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Chuck Jaffe: Trump Fails The Fiscal-Responsibility Test In His Fund Picks
In some respects his portfolio doesn't surprise me. There's an old saying: If you want to get rich, buy stocks. Once you are rich, buy bonds. But this saying exposes a terrible irony. Those who need to buy stocks the most to increase their assets are the least able to stomach the volatility. Meanwhile the wealthy who can most stomach the volatility realize that if you already have a lot of money stocks can seem a rather stupid investment. Why bother investing in high risk stocks when you're a billionaire and you can live off the income from high quality bonds or just use your stockpile of cash? So that Trump has this odd barbell portfolio in which much is actually in safe cash and the rest in a handful of high risk investments, which are probably to him a kind of play money, makes some sense. The real risk for him I would think is the business risk of his real estate empire and it is a unique one to him alone. When you have that kind of unique business risk, most of your remaining assets should probably be in cash.
"All of Trump’s open-end mutual funds are from the Baron Funds, a mid-sized fund family headed by the audacious Ron Baron."
Well, sort of. His six 7-figure fund holdings ($1M-$5M each) are Baron funds. But aside from smaller Baron fund holdings, he also holds (albeit through brokerage accounts) positions in Vanguard High Dividend Yield Index Fund ($1K-$15K, couldn't tell you the share class - VHDYX or VYM), AEDYX ($500K - $1M), and JHYIX ($100K - $250K)
He also owns a vanilla closed end fund - GGN ($100K - $250K), and some vanilla ETFs, including DBEU ($250K - $500K), DBJP ($100K - $250K), EPP ($50K - $100K).
It's all there if you skim just nine pages (37-45), instead of stopping at page 37 where the Baron funds appear.
Regarding the wealthy investing in bonds - I recall seeing Suze Orman saying that her portfolio is comprised entirely of Treasuries. (That was a long time ago, memory could be faulty, her investments may have changed, but it is consistent with adage Lewis quoted.)
It's also interesting to look at some of Trump's sources of income. Three speaking engagements for $450K each (makes Clinton look like a bargain at $250K). 'Course Trump only got three of those paychecks - he didn't do too much more speaking, and got lower fees for the other performances. He's also getting a six figure pension from SAG (Screen Actors Guild). All on p. 30.
I sent email to Jaffe; he responded that he's working on a correction for the open end funds.
I also questioned his statement that all of the Donald's Baron funds had "fee levels" above average. His response was that if you compare the Baron funds against the dollar weighted average of all equity funds, they are indeed all high, including the institutional shares.
M* says that Baron's EM fund, institutional class BEXIX, has below average expenses. Using Jaffe's metric (0.70%), virtually all actively managed EM funds are pricey, including Vanguard's actively managed EM fund VMMSX. Its ER of 0.96% puts it 1/3 above "average" cost by this metric!
(I've sent a followup email to Jaffe; I do not expect a response since Barons funds are in general expensive, even if Trump happened to buy a moderately priced one.)
Comments
But this saying exposes a terrible irony. Those who need to buy stocks the most to increase their assets are the least able to stomach the volatility. Meanwhile the wealthy who can most stomach the volatility realize that if you already have a lot of money stocks can seem a rather stupid investment. Why bother investing in high risk stocks when you're a billionaire and you can live off the income from high quality bonds or just use your stockpile of cash? So that Trump has this odd barbell portfolio in which much is actually in safe cash and the rest in a handful of high risk investments, which are probably to him a kind of play money, makes some sense. The real risk for him I would think is the business risk of his real estate empire and it is a unique one to him alone. When you have that kind of unique business risk, most of your remaining assets should probably be in cash.
The real portfolio is his real estate one.
Well, sort of. His six 7-figure fund holdings ($1M-$5M each) are Baron funds. But aside from smaller Baron fund holdings, he also holds (albeit through brokerage accounts) positions in Vanguard High Dividend Yield Index Fund ($1K-$15K, couldn't tell you the share class - VHDYX or VYM), AEDYX ($500K - $1M), and JHYIX ($100K - $250K)
He also owns a vanilla closed end fund - GGN ($100K - $250K), and some vanilla ETFs, including DBEU ($250K - $500K), DBJP ($100K - $250K), EPP ($50K - $100K).
It's all there if you skim just nine pages (37-45), instead of stopping at page 37 where the Baron funds appear.
Regarding the wealthy investing in bonds - I recall seeing Suze Orman saying that her portfolio is comprised entirely of Treasuries. (That was a long time ago, memory could be faulty, her investments may have changed, but it is consistent with adage Lewis quoted.)
It's also interesting to look at some of Trump's sources of income. Three speaking engagements for $450K each (makes Clinton look like a bargain at $250K). 'Course Trump only got three of those paychecks - he didn't do too much more speaking, and got lower fees for the other performances. He's also getting a six figure pension from SAG (Screen Actors Guild). All on p. 30.
I also questioned his statement that all of the Donald's Baron funds had "fee levels" above average. His response was that if you compare the Baron funds against the dollar weighted average of all equity funds, they are indeed all high, including the institutional shares.
M* says that Baron's EM fund, institutional class BEXIX, has below average expenses. Using Jaffe's metric (0.70%), virtually all actively managed EM funds are pricey, including Vanguard's actively managed EM fund VMMSX. Its ER of 0.96% puts it 1/3 above "average" cost by this metric!
(I've sent a followup email to Jaffe; I do not expect a response since Barons funds are in general expensive, even if Trump happened to buy a moderately priced one.)