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What I find interesting regarding index funds is what Fleckenstein refers to the endless money train into said index funds (my paraphrasing, not his words) from retirement investors into 401Ks etc., just like what folks were thinking in Japan years ago...this is going to go on and on, until one day it doesn't and whammo. Drives stocks/indexes up no matter what the true fundamentals are (note what AAPL did last quarter, earnings I think were flat or so and market cap goes up what $5-6Billion? What's up with that?
I think that his one of the reason's some/many invest with funds that are NOT index funds...thinking is that index fund results are based on group psychology to an extent and "it works until it doesn't"...
TSP isn't an IRA and it doesn't offer one. If TSP, did you signup for new brokerage window? Heard bad things about it - too expensive, etc. There is indeed TDF L2045; a unique aspect is that fixed-income portion included SV TSP G Fund and TSP TDFs are much more conservative that typical TDFs.
@Baseball_Fan I don’t really agree, but a lot depends on how you define the term indexing. If one thinks of tracking the S&P 500 as the only kind of indexing, you could draw a bubble conclusion. To me, an index is a passive rules-based machine that a basic computer program can track or execute as a strategy at a minimal cost. It is not at all like the nation of Japan or even the Nikkei Index in isolation.
And yes one can quibble about the definition of active and passive as the S&P 500 actually has a committee of people selecting which stocks to include in it. But it’s worth noting that most employees in 401ks dollar cost averaging with their weekly paychecks into an indexed target date fund are not buying or just buying the S&P 500 in a bubble. They’re also buying foreign stocks and bonds in indexed form as well as small caps via a total market index. Moreover, because they’re buying at regular intervals every paycheck they are not merely buying a bubble, but buying both when the market rises and falls, at its peaks and troughs. So the end result smooths out their cost basis.
Sure there is a momentum tilt to market cap weighted indexes, but most active managers are afraid of deviating too much from the index and underperforming it dramatically when the market is rising. So they go down with the ship when the market falls. And their still much too high fees continue to kill their performance year after year. A handful of managers truly think differently, have low fees and the skills to be right when they think differently.
@Baseball_Fan - “the endless money train”. Yeah - I’ve seen that reasoning somewhere too.
Personally, I try to stay as far away as I can from the major U.S. indexes - but do hold small bit an index fund based on a non-U.S. developed economy. Not saying I’m correct. Just my own perception of risk mitigation. I think Lewis is largely correct, as for younger workers looking decades ahead the relative valuation today of indexes is of much less consequence than for myself in my late 70s.
If one is concerned about the bubble factor in traditional market-cap weighted S&P 500/Total Market Indexes, it is easy today to have a value factor overlay to the index. VVIAX has beaten 74% of its peers in the past 15 years, 86% in the past ten years. Its expense ratio: 0.05%. But if you want to avoid "value momentum" as odd as that sounds, you could just equal weight the index to avoid having too much for instance in the FAANG stocks in the S&P 500 or too much in financials and energy in a market-cap weighted value index. RSP comes to mind, 0.20% expense ratio--still indexed in my view. In other words, active managers have some explaining to do.
After the dot com bubble burst and my largest holding was down 10% more than the market (i.e. around the figures Lewis is using), I got a cold call from someone pitching professional portfolio management. I still remember my response: I already have professional managers, and I started naming the managers of that fund.
Some of us were not entranced by the ability to trade Fidelity Select funds seven times a day (hourly pricing) back then, and don't feel the need to trade ETFs tick by tick today. I make a change when I can no longer answer the questions: what do I expect from this fund and why is it part of my portfolio?
If I own a volatile fund, I expect it to go down more than the market. But I also look for it to more than make up that underperformance on the upswing. And I'll wait that out, unless there are specific reasons for me to doubt the fund or the management going forward.
Regarding VFORX, I generally agree that for many employees "one and done" is a great option. I would have loved to have had any sort of asset allocation option available when I started working and had no clue what I was doing.
If one is willing to pay double the expenses (0.11% ER vs VFORX's 0.06%), there's a fixed asset allocation fund that has done a little better. FFNOX correlates 100% with VFORX according to Portfolio Visualizer. I didn't believe that either, but that's what it says.
