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Minimizing "Fund Family Risk" -- what is the most you allocate to one fund family (excluding indexes
Structurally, each fund in a family is independent with a custodian. So, neither the family ownership nor a fund manager can harm across the family directly. I consider a single fund risk to limit my investment in any one fund to say 10% of the portfolio or $100k whichever is less. The custodian could fail but typically the fund is watching this carefully.
The biggest "family risk" is sudden outflow of money from investors for reasons related to the family - loss of reputation, fraud, scandal, fear, etc. Families like Fidelity, Vanguard, TRP, etc are at much lower risk than small fund families or any that are dependent on an iconic figure. PIMCO, Strong funds in the past, etc. If I were to invest in funds like the latter, I use the same limits as a single fund limit for the entire family. I have no limits for the former type of families.
My largest fund family percentage is about 20% of my portfolio and it is with American Funds. There are a good number that follow in about the 10% range. Some of these are Lord Abbett, Franklin, Thornburg and Loomis Sayles. Then, I also have a good number that follow in the 5% range. And, a good number that follow with single holdings only.
I'd say I would not want any more than 25% with any one family.
Interesting points. I was considering transferring part of my brokerage account to avoid brokerage transaction fees. I didn't consider that moving from the brokerage to the new fund family would also reduce some potential risks, but its worth considering.
Another advantage to holding funds directly with the fund family is that in the event the fund family has a soft close on a fund it often remains open to clients who are direct account holders. You have given me one more reason to make my move.
The extra accounts makes keeping track of things a bit more work, but might be worth it in the end.
Structurally, each fund in a family is independent with a custodian. So, neither the family ownership nor a fund manager can harm across the family directly...
The biggest "family risk" is sudden outflow of money from investors for reasons related to the family - loss of reputation, fraud, scandal, fear, etc. ...
@cman I'm not sure that each fund in a family should generally be considered separately. In the case of Oakmark funds, (from what I understand,) the family analysts vet a certain set of stocks as investable and then allows fund managers to choose from that list in order to determine which of those stocks they will invest in and to what degree. Here it seems that there is a strong possibility for family risk across or between funds. Similarly where there are managers heading a set of funds, say ARTIX, ARTJX, ARTHX, and ARTWX, with Yockey and crew, I would imagine a similar set of correlated risks.
Myself, I limit it to 25%. (but have a small denominator).
Structurally, each fund in a family is independent with a custodian. So, neither the family ownership nor a fund manager can harm across the family directly. I consider a single fund risk to limit my investment in any one fund to say 10% of the portfolio or $100k whichever is less. The custodian could fail but typically the fund is watching this carefully.
The biggest "family risk" is sudden outflow of money from investors for reasons related to the family - loss of reputation, fraud, scandal, fear, etc. Families like Fidelity, Vanguard, TRP, etc are at much lower risk than small fund families or any that are dependent on an iconic figure. PIMCO, Strong funds in the past, etc. If I were to invest in funds like the latter, I use the same limits as a single fund limit for the entire family. I have no limits for the former type of families.
cman -- much obliged; great points.
I misappropriated a term, it seems.
I guess what I had in mind was more risk attributable to a firm's overall view of the market, or use of a common core research / analytic staff. Others have alluded to this above.
So, let's say that the portfolios of DODBX, DODWX, DODFX, DODGX, DODIX all have a common bias because they draw upon the same research staff (and have overlapping investment committees, etc.). Then, having 35% of one's portfolio spread across DODIX, DODFX, DODGX might subject 35% of the portfolio to the same degree of misread on the economy and individual companies, and so forth.
>> risk attributable to a firm's overall view of the market, or use of a common core research / analytic staff.
Got it.
With the big outfits this is not a problem, because the managers are large in number and/or farmed out so actively competitive --- as with Fido and Vanguard. Probably TRP and Janus too, dunno. I would not, and do not, give it a second thought.
FP, D&C, Oakmark, Mairs, Weitz, Gabelli, Parnassus, et alia, yes, I suppose this could be a risk, maybe, though many of us see it as a virtue. Meaning, if you like the managers' approach and performance, go with him or her and dump in more money.
Never forget that the more you balance things out, supposedly balance, that is, to average risk or whatever, going with Fido for, I dunno, growth, and FP for balance, and Vanguard for prudence, and Oakmark for something else, with Pimco for bondage, the more you are averaging and the closer you approach indexing, if not even failing to.
Lots of good stuff in this thread. My take is that it very much depends on the company and your own relationship with it. How long have you been a client? How well do you understand their engrained culture (including hiring, promotion and oversight of managers)? How appropriate are their fund offerings to your potential needs? How broadly diversified among various holdings are their funds? How well do their expenses compare to other families? How have they performed in down markets? Any "red flags" in the news media? And how do they treat you when you call with an issue? If they've earned your confidence over 15, 20 or 25 years, than a sizable commitment is not only justified, but probably wise.
Hank makes a good comment. Length of time with a company shows you have faith in them and you have been treated well. In my case I have been with American Century 28 years now. I had investments with other fund families along the way but when it came time for rolling over our 403b and other monies, the choice was easy. I now have about 88% of assets with them.
One other point, usually the longer one spends with a company, a good company notices that. AC reps would thank me for my business as it must have shown on their screens. As assets build many fund companies have different levels of service and benefits much like frequent flier miles. That makes a big difference too.
