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Mutual funds are a dying breed. There are some exceptional ones and a couple of categories where they are sustainable: target date funds, balanced funds and alternative funds have offerings that you can't get in an ETF wrapper. I don't think it will be much longer though when only target date funds and some exceptional performers with low ER's will survive. MFO should change it's focus. Agree or disagree?
The mutual fund discussion here continues to evolve with time. There is already many discussion on index funds, ETFs, CEF, and target date funds. Lately, active managed ETFs are being discussed as they become available.
I think Mutual Funds will continue to be the main mechanism in retirement accounts where once a day trade is just enough. ETFs will be increasingly dominant in taxable accounts. Not all ETFs are now cost and some hide the acquired funds' underlying ER and ETFs in low liquidity assets tend to diverge from underlying asset values. So, they many reasons to continue to invest through mutual funds.
The landscape for actively managed mutual funds will be increasingly competitive. Prerequisites for most of the remaining open-end funds (OEFs) will include low costs and good returns. Some OEFs will continue to exist since corresponding ETFs are not available (this may change in the future). The shifting landscape will take years to unfold. Although many mutual funds will be liquidated or merged into other funds, a sizable amount will remain. I'd argue this is a good development since many unnecessary mutual funds exist. Investors seeking exposure to a particular asset class or category can analyze OEFs, ETFs, and CEFs to determine the best solution.
Not necessarily. Advisors don't need loads to make money.
"Financial advisors would switch from selling funds that charged commissions of any kind to selling funds that lacked commissions, while levying asset-based fees. That change has indeed occurred. Per McKinsey’s “The state of North American retail wealth management,” more than two thirds of revenues for its surveyed financial advisors now come from asset-based fees, rather than commissions."
I just noticed, since someone mentioned elsewhere PRBLX performance blah blah, that two hoary funds which one probably wanted to be in since mid-Feb '20, which are huge and neglected in this forum and abandoned / disdained as to gogo sex appeal and so on, are (wait for it) FCNTX and FLPSX. Baboom.
DSnowball once wrote years ago (during yet another FLPSX doldrums period, surely) that he'd never sold FLPSX and not regretted it ultimately.
I wonder what the dates are of the last MFO mentions of these two.
Anyway, live and learn --- I did not own them this round. Danoff and Tillinghast, man.
FLPSX is about 15% of my Rollover IRA. I've let it ride since August 2011. The total gain in a little less than 11 years is 304%. It's been one of my "invest and don't mess with it" positions.
Ditto for FDCAX (up 421% in the same time period). David
FCNTX and FLPSX are two of the stalwarts in my portfolio. I got into both when they reopened after long closures and have never regretted it. FCNTX has grown more than 400% since my initial investment in 2003. My acquisition of FLPSX is more recent but it’s a keeper. I initially invested in FBALX at the same time as FCNTX and it’s been one of the top balanced funds over that period despite M*’s faint praise.
I've held FCNTX since 1986. In July, 2019 I made my first sale to open a position in BIAWX for both curiosity and speculation that Danoff may float the idea of retiring. Since then FCNTX has increased in value 32.8% while BIAWX has gone up by 52.6%. My curiosity has been satisfied but Danoff is still a rockstar.
Few have answered Golub1's original question, but have provided rather the exceptions such as FCNTX and FLPSX that prove the rule: Many active funds underperform their benchmarks, which ETFs can track at a much lower cost. And now active ETFs can also do what mutual funds do with lower costs, intra-day liquidity and greater broker portability than mutual funds. I do think there are skilled active managers and excellent mutual funds, but the industry as a whole is being challenged by ETFs, and, I believe, deservedly so. Fee structures at mutual funds must change, and active mf strategies need to be more active and less closet-index-y. (Terrible adjective I just created: Closet-index-y.)
OK, I’ll give an example of why I chose a mutual fund over a comparable ETF. For small cap exposure in my IRA, I had used a small cap index fund, DISSX, with an expense ratio of 0.50% for many years. Realizing that I could get slightly better returns from IJR, which follows the same index with an ER of 0.06%, I looked into switching. However, I then discovered that Fidelity has a small cap index fund (FSSNX) with an ER of 0.025% and even better returns, so I switched to it. So, in this case, the Fidelity index mutual fund had lower expenses than a comparable ETF. If your a stickler, iShares has an ETF that follows the Russell 2000, the same as FSSNX, also with a higher ER.
