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.
@MJG I’m thoroughly enjoying and learning from this exchange. It’s being conducted in a civil way with emphasis on what works, or at least what is believed to work. Thank you all for many fine contributions.
Although there are times when I worry a little about David's idea that we're irresistibly drawn to bright shiny objects, which I tend to think of as performance chasing, I try to be cautious with both additions and subtractions from my list. I'm pretty sure the last time something was taken off my list was 2012 when I went through a fairly significant revision to my approach and most of those eliminated would have been higher asset funds with higher expense ratios that didn't impress me anymore or funds where my interest was driven in large part by a manager who was no longer there.
In the last 12-18 months I've added a few funds I learned about here, like SFGIX, QUSOX, MEASX and VVPLX, and one I initially read about on M* and then subsequently read a bit more about when I searched for it here, which was KGGAX.
Here are the 16 I currently own. Since I hate when M* writes about funds only to find out they're closed, I've put a star next to those.
HEDJ and DXJ are really just currency/QE bets on Europe and Japan for me and weren't chosen from my list, but when I'm done with those bets the money will go back into funds I already own or something new from my list (more likely the former than the latter).
I have one spot open currently because until recently I owned WAAEX and had decided I would replace it with Grandeur Peak's US small cap fund when/if it eventually launches but I decided I'd rather hold cash in the meantime.
@MJG This hit home for me: "Choose a fund manager who has a storied personal success history who also has a focused fund holding approach. Not all managers are equal, and time will isolate skill from luck. All investment ideas are not equally promising. Managers who limit how far down the idea list they venture increase the odds for excess returns above benchmarks. Well, that was the logic backstopping the criterion.
From my perspective and limited experience, that rule has not been especially productive."
That was my logic for investing in FAAFX. "Not especially productive" has been an understatement, and the end of this year it will be five years. I know @Charles is with me.
Maybe it will still work out, but I am leaning against star managers, in favor of management teams, and in favor of index funds going forward.
@LewisBraham. Would you say Artisan is an exception to that last rule, or too soon to tell?
I have been a great Artisan fan, but less so since it became public. It is really very simple. When you are a privately owned company, the amount of money you make, your stake in the organizations are not imaginary. When you are a public company, your compensation is based on options and performance based bonuses take on a whole new meaning since the kitty from which bonuses are allocated is no longer fees earned from assets under management but rather, perceived value of how much money is available to go around.
Starting a business is Capitalist. Taking your company public converts most people from being Capitalist to Objectivist, and some don't even realize it. This is when you start serving only your interests and not your shareholders or your investors.
TROW indeed seems like an exception to the rule. I'm not sure about GROW. APAM I've started worrying slightly since they launched their new emerging markets fund while having a dicey one to begin with. The non-public Artisan I think would have closed the fund, or changed the manager. The public Artisan has decided to keep their ASSets in the older fund. They have also selected a Thornburg manager for the newer fund based on reputation in the public markets of only outperforming in a bull market. In a nutshell, their claim about finding "Artisans in the rough" is IMO, now suspect.
T. Rowe is an interesting case as it isn't owned by a larger financial conglomerate such as a bank and has long specialized in no load funds. Yet I do think it has drifted some away from its original mission with advisor share classes and some funds seeming pretty bloated.
Price sold advisor funds more than two decades ago (as a way to distribute NTF), so this isn't a particularly recent drift. Several of their best funds have been closed for years, and they have not shown reluctance to close them when they hit certain sizes (though one can make the case that those thresholds are set too high).
I agree with you that as a general principle, bank/broker/insurer-"owned" funds tend to pay less attention to their "customers" (fund shareholders). But I find that's too sweeping a generalization to be especially useful in fund searches. I wouldn't want to penalize T. Rowe Price just because it's public.
Also, I've never been entirely clear on what the term "fund shop" or "fund family" means. I take it loosely as the marketing/distribution arm, "branding" if you will. But I'm not sure precisely what company one is really talking about.
