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M*: Absolute-Return Funds Aren't Hitting Their Mark
M*'s thesis is that objective-based funds do tend to achieve their objectives, but you achieve the same objectives and better returns with the right mix and management of traditional funds.
Quoting from the full M* paper (cited in both columns):
"Income-oriented funds generally have little trouble producing above-average income. However, investors in the average income-oriented fund could have achieved similar returns with lower volatility and with more control over the timing of income using a total-return approach that sold fund shares as needed."
"As a group, funds that aim for tempered volatility or target returns accomplish their objectives, though that's largely because the objectives are so generic or nebulous. ... A blended equity and fixed-income index delivers a similar pattern of returns [to tempered volatility funds], though with markedly better downside protection, which results in better risk-adjusted results."
"Most target-return funds produce positive returns over long-enough measurement periods and also are less volatile than the S&P 500. But so does a simple blended index, which has even better returns and lower volatility than most target-return funds."
As regards the absolute-funds, they have certainly been disappointing in the whole. They seldom deliver consistent, positive returns, which for me, is what I would be seeking. And they charge too much for promising very little -- and then delivering even less than they promise.
Comments
http://www.mutualfundobserver.com/discuss/discussion/29065/m-will-you-sacrifice-returns-for-income
M*'s thesis is that objective-based funds do tend to achieve their objectives, but you achieve the same objectives and better returns with the right mix and management of traditional funds.
Quoting from the full M* paper (cited in both columns):
"Income-oriented funds generally have little trouble producing above-average income. However, investors in the average income-oriented fund could have achieved similar returns with lower volatility and with more control over the timing of income using a total-return approach that sold fund shares as needed."
"As a group, funds that aim for tempered volatility or target returns accomplish their objectives, though that's largely because the objectives are so generic or nebulous. ... A blended equity and fixed-income index delivers a similar pattern of returns [to tempered volatility funds], though with markedly better downside protection, which results in better risk-adjusted results."
"Most target-return funds produce positive returns over long-enough measurement periods and also are less volatile than the S&P 500. But so does a simple blended index, which has even better returns and lower volatility than most target-return funds."