Other than the lower ER, I can do same-day transfers of money between FSSNX and other Fidelity funds, which is a big advantage to me, since many of the other funds in my IRA are with Fidelity.
+1 to what LB just wrote, and I do not much invest in mfunds anymore myself, for all of the good tired reasons. I posted what I did just because no one talks anymore about those two Fido warhorses.
I’m very interested in more discussion on the advantages of ETF’s vs MF and not just in taxable accounts but in retirement accounts + in retirement accounts where the investor has no interest in being an active trader. Perhaps that deserves its own thread? Or is this what was intended here? Fido has a limited number of etf to choose from plus some iShare options. Their offering seems very limited to me. Fido that is.
He may be looking at an old commission schedule. Before Fidelity (and nearly everybody else) went commission-free on stocks and ETFs, Fidelity offered mainly iShares and OneQ (the only ETF Fidelity had at the time) with no transaction fee:
Fidelity ranks competitively, too, with 3,532 NTF mutual funds and 85 commission-free ETFs, including dozens of iShares ETFs
Partly @msf. I was looking at 7 or so active ETFs and 28 stock ETFs. Recently started looking at FBCG vs FBRGX as I own the latter in an account.
That said, I’ve been happy with funds and have never found myself wanting more control on real time pricing. I do like the concept of low cost / index and low cost etf. I just don’t own any etf’s. Don’t want to hijack this thread for an ETF vs Mutual Funds one - unless golub1 intended it. But I do want to learn more about what I’m potentially missing by not being in ETFs. I guess the “comfort” of long term historical comparisons with mutual funds and the tools have kept me in funds.
Edit: Add… Author mentioned target date funds as a survivor. I’ve never been a fan of this “set it and forget it / auto-rebalance model”. Also liked @Tarwheel mention of FSSNX as an example of a low ER. There was a lot of meat/reasoning in @LewisBraham response- I’ll research further.
BTW, Fidelity has added a series of zero expense index funds in recent years, and its regular classes of index funds typically have expenses as low as or lower than comparable ETFs. The only advantage of ETFs in these cases would be the potential ability to get better prices for sales or buys during the day rather than end-of-day prices. There are no guarantees that one could actually achieve better trade prices. To me, the advantage of being able to perform direct transfers of money between various Fidelity funds is a more important benefit. That way you don’t have to sell shares in a fund or ETF one day and then wait at least another day to reinvest.
I have invested in Fidelity’s zero expense total market fund (FZROX) since near its inception for our taxable savings. It’s returns have matched comparable funds and ETFs with no added expenses and it’s very tax efficient.
@davidrmoran Don't assume I didn't check. In my humble opinion, (using @msf numbers) - 3,582 mutual funds vs. 85 ETF's "seems to be a limited number to me" in comparison. I've offered that I don't own ETF's and am interested in learning more about what I'm missing. <--That's an open admission that I don't know what I don't know.
You seem to keep having a problem with my posts. May I suggest you just ignore them or me? I will gladly do the same for you.
The only advantage of ETFs in these cases would be the potential ability to get better prices for sales or buys during the day rather than end-of-day prices.
The other advantage of ETFs is portability. You can trade those ETFs cheaply or for free pretty much anywhere. Those zero-fee Fidelity index mutual funds only trade free at Fidelity, and I think actually are only sold at Fidelity, so you really can't do anything with them anywhere but Fidelity. They are essentially locking you in as a customer for life.
Another advantage, although this is debated somewhat, is tax efficiency. The in-kind redemption system via authorized participants gets appreciated stock out of the ETF without realizing any taxable capital gains inside the portfolio that have to be distributed to shareholders. This added efficiency should be true for most ETFs, except for Vanguard's, which for complicated reasons I'm too tired to explain aren't more efficient than Vanguard's index mutual funds as they are actually another share class of those funds.
This added efficiency should be true for most ETFs, except for Vanguard's, which for complicated reasons I'm too tired to explain aren't more efficient than Vanguard's index mutual funds as they are actually another share class of those funds.