"Families" often outsource the day-to-day management, so I don't think "family" is the management company. For example, Vanguard contracts with Jennison Associates, a Prudential subsidiary. The family is still Vanguard, not Jennison, and Vanguard makes sure that management owner Prudential isn't gouging the shareholders.
From a practical perspective, it's who controls the fund's board, whatever entity that is.
I know of three (and only three) examples of true fund independence that proves the rule (by demonstrating in rare instances the parent "family" doesn't necessarily control):
Selected Funds moved from Selected Financial Services (a Kemper subsidiary) to Venture Advisers (Davis) in 1993, after Yacktman bolted. Shelby Davis took over management of both funds - SLASX and SLSSX (then called Selected Shares). Not long after, management of the latter was outsourced to Bramwell Capital Management (Elizabeth Bramwell, who had recently left Gabelli). Was SLASX better when managed (mostly) by Chris Davis (at a privately held company) or by Donald Yackman (via a Kemper company)?
Lightning struck a second time in 2005, when the Clipper Fund moved itself from Pacific Financial Research to Davis Selected Advisers. Here too, same question - Pacific Financial Research was acquired by UAM in 1997 (publicly traded), with UAM acquired by Old Mutual in 2000 (also publicly traded). In the ten years since it moved to Davis, this once fine fund has underperformed its category by 1.83%/year (per M*).
No, I'm definitely not equally weighted. I much prefer to dollar cost average over pretty long periods of time so it can take years in some cases and that can influence the relative size of positions. The Grandeur Peak funds were an exception because of the hard closes. I don't have any hard and fast rules about position sizes but the largest, POAGX is about 5% of my overall portfolio now, including stocks, and I'd be hard pressed to imagine any single fund being more than 10% overall based on my current approach. I definitely don't want to bet a big portion of my portfolio on any given manager and I also don't want to have investments where it's more difficult to admit or even recognize if I'm wrong because I have too much invested.
I do have a handful of asset allocation goals that I reconsider annually based on global market capitalizations (calculated from various MSCI indices) and my position sizes, or intended position sizes, are generally targeted to support those goals for my overall portfolio. I want to be overweight emerging/frontier markets, small-caps and healthcare, roughly equal weight the U.S. and underweight foreign developed markets and large cap stocks generally. Currently I have more allocated to the U.S. than I'd really like but in most cases I prefer to be gradual in my adjustments. I also like to be flexible enough to take advantage of perceived opportunities so the goals have to be flexible as well.
Comments
Yes, me too!
It's validated some of the data points I've taken into account in my evaluation process while also giving me some new ideas to ponder going forward.
@MJG- Yes, I think that pretty much sums up the whole thing.
Although there are times when I worry a little about David's idea that we're irresistibly drawn to bright shiny objects, which I tend to think of as performance chasing, I try to be cautious with both additions and subtractions from my list. I'm pretty sure the last time something was taken off my list was 2012 when I went through a fairly significant revision to my approach and most of those eliminated would have been higher asset funds with higher expense ratios that didn't impress me anymore or funds where my interest was driven in large part by a manager who was no longer there.
In the last 12-18 months I've added a few funds I learned about here, like SFGIX, QUSOX, MEASX and VVPLX, and one I initially read about on M* and then subsequently read a bit more about when I searched for it here, which was KGGAX.
Here are the 16 I currently own. Since I hate when M* writes about funds only to find out they're closed, I've put a star next to those.
Large cap: PTSGX*, OAKWX, IWIRX, MAPIX, HEDJ, DXJ, PRHSX*
Mid cap: POAGX*, PRNHX*, KGGAX, MEASX, WAFMX*
Small cap: FSCRX*, OBIOX, GPIOX*, GPEOX*
HEDJ and DXJ are really just currency/QE bets on Europe and Japan for me and weren't chosen from my list, but when I'm done with those bets the money will go back into funds I already own or something new from my list (more likely the former than the latter).
I have one spot open currently because until recently I owned WAAEX and had decided I would replace it with Grandeur Peak's US small cap fund when/if it eventually launches but I decided I'd rather hold cash in the meantime.
Appreciate your time and effort in sharing.
From my perspective and limited experience, that rule has not been especially productive."
