The Beatles have already established the phrase of "Magical Mystery Tour", but the words appropriately describe some personal investing styles and active managed funds, IMHO.
Be it musical groups, sports teams, corporations, small private companies or your other choices; the stars do align from cosmic forces, a function of cyclical mathematics or some other energy that one may choose to attempt to define; or perhaps, just by chance; circumstances find certain people and events to discover one another and bind into a positive and overwhelming presence of intellect that is difficult for 99.99% of the world population to comprehend.
I suspect most folks here have and can define, to a point; a recollection of a sports team or musical group that "just had that superior edge", at least for a given time frame. Although I'm not a big time sports fan and don't fly U of Michigan or Michigan State flags at the house, I do pay attention. Superior head coaches and the selected staffs help build a successful program which results in attracting superior athletes to the sports team. These periods may run for many years and then get "clunked" for any number of reasons. The duration of success for many collegiate teams today is highly impacted by the money draw into professional sports, that finds superior college team players exiting after two years. These magic combinations of managers, staff and players may also be found in professional team sports. One must also consider the other side of the coin into the world of "can't get it right" for long time frames. The Detroit Lions football team comes to my mind for such a circumstance, and especially relative to the New England Patriots, eh?.
Well, anyway; you get the gist of my thinking, yes?; as related to active managed mutual funds.
Are these the circumstances behind the superior performance of DSEEX DSENX PIMIX PONDX (both classes noted for the purpose of one's purchase limits)?
Will this superior performance continue for 1, 2, 3, 5 or 10 more years? Your guess is as good as mine, I imagine.
Is the risk involved with the magic sauce formula of these funds over and above some threshold of personal investment risk tolerance? Only the individual investor can answer this question, yes? But, one can not argue against the skill of the use of the "magic sauce" by management, at this time, correct?, based upon performance.
We're investors and have exposure to many forms of investment risk beyond our control and vision. Tis the old adage of "get out of the kitchen, if you can't stand the heat".
Six month, after inception, slide report DSEEX / DSENX . You may find this document of interest, although the subject matter has been discussed here previously.
http://www.valuewalk.com/wp-content/uploads/2014/05/5-20-2014-CAPE-webcast-slides-Valuation-Its-All-Relative-mailing.pdfAlright, the end of the early morning jabber from this house; and moving on to another cup of coffee before starting chores for this day.
Take care,
Catch
Comments
Both sports, especially football with so many guys playing during a game, and investments, with tens or hundreds of investments, are very complicated systems. The goal, I think, is to put pieces together that work extremely well TOGETHER rather than assembling a collection of 'star' performers that don't work as well together. Belichick has a system and he seems to be extremely good at taking lots of different players over the years and getting them to work together. Quite a few of these players aren't individual stars but he gets so much out of how he gets them to work together that they've been perennial contenders for many years. And, which I think is very important, he's very quick to part with anybody who causes or might cause disruption to the system because the value he gets out of cohesion is far greater than what he could ever get out of an individual star.
I think the same is probably true for fund managers but they have even more pieces to manage and they don't have the ability to 'teach' anything to their investments to get them to perform 'better' in their system. They do get it right sometimes, occasionally for long periods of time and I would suggest it's not easy to guess when they're going to lose it as Bill Miller did. In the case of the Doubleline funds, most of the performance is rules based and there's no reason to think a set of rules can't work extremely well for some period of time too. The bonds play an important role too and it seems both the math and the bonds have been working very well together since inception. Figuring out if and/or when the math won't work as well isn't easy but it's probably the key to knowing when it's time to move on.
In another more active example, the Primecap guys have had a team approach to their funds forever and the performance speaks for itself. Since the members of the team manage their pieces with a high degree of autonomy, at least according to what I've been able to read, it has to mean they've put team members together and taught them a system that has worked extremely well together for a very long time. As the team turns over, as it has some through the years, finding new team members who can employ the system and who mesh well with the other team members is probably the biggest source of their success. Since POAGX is my biggest single investment I'm hoping that continues for a long time.
Okay, so maybe it is sorta like Belichick...
On a tangent, don't you think someone should be able to front run DSENX? The calculations involve a lot of historical data but Barclay's has been very transparent about how they're doing those calculations. When a sector choice changes it's a billion dollars out of one sector and into another at this point and that's a big number compared to the volume even in the most active sectors and even if they're spreading their trading over several days. My very rough estimate is almost 2 full days of average volume for the most active sectors. In my mind that should provide an arbitrage opportunity.
Yes, of course, some of this is about the "machines/algos". But, the humans in charge set the parameters and I am sure have an "override button" in place to alter the algos.
Relative to the simple side for we retail investors and "timing" methods.
I am reminded (based upon my time in the markets) when Fidelity introduced their "Select Funds". One (for a period of time) could trade the select funds at the top of every hour. This became too disruptive to the funds, and this option was removed.
A carryover for we retail investors was the evolution of momentum trading of these select funds. Numerous folks via mail and electronic web sites produced their views for choosing the rotation in and out of the best 4 select funds via Fidelity. These methodologies still exist today. These methods remind me of the choices being made by the managers at DSENX or PONDX, although at a very sublime level.
One can imagine the chatter in the offices of the quant, long-short, market neutral and the hedgies or related similar operations trying to figure out how to come close to returns from the likes of DSENX or even PONDX.
I have not checked, but I suspect most of the " quant, long-short, market neutral and the hedgies or related similar operations" have not matched returns with PONDX. One can almost hear the screams of despair at the meetings of "why can't we outperform a multi-sector bond fund?".
ADD: 5 year annualized average returns, except DSEEX (only 3 years available). A very few long/short, managed futures, market neutral and multi-alternative did surpass PIMIX , but the majority performed poorly. One would have needed the luck of the draw to have a winner in this group to even perform above the current low inflation rate.
---DSEEX / DSENX = 14.5%
---PIMIX / PONDX = 8.3%
---long/short = 6.6%
---multi-alternative = 3.3%
---managed futures = 1.1%
---market neutral = .8%
ADD 2: Hedge funds (various types) data 2015-2017, scroll down page for data
http://www.valuewalk.com/2017/05/hedge-funds-return-an-average-of-0-66-in-april-2017/
Well, anyway; per my original write is that currently, the funds noted are on a "Magical Mystery Tour" providing profits to the investors at a most reasonable cost.
Take care,
Catch