IMHO this perspective is backward. This added efficiency is true for Vanguard ETFs as well - so far they have been able to dump all gains onto APs. As a result, it is not that Vanguard's ETFs are less efficient than those of other families, but that Vanguard's OEF share classes are more efficient than mutual funds of other families.
You noted: Fido has a limited number of etf to choose from plus some iShare options. Their offering seems very limited to me. Fido that is.
I didn't understand your full meaning to represent Fidelity Investments and "their" etf offerings. I will agree on this; but for a beginning investor reading this discussion or as with @hank who just opened a Fidelity account, they need to know and understand that Fidelity offers an investor a wide open list of etf's to purchase., as @msf noted previously.
I’m very interested in more discussion on the advantages of ETF’s vs MF and not just in taxable accounts but in retirement accounts + in retirement accounts where the investor has no interest in being an active trader.
Ben Johnson, director of global ETF research for M*, wrote a recent article discussing the benefits and drawbacks of active ETFs. Link
This added efficiency should be true for most ETFs, except for Vanguard's, which for complicated reasons I'm too tired to explain aren't more efficient than Vanguard's index mutual funds as they are actually another share class of those funds.
IMHO this perspective is backward. This added efficiency is true for Vanguard ETFs as well - so far they have been able to dump all gains onto APs. As a result, it is not that Vanguard's ETFs are less efficient than those of other families, but that Vanguard's OEF share classes are more efficient than mutual funds of other families.
Most of Vanguard's ETFs were created as a new share class of an existing mutual fund. Former Vanguard CIO Gus Sauter even patented (expires 2023) this innovative solution. This solution increases the tax efficiency for associated mutual funds. Dan Wiener from "The Independent Advisor for Vanguard Investors" compared the after-tax returns of Vanguard ETFs with their corresponding mutual funds. Some ETFs had a small advantage of several bps but the same was true for some mutual funds. There also were ETFs and mutual funds which generated identical after-tax returns.
The following Bloomberg article from 2019 discusses Vanguard's mutual fund taxation in more detail. Link
The biggest reason why mutual funds are important...MFO would have to change its name. Maybe to ETFO?
It survived the change from FA(Fund Alarm) to MFO.
Funny thing about that - I still say Fund Alarm when telling my husband something I read at MFO so he will have continuity of identity with the group I am referencing.
@MSF Perhaps I should have said that Vanguard index ETFs because of their unique structure are no more efficient than Vanguard index mutual funds but more efficient than competing mutual funds. Yet there are unique risks to the structure and I don’t agree that it is entirely advantageous. This summarizes the pluses and minuses well: https://morningstar.com/articles/962031/vanguards-unique-etf-structure-presents-unique-tax-risks
Moderate allocation fund, PRWCX as mentioned in the past holds the bulk of our investments. Never used an ETF to this point which doesn't mean we may not sometime in the future. I have looked at allocation ETFs in the past to compare to PRWCX and have been left wanting. Thus, actively managed mutual fund over an ETF.
Haven't looked at MA ETFs anytime recently, but if anyone has knowledge of any worth examining, bring it on.
Comments
Prerequisites for most of the remaining open-end funds (OEFs) will include low costs and good returns.
Some OEFs will continue to exist since corresponding ETFs are not available (this may change in the future).
The shifting landscape will take years to unfold.
Although many mutual funds will be liquidated or merged into other funds, a sizable amount will remain.
I'd argue this is a good development since many unnecessary mutual funds exist.
Investors seeking exposure to a particular asset class or category can analyze OEFs, ETFs, and CEFs to determine the best solution.
"Financial advisors would switch from selling funds that charged commissions of any kind to selling funds that lacked commissions, while levying asset-based fees. That change has indeed occurred. Per McKinsey’s “The state of North American retail wealth management,” more than two thirds of revenues for its surveyed financial advisors now come from asset-based fees, rather than commissions."
https://www.morningstar.com/articles/1000749/asset-based-fees-are-not-intrinsically-better
DSnowball once wrote years ago (during yet another FLPSX doldrums period, surely) that he'd never sold FLPSX and not regretted it ultimately.
I wonder what the dates are of the last MFO mentions of these two.