PV's performance analysis reports FFNOX having higher annualized returns, lower volatility, smaller max drawdown (based on monthly figures), better Sharpe ratio (to be expected given higher returns and lower volatility), even closer stock market correlation. Though its best year was inferior to VFORX's.
Of course all of these differences are rather small. This is simply an alternative for those who eschew Vanguard or don't like the idea of glidepaths.
”If I own a volatile fund, I expect it to go down more than the market. But I also look for it to more than make up that underperformance on the upswing. And I'll wait that out, unless there are specific reasons for me to doubt the fund or the management going forward.”
We’ve discussed in the past that this approach works if one has socked away an amount of cash sufficient to outlast a multi-year bear market so they don’t need to pull money out of a deeply depressed equity portfolio. Folks have mentioned holding anywhere from 3 years worth all the way out to 5 or more years worth of cash. If I remember correctly, @msf is one who does that . Different strokes. I don’t hold a cash reserve (but do have a pension), so my inclination is more to limit big swings in investment portfolio. The “upside” would be that I’m 100% invested all the time.
BTW - The folks that hold a lot of reserve cash have done very well the last couple years. I never could have envisioned 2 or 3 years ago the kind of returns cash / cash-like investments have delivered the past couple years. To have anticipated that requires one with more intelligence and foresight than I possess. Wasn’t it only 2 years ago that Powell was describing inflation as “transient.”?
I was thinking of the nice F Asset Manager set, but have not kept up. I was thinking they were less rote and formulaic back when, but may well be mistaken
I’ll be honest. I don’t think anyone who posts on this active board could handle the boredom of owning an indexed asset allocation or target date fund for the entirety of their portfolio, even if it might be good for our investment health in the long-term. It would be like eating broccoli at every meal, and that’s despite the fact that I rather like broccoli.
@LewisAbraham... Sir try a little cover call iron condors or csp
Definitely spite it up Do tqqq Tna Tsla soxl soxs Keep you at the chart bench from markwt open until end weekday if you have free time lol 1-3% of mine swing trades csp or cc (mostly csp)
I’ll be honest. I don’t think anyone who posts on this active board could handle the boredom of owning an indexed asset allocation or target date fund for the entirety of their portfolio, even if it might be good for our investment health in the long-term. It would be like eating broccoli at every meal, and that’s despite the fact that I rather like broccoli.
+1
Or stuck with warm Bavarian wheat beer day after day.
Maybe in education parlance - Accept the class for what it is, not what you would like it to be.
Nicholas Fund. Third ave value. Sogen international. Mutual shares. Of course Fidelity Magellan. Those are just the ones I can remember. But they come and they go.
This is a really nice discussion. Lots of food for thought.
FWIW, I'm in Stillers' camp. My wife and I have owned FSELX for many years. I realize that it's dangerous to own a single-industry fund, but I believe in this industry. Many years ago, my 403b had T Rowe Price Science and Technology fund as my largest holding. When I moved to Fidelity (and had to be in Fidelity funds), I chose FSELX.
We also chose FSELX for my wife's Roth IRA when they first became available. I feel that science and technology, in the broad sense, will always be successful (at least in my lifetime) and I'm willing to withstand volatility. So, to some degree, success depends upon ones entry point.
I aso have some other managed funds, some index funds and a slug of dividend paying stocks.
@larryB, I am familiar with those names you mentioned. Many changes but the most notable are: 1. Sogen International is still around but with a different name, First Eagle. This family of fund is excellent. Jean-Marie Eveillard retired and replaced by a team led by Matthew McLennan. 2. Mutual Series funds was sold to Franklin Templeton. Micheal Price passed away in 2022. They still do okay but nowhere as good as those days back in the 90's.
I gotta have at least a bit of yield from my stock funds and single stocks. Yield in bond funds goes without saying. In my single stocks, I aim for a floor of 3% yield. It's just arbitrary. I make switches only when I see a sea change going on. I've made some bad timing decisions along the way. "Bad timing" is code for being WRONG. How do you keep from fiddling with your own well-homeworked selections? Throw a ton of money into PRWCX or MAPOX or BRUFX or another very solid balanced fund.
