manager with a really good record, good alpha as I'm not so worried about volatility except in the extreme, reasonable expenses) are closed.
Dan Fuss: Noteable Sale Of Foreign Bonds As has been pointed out LSGLX (a dog of a fund in its category for many a year) is not managed by Fuss. While I respect Fuss and his ex sidekick Gaffney, no one can predict or forecast so I have always adhered to the wisdom of Benton Davis that the market is always right and always tells its own story best and that is by the action of the market itself. Because I don't believe in large drawdowns in my account that is why I gravatated to tight rising channels. In LSGLX's category take a gander at the tight rising channel (aka PRICE) of VTIBX
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=vtibx&insttype=&freq=&show=Now let's look at the dog LSGLX
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=lsglx&insttype=&freq=&show=Enough said!
I have never looked at a fund's expense ratio (ever) or even who manages it (except for Dan Ivascyn, the real rock star in bondland) just its *price action*. While some world and international bonds are having a great year - even better than VTIBX - I prefer the tight rising channels where you get some bang for your buck and that is why since mid January I have been talking ad nauseum here about junk munis. Albeit there were some fundamental reasons combined with its price in January that originally attracted me to that sector.
I certainly can't predict. I sold a little over 20% of my 100% position in my junk munis last week because I was really wary of Friday's employment report. That was a mistake so went back in at Friday's close although it is now all EIHYX (no more NHMRX) with ABTYX in my smaller taxable account. EIHYX which is up over 14% YTD has not so much had even a 0.7
5% intra year decline from its highs. I love the junk muni sector because there is a shortage in issuance also driving it higher. What better could you want? You have a rising technical market combined with super bullish fundamentals (issuance shortage) But unlike many who trade or invest I never fall in love with my positions or especially my opinions. If price action dictates, I am gone.
Fund Scandals Ripples, Even A Decade Later "American Funds, which wasn't implicated in the scandal ..."
I suppose it depends on how one defines "implicated". I think "implicate" is closer to imply, insinuate than it is to shown, proven to be. In any case, not the best wording.
FINRA accused American Funds (Capital Group) of "making improper payments to about
50 brokerages from 2001 to 2003 as an incentive to get them to pitch its funds to investors."
LA Times, May 3, 2008.Capital Group contested the charges, and exonerated itself. AFAIK, it was the only family to do so.
Dan Fuss: Noteable Sale Of Foreign Bonds Mr. Ruffles is correct - the author is quite confused; Skeeter's interpretation seems much closer to the mark. (More than one Barron's author recently has misunderstood basic concepts.)
Other misunderstood items ...
"Cash and cash equivalents" does not mean Treasuries (and Canadian bonds). "Cash" does not mean "secure", it means ultra short term. The reported 27% appears to come from the writer adding up LSBDX's Treasury and Canadian holdings. Loomis Sayles itself reports cash and cash equivalents (as of 7/31 - the last date on its website) as 1.6% (up from 1.1% the previous month). Even adding in bonds with durations under a year, we only get up to 16%.
Maturity isn't what matters; duration (and convexity) are. (Also, the benchmark LS uses has an average maturity of 7.86 years, in contrast to the supposed 12 year typical maturity the author claims for this fund.)
LSBDX is a multisector bond that is restricted in the amount of foreign bonds it can hold.
Except, it can hold an unlimited amount of Canadian securities. So pulling out of Europe and Asia is not necessarily a bet in favor of the dollar (sorry, Skeet). One should look at non-US (i.e. Canadian) exposure too.
To put it another way, Fuss saying that there is risk "overseas" is not the same thing as saying that there is risk in "foreign" currencies. Aside from Canada, the fund has increased its exposure to the Mexican Peso in the past year (it was under 2%, now at 3.4%).
In any case, the only exposure to Asia or Eastern Europe a year ago (
Sept 30, 2013) were miniscule amounts in South Korea, Indonesia, and Singapore. Okay, Singapore has been dropped as of
July 31, 2014.