Anyway, live and learn --- I did not own them this round. Danoff and Tillinghast, man.
I've let it ride since August 2011.
The total gain in a little less than 11 years is 304%.
It's been one of my "invest and don't mess with it" positions.
Ditto for FDCAX (up 421% in the same time period).
David
Other than the lower ER, I can do same-day transfers of money between FSSNX and other Fidelity funds, which is a big advantage to me, since many of the other funds in my IRA are with Fidelity.
What ETF(s) are you not able to purchase, that you would desire?
Thanks,
Catch
https://www.kiplinger.com/article/investing/t023-c000-s002-we-pick-the-best-online-brokers.html
That said, I’ve been happy with funds and have never found myself wanting more control on real time pricing. I do like the concept of low cost / index and low cost etf. I just don’t own any etf’s. Don’t want to hijack this thread for an ETF vs Mutual Funds one - unless golub1 intended it. But I do want to learn more about what I’m potentially missing by not being in ETFs. I guess the “comfort” of long term historical comparisons with mutual funds and the tools have kept me in funds.
Edit: Add… Author mentioned target date funds as a survivor. I’ve never been a fan of this “set it and forget it / auto-rebalance model”. Also liked @Tarwheel mention of FSSNX as an example of a low ER. There was a lot of meat/reasoning in @LewisBraham response- I’ll research further.
I have invested in Fidelity’s zero expense total market fund (FZROX) since near its inception for our taxable savings. It’s returns have matched comparable funds and ETFs with no added expenses and it’s very tax efficient.
Since this forum is not moderated, I would suggest that everyone do the idiot-simple 'is this true?' test before posting.
You seem to keep having a problem with my posts. May I suggest you just ignore them or me? I will gladly do the same for you.
Another advantage, although this is debated somewhat, is tax efficiency. The in-kind redemption system via authorized participants gets appreciated stock out of the ETF without realizing any taxable capital gains inside the portfolio that have to be distributed to shareholders. This added efficiency should be true for most ETFs, except for Vanguard's, which for complicated reasons I'm too tired to explain aren't more efficient than Vanguard's index mutual funds as they are actually another share class of those funds.
What I quoted was a 2017 piece that gave the number of NTF OEFs and ETFs then available through Fidelity. (Now all ETFs are traded w/o commission.)
Fidelity's screen shows 2426 ETFs and 80 ETNs available.
https://research2.fidelity.com/pi/etf-screener
(FWIW, Schwab's shows 2195 ETFs
https://client.schwab.com/secure/cc/research/etfs/etfs.html?path=/research/Client/ETFs/Screener/FundFinder )
Fidelity's fund screener shows 10624 "funds" (share classes), including leveraged, inverse, and closed funds.
IMHO this perspective is backward. This added efficiency is true for Vanguard ETFs as well - so far they have been able to dump all gains onto APs. As a result, it is not that Vanguard's ETFs are less efficient than those of other families, but that Vanguard's OEF share classes are more efficient than mutual funds of other families.
To my original question: I didn't understand your full meaning to represent Fidelity Investments and "their" etf offerings.
I will agree on this; but for a beginning investor reading this discussion or as with @hank who just opened a Fidelity account, they need to know and understand that Fidelity offers an investor a wide open list of etf's to purchase., as @msf noted previously.
Regards,
Catch
Link
Most of Vanguard's ETFs were created as a new share class of an existing mutual fund.
Former Vanguard CIO Gus Sauter even patented (expires 2023) this innovative solution.
This solution increases the tax efficiency for associated mutual funds.
Dan Wiener from "The Independent Advisor for Vanguard Investors" compared the after-tax returns of Vanguard ETFs with their corresponding mutual funds.
Some ETFs had a small advantage of several bps but the same was true for some mutual funds.
There also were ETFs and mutual funds which generated identical after-tax returns.
The following Bloomberg article from 2019 discusses Vanguard's mutual fund taxation in more detail.
Link
Here's Barry Ritholtz's take.
Link
Funny thing about that - I still say Fund Alarm when telling my husband something I read at MFO so he will have continuity of identity with the group I am referencing.
Haven't looked at MA ETFs anytime recently, but if anyone has knowledge of any worth examining, bring it on.