”Our brains are wired to send us immediate signals of fear and reward when we witness stock market volatility. Adrenaline and dopamine rushes cloud our judgment as we weigh the risks and benefits of our options. Ignoring fear or delaying instant gratification is incredibly difficult because it demands that we go against our instinctual behaviors.”
Article quotes Buffet as saying you shouldn’t buy anything you wouldn’t be willing to own for 10 years. I think that gage is a good starting point. I don’t like following more than 20 different holdings, so that’s enough to motivate me to dampen down the trading.
That's actually a very good article Lewis. Right to Crash's point, which we all fall into from time to time. The fund industry keeps throwing new products and options out there because, well, they know we buy past performance.
Nicholas Fund. Third ave value. Sogen international. Mutual shares. Of course Fidelity Magellan. Those are just the ones I can remember. But they come and they go.
The text is presented in a single, unbroken, stream of sentences, so I don't recommend reading. A few highlights:
"Although the managers we interviewed were divided on when a market downturn would come, almost all agreed that one is long overdue. When it does happen, many fear stock prices could sink 20% to 40%".
1. VWNDX, then managed for 23 years by John Neff (age 56). Had a wide lead over #2 winner.
2. MUTHX, then managed by Max Heine and Michael Price (age 36). Money says that Price had been managing with Heine for 13 years, which would date back to his joining Heine Securities in 1975. Money also describes Price as the principal manager. But the 1995 prospectus for the fund says that Price had been managing the day-to-day operations for five years (i.e. starting around 1990).
" In contrast to our top two funds, both of which employ a primarily conservative (and contrarian) approach, eight of the top 10 ... are either aggressive growth or long-term growth funds."
3. NICSX - managed by founder 3. (tie) ACRNX - managed by founder, Ralph Wanger 5. SEQUX - managed by founder 6. PENNX
7. Evergreen Fund - managed by founder
This fund is hard to trace. Evergreen funds were owned by First Union Corp. (banking company), which merged into Wachovia in 2001, which was acquired by Wells Fargo in 2008. Somewhere along that line the Evergreen fund may have gotten renamed or merged into another Evergreen or Keystone fund.
Evergreen was so scandal-ridden (e.g. 2001-2003 trading abuses, 2008 ultra short bond mispricings), not to mention merely being owned by Wells Fargo, that it's no surprise one cannot find a trace of it now. I especially like the lead in the CBS piece on the ultrashort bond fund: "There's really only one word that can be used to describe people who engaged in the sorts of activities Evergreen is accused of: crooks."
8. FMAGX. "(up 1,795% to July 1 [for past 10 years], compared with 590% for Windsor). ... . One of the reasons for Magellan's downgrading is that the fund, like many growth seekers that remain fully invested in stocks at all times, is likely to stumble in declining markets."
VPMCX, only 3 years old at the time, came in at #12.
Perhaps a good summary of attitudes at the time is this part of the text:
low in our experts' esteem were index funds -- the increasingly popular vehicles that aim to match the returns of a major market barometer such as the S&P 500. Ralph Wanger, manager of the third-place Acorn Fund, was the one maverick in our survey, awarding a vote to Vanguard's $900 million no- load Index Trust, up 27.3% for the six months to July 1, compared with 27.4% for the S&P 500 that it attempts to duplicate. Says Wanger: ''At least you're assured of approximating the market averages with an index fund. The S& P 500 is one tough bogey."
VPMCX and VWNDX are the ones that still look pretty good on that list and they have the requisite low expenses and patient skilled management teams to compete effectively with that tough bogey.
This post is NOT in direct response to ANY particular prior post.
So we're near the end of two pages of discussion on this topic and not ONE time has the term "alpha" been stated and no attempts have been made to assert its relevance/importance in this discussion. (Another reason why I generally find worthless the annual/interim discussions of the performance of all stock funds vs indexes.)
Alpha (α) is a term used in investing to describe an investment strategy's ability to beat the market, or its "edge." Alpha is thus also often referred to as “excess return” or “abnormal rate of return,” which refers to the idea that markets are efficient, and so there is no way to systematically earn returns that exceed the broad market as a whole. Alpha is often used in conjunction with beta (the Greek letter β), which measures the broad market's overall volatility or risk, known as systematic market risk.
