Saturday's Barron's piece on the L-G Alternative Strategies Fund, "Managing the Managers," [
http://online.barrons.com/articles/litman-gregory-manages-the-managers-1439013175] led me to take a look at the line-up of multi-manager funds that L-G has been running for a couple of decades (Equity, International, Smaller Companies). The basic idea is to hire the best managers, give each a slice of the fund, and give them the freedom to perform. Over the years, in my recollection, the line-ups have changed, but I recognize old-timers such as David Herro and Dick Weiss who are still on board. You'd think the funds would out perform because L-G can cherry pick good managers. However, my amateurish analysis of the long-term performance of the equity funds shows they barely keep up with their benchmarks. Small-cap managers are supposed to be able to add value: L-G's guys don't keep up with the Russell 2000. My conclusion is that a stable of well-known managers is no better than the nearest index fund.
Comments
Regards,
Ted
http://www.mutualfundobserver.com/discuss/discussion/22952/managing-the-managers#latest
My greater concern is not with Alternative Strategies or even International (they're run through 22 managers over time and produced a good record, but simply investing with their first manager's flagship fund - Mark Yockey and Artisan International - would have been even better). My greater concern is with Focused Opportunities (liquidated), Value (liquidated), and Equity (which has parlayed 33 all-stars into decent returns since inception but poor ones over both the current market cycle starting in 2007 and the past ten years). Collectively they raise serious questions about either the possibility of finding a stellar collection of long-term domestic equity managers or the appropriateness of a total return measure (as opposed to one that's more sensitive to risk or process or some such).
David
You are spot on-target with “However, my amateurish analysis of the long-term performance of the equity funds shows they barely keep up with their benchmarks.” And I concur with your conclusion “that a stable of well-known managers is no better than the nearest index fund.”
I have owned the Masters equity fund product (MSEFX) since its inception. The concept of an elite manager team with each member independently contributing a short list of his “best ideas” to form a somewhat concentrated portfolio is very attractive. Potentially it’s a positive Alpha winning strategy when executed with resolve.
That’s especially true if the team organizers carefully monitor performance and are prepared to fire members who don’t meet their standards. Litman-Gregory did all that. They also published very informative fund updates and special study reports. Their website is terrific.
What could go wrong? Initially MSEFX did deliver Excess Returns. However, eventually that old market nemesis took its customary stranglehold, a regression-to-the-mean became the norm.
Litman-Gregory released some managers, and dutifully selected outstanding replacements. Some contributed, others detracted from performance. The current team members have superior records. Here is a Masters Link to the present MSEFX team members:
http://www.mastersfunds.com/equity
Please click on the “managers” button to access MSEFX’s current honor role of excellent fund managers. However, the record speaks loud and clear: A superior investment squad does not guarantee superior outcomes.
You asked: “Does Litman-Gregory Add Value?” Based on my over two decades of experience with MSEFX, my answer is No. That might seem too harsh a judgment given that I believe Litman-Gregory is trustworthy and dedicated to their logical policies. They do practice what they preach. However, over an extended timeframe, results have disappointed.
Indeed, based on my anecdotal experience, “a stable of well-known managers is no better than the nearest index fund.” That's at least true for MSEFX.
I still believe that researching and choosing managers with outstanding long-term records reduces risk. But it’s challenging to identify these few talented (and likely also lucky) souls. To date, my experiment with MSEFX failed so I’m reducing exposure. I learn slowly.
Best Regards.
Ciao
Looking at trailing returns between MSENX vs. VFINX (S&p 500) and FCNTX (Fido Contrarian), there certainly does NOT seem to be any convincing evidence that the "master investors" are adding Alpha, above the fund's E/R..
MNILX? (the Intl fund)... I hold Artisan's ARTKX, which blows it away (though its closed to new investors). MNILX doesn't seem to have any evident advantage over Fidelity's FOSFX. I guess MNILX is 'OK', but again, the 'masters' don't seem to bring anything special in delivering performance.
As for small cap MSSFX, Vanguard's "no master" index fund VISVX convincing trounces MSSFX over trailing periods.
The numbers are what they are. An admittedly intriguing concept of owning a 'masters' vehicle, but implementation (along with the cost burden of high E/Rs) simply has not delivered, in this writer's opinion.
I was a long-time follower of the (former) Litman-Gregory No Load Fund Analyst, and respected their process. Since I was philosophically aligned with how they conducted due diligence on a range of money managers, I checked out their Alternative Strategies fund.
MASNX/MASFX has an enviable stable of "highly experienced managers" that provide "complementary, low-correlation investment approaches." The fund has demonstrated downside protection and alpha generating returns (check out its standard deviation, Sharpe and Sortino ratios).
It is a compelling fund - EXCEPT for its expense ratio.
I like these guys, but find it ludicrous that they claim its expense ratio is "highly competitive." They would do themselves a favor by reducing the fund's expense ratio (currently 1.49/1.74% net).
Now, THAT would add value!