A Lack of Integrity at Integrity Funds

bee

I stumbled across IFOFX which is a Large Cap Fund of Funds aptly titled Integrity Fund of Fund. A fund of fund invests in a combination of other mutual funds. One would think this would create an economy of scale and allow Integrity's management to stand on the shoulder of some pretty darn good Large Cap funds.

Here's a list of their top 25 holdings:

http://portfolios.morningstar.com/fund/holdings?t=IFOFX&region=USA&culture=en-us



Using M* chart tool I charted each of these funds against the Integrity fund of fund. Each individual fund outperforms the fund of fund most of the time...so what gives? Shouldn't IFOFX fall somewhere in the middle of all its components? Apparently it can't even beat SPY...as a closet index fund.



It looks as though the fund got its start back in 1995 and for some reason still has investors in 2012. What hurts this fund's performance is not its portfolio...all very good mutual funds but, it management.

In order to invest in this fund an investor first needs to cough up a 3% load and then pay an ongoing expense ratio of 1.65% which, by the way, M* categorizes as average. As a result, whatever alpha may have been generated with this strategy is skimmed off the top by the Integrity management team.

Where's the integrity in this fund company?

Investor

That 1.65% expense ratio is a huge hurdle. That is on top of what underlying funds charge. In the end, you get an undistinguished performance.

VintageFreak

IMHO the only reason to buy a fund of funds is when the fund has some purpose or there is something unique about it. Else you can just buy Target fund from TRP or Vanguard which is what your Integrity fund is holding. It is less about Integrity of Integrity, it is more about stupidity of investor population at large. Rhyming my only reason for last comment, not calling anyone stupid.

Examples : PGMDX, PAUDX. Funds of Funds. They are trying to achieve a specific goal. Even FUNDX has some "momentum" thingy going for it (or not) if you believe in that kind of thing. IFOFX name itself is telling you it is unnecessary.

Here's a sucky fund I own. This is actually insult to injury and worse than IFOFX. It is SARIX, used to be NARFX. See how its funds have done compared to its YTD performance.

fundalarm

Reply to @VintageFreak: I believe that Pimco FoFs are charging one level of fees -- it's more like a multi-strategy fund: moneys are divided between different strategies/ separate accounts given to different Pimco managers. This one seems to charge fees on top of mutual fund fees charged by the 3rd party managers. A horrible idea. In a hedge fund world, the excuse for FoFs is that an investor with fairly modest means can't meet the minimum in individual hedge funds to have a diversified portfolio. I can buy it -- somewhat. But in mutual fund world, when each can go direct, this makes no sense whatsoever.

VintageFreak

Reply to @fundalarm: Well I don't think I can do what Rob Arnott and El Erian can do, so I guess I have to pay. If these guys are not earning their money, I don't know which FoF manager is.

The argument is not about to FoF or not to FoF. It is about the most honorable FoF managers or the most unnecessary ones

scott

Reply to @VintageFreak: I'd really get rid of SARIX.

VintageFreak

Reply to @scott: Working on it

Old_Joe

Reply to @VintageFreak: Well, you gotta admit that it's pretty much doing what it said it was gonna do: "maintaining a low or negative correlation over time with the major equity indices." At least for this year, anyway... :-{{{

randynevin

Rather ironic that the funds and ETFs in the portfolio are mostly good quality, low-expense no-loads which the investor would probably do better to buy directly.