That was my logic for investing in FAAFX. "Not especially productive" has been an understatement, and the end of this year it will be five years. I know @Charles is with me.
Maybe it will still work out, but I am leaning against star managers, in favor of management teams, and in favor of index funds going forward.
Starting a business is Capitalist. Taking your company public converts most people from being Capitalist to Objectivist, and some don't even realize it. This is when you start serving only your interests and not your shareholders or your investors.
TROW indeed seems like an exception to the rule. I'm not sure about GROW. APAM I've started worrying slightly since they launched their new emerging markets fund while having a dicey one to begin with. The non-public Artisan I think would have closed the fund, or changed the manager. The public Artisan has decided to keep their ASSets in the older fund. They have also selected a Thornburg manager for the newer fund based on reputation in the public markets of only outperforming in a bull market. In a nutshell, their claim about finding "Artisans in the rough" is IMO, now suspect.
I agree with you that as a general principle, bank/broker/insurer-"owned" funds tend to pay less attention to their "customers" (fund shareholders). But I find that's too sweeping a generalization to be especially useful in fund searches. I wouldn't want to penalize T. Rowe Price just because it's public.
Also, I've never been entirely clear on what the term "fund shop" or "fund family" means. I take it loosely as the marketing/distribution arm, "branding" if you will. But I'm not sure precisely what company one is really talking about.
"Families" often outsource the day-to-day management, so I don't think "family" is the management company. For example, Vanguard contracts with Jennison Associates, a Prudential subsidiary. The family is still Vanguard, not Jennison, and Vanguard makes sure that management owner Prudential isn't gouging the shareholders.
From a practical perspective, it's who controls the fund's board, whatever entity that is.
I know of three (and only three) examples of true fund independence that proves the rule (by demonstrating in rare instances the parent "family" doesn't necessarily control):
Selected Funds moved from Selected Financial Services (a Kemper subsidiary) to Venture Advisers (Davis) in 1993, after Yacktman bolted. Shelby Davis took over management of both funds - SLASX and SLSSX (then called Selected Shares). Not long after, management of the latter was outsourced to Bramwell Capital Management (Elizabeth Bramwell, who had recently left Gabelli). Was SLASX better when managed (mostly) by Chris Davis (at a privately held company) or by Donald Yackman (via a Kemper company)?
Lightning struck a second time in 2005, when the Clipper Fund moved itself from Pacific Financial Research to Davis Selected Advisers. Here too, same question - Pacific Financial Research was acquired by UAM in 1997 (publicly traded), with UAM acquired by Old Mutual in 2000 (also publicly traded). In the ten years since it moved to Davis, this once fine fund has underperformed its category by 1.83%/year (per M*).
My favorite independent board was The Japan Fund, which I've described before. A coda to that post is that Nomura killed off The Japan Fund last year by merging it into Matthews Asia Japan Fund. As you can see from this mid-2014 comparison of Japan funds, this is likely a good thing for the shareholders (not to mention the fund going no-load).
No, I'm definitely not equally weighted. I much prefer to dollar cost average over pretty long periods of time so it can take years in some cases and that can influence the relative size of positions. The Grandeur Peak funds were an exception because of the hard closes. I don't have any hard and fast rules about position sizes but the largest, POAGX is about 5% of my overall portfolio now, including stocks, and I'd be hard pressed to imagine any single fund being more than 10% overall based on my current approach. I definitely don't want to bet a big portion of my portfolio on any given manager and I also don't want to have investments where it's more difficult to admit or even recognize if I'm wrong because I have too much invested.
I do have a handful of asset allocation goals that I reconsider annually based on global market capitalizations (calculated from various MSCI indices) and my position sizes, or intended position sizes, are generally targeted to support those goals for my overall portfolio. I want to be overweight emerging/frontier markets, small-caps and healthcare, roughly equal weight the U.S. and underweight foreign developed markets and large cap stocks generally. Currently I have more allocated to the U.S. than I'd really like but in most cases I prefer to be gradual in my adjustments. I also like to be flexible enough to take advantage of perceived opportunities so the goals have to be flexible as well.