I've never thought about this at the fund family level but I think its something that deserves specific decision making rather than backing into whatever happens. My key focus is on big picture allocation, and I want to be overweight small cap and emerging/frontier markets and underweight large cap and developed international markets generally. At the end of last year I rotated away from small caps a bit because I thought the valuations were extended and into emerging markets because of last year's poor showing. I've picked a couple of funds in each of my categories, which are U.S., foreign developed markets and emerging/frontier markets, then large cap and small/mid-cap within those, plus bonds and "other", that I think can outperform their categories over time. Luckily, I didn't end up investing in multiple funds with more than a couple fund families. As I thought about this more, I would also include newsletters along with mutual funds families. I found that I have a bit less than 18% allocated to one newsletter and just over 10% at Wasatch.
I think I'd prefer to limit my exposure to one strategy or "culture" to 15%, maybe 20% in special cases, and that means I'll be slightly reducing the size of my positions as I follow the newsletter so I rotate back towards 15%.
Thanks to all for the thoughts and especially Shostakovich for starting the discussion.
Structurally, each fund in a family is independent with a custodian. So, neither the family ownership nor a fund manager can harm across the family directly...
The biggest "family risk" is sudden outflow of money from investors for reasons related to the family - loss of reputation, fraud, scandal, fear, etc. ...
@cman I'm not sure that each fund in a family should generally be considered separately. In the case of Oakmark funds, (from what I understand,) the family analysts vet a certain set of stocks as investable and then allows fund managers to choose from that list in order to determine which of those stocks they will invest in and to what degree. Here it seems that there is a strong possibility for family risk across or between funds. Similarly where there are managers heading a set of funds, say ARTIX, ARTJX, ARTHX, and ARTWX, with Yockey and crew, I would imagine a similar set of correlated risks.
jlev -- with regard to your comments on Oakmark (as an example) could any firm do it differently? All fund families are apt to be limited in the stocks they cover (and/or could cover well). So, even if some sort of screening technology was used before the deeper-dive into the fine points of the companies themselves (and, then, the visits, etc...).
I just can't imagine a fund company that doesn't somehow work off of a list (regardless of what Royce says, for example).
Depends on size I'd imagine, but its a point well taken. I doubt Fidelity or TRP has quite as small a list as Oakmark states it does (300 or so I think), but even they likely all work off the same combined analyst base. The degree of family risk likely correlates with the size of this list and how much variation in approach individual managers have.
Comments
Cheers.
Structurally, each fund in a family is independent with a custodian. So, neither the family ownership nor a fund manager can harm across the family directly. I consider a single fund risk to limit my investment in any one fund to say 10% of the portfolio or $100k whichever is less. The custodian could fail but typically the fund is watching this carefully.
The biggest "family risk" is sudden outflow of money from investors for reasons related to the family - loss of reputation, fraud, scandal, fear, etc. Families like Fidelity, Vanguard, TRP, etc are at much lower risk than small fund families or any that are dependent on an iconic figure. PIMCO, Strong funds in the past, etc. If I were to invest in funds like the latter, I use the same limits as a single fund limit for the entire family. I have no limits for the former type of families.
I'd say I would not want any more than 25% with any one family.
Old_Skeet
Another advantage to holding funds directly with the fund family is that in the event the fund family has a soft close on a fund it often remains open to clients who are direct account holders. You have given me one more reason to make my move.
The extra accounts makes keeping track of things a bit more work, but might be worth it in the end.
Thanks for starting the thread Shostakovich!
Myself, I limit it to 25%. (but have a small denominator).
I misappropriated a term, it seems.
I guess what I had in mind was more risk attributable to a firm's overall view of the market, or use of a common core research / analytic staff. Others have alluded to this above.
So, let's say that the portfolios of DODBX, DODWX, DODFX, DODGX, DODIX all have a common bias because they draw upon the same research staff (and have overlapping investment committees, etc.). Then, having 35% of one's portfolio spread across DODIX, DODFX, DODGX might subject 35% of the portfolio to the same degree of misread on the economy and individual companies, and so forth.
Got it.
With the big outfits this is not a problem, because the managers are large in number and/or farmed out so actively competitive --- as with Fido and Vanguard. Probably TRP and Janus too, dunno. I would not, and do not, give it a second thought.
FP, D&C, Oakmark, Mairs, Weitz, Gabelli, Parnassus, et alia, yes, I suppose this could be a risk, maybe, though many of us see it as a virtue. Meaning, if you like the managers' approach and performance, go with him or her and dump in more money.
Never forget that the more you balance things out, supposedly balance, that is, to average risk or whatever, going with Fido for, I dunno, growth, and FP for balance, and Vanguard for prudence, and Oakmark for something else, with Pimco for bondage, the more you are averaging and the closer you approach indexing, if not even failing to.
One other point, usually the longer one spends with a company, a good company notices that. AC reps would thank me for my business as it must have shown on their screens. As assets build many fund companies have different levels of service and benefits much like frequent flier miles. That makes a big difference too.
I think I'd prefer to limit my exposure to one strategy or "culture" to 15%, maybe 20% in special cases, and that means I'll be slightly reducing the size of my positions as I follow the newsletter so I rotate back towards 15%.
Thanks to all for the thoughts and especially Shostakovich for starting the discussion.
I just can't imagine a fund company that doesn't somehow work off of a list (regardless of what Royce says, for example).