Alpha is used in finance as a measure of performance, indicating when a strategy, trader, or portfolio manager has managed to beat the market return over some period. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index or benchmark that is considered to represent the market’s movement as a whole.
The excess return of an investment relative to the return of a benchmark index is the investment’s alpha. Alpha may be positive or negative and is the result of active investing. Beta, on the other hand, can be earned through passive index investing.
Please temporarily couch your bias for/against Zack's. Just using a page of theirs below to illustrate the relevance/importance of it in this discussion, and in the scoping of funds that consistently outperform benchmarks.
With a 5-year beta of 1, the fund is likely to be as volatile as the market average. Another factor to consider is alpha, as it reflects a portfolio's performance on a risk-adjusted basis relative to a benchmark-in this case, the S&P 500. Over the past 5 years, the fund has a positive alpha of 2.72. This means that managers in this portfolio are skilled in picking securities that generate better-than-benchmark returns.
FWIW, PRWAX beats the S&P for ALL SIX YTD-to-Life interim periods. We are current and LT holders of PRWAX (drumroll) because of its alpha and those results.
Bottom Line: Use the incessant annual/interim articles to help you identify which PMs/funds are the ones that consistently outperform their benchmarks. Avoid concentrating on the headline news that, um, duh, most of them don't.
Use the incessant annual/interim articles to help you identify which PMs/funds are the ones that consistently outperform their benchmarks.
That is the problem in a nutshell, though. There are virtually no funds--perhaps none at all--that consistently outperform their benchmarks, especially in the large-cap U.S. stock space. Even the best funds often have lumpy performance, and many investors, including investors on this board, can't psychologically handle that lumpy performance when the fund is having a bout of significant underperformance. In fact, the lack of consistency is one reason the stats of underperformance versus the S&P 500 long-term are so high. The fund that outperforms the S&P 500 this year will very rarely be the same as the fund that outperforms it in the next. Meanwhile the fee drag of active management is consistent year after year and is utterly predictable. It is the most predictable thing about active management. Over time the outperformance of big up years can't overcome the cumulative effect of that fee drag for almost every large-cap fund. And even when the fund can overcome the fee drag many of its investors don't enjoy it because psychologically they buy and sell the fund at the wrong times, chasing its hot performance and bailing out of it at the bottom.
I would add that the referenced PRWAX has also not consistently beaten its benchmark even in calendar years, let alone rolling ones. Morningstar benchmarks it against a Large Growth index and T. Rowe benchmarks it against the Russell 3000. In both cases, there are lagging years: https://troweprice.com/financial-intermediary/us/en/investments/mutual-funds/us-products/all-cap-opportunities-fund.html In fact, the fund has lagged its T. Rowe-chosen Russell 3000 benchmark in both 2022 and 2021 as well as 2016 and 2014--lumpy but strong overall performance.
Fun Trivia question: What fund manager holds the record for beating the S&P 500 the most consecutive calendar years in a row? The old-timers here should know. The answer in a way explains why you can't really put much faith in most active managers long-term.
Finally, I would note that the best use of a consistent alpha metric--as opposed to an intermittent alpha one--might be for identifying fraud. There is probably something fishy going on with a fund that beats its benchmark every single year. I bet Madoff had some really high alpha.
”Another reason why I generally find worthless the annual/interim discussions of the performance of all stock funds vs indexes”
I’ve found the thread to be far from worthless. I’ll side with @dstone42 who seemed to find much merit. Off-script? Perhaps. But that’s how discussions often run. No. I don’t do alpha. Found it in the past to be of little value to how I invest personally. But, yes, it is one metric some might find valuable.
If you have a widely disperse portfolio with several different sleeves, each representing different types of investments and risk characteristics and if you periodically rebalance those back to neutral so that the more volatile components are kept in check you may not need to measure the alpha of every holding.
At LewisBraham. His 15 year streak ended in 2006. A remarkable achievement. Think that record will ever be broken? Seems unlikely. Who was Bill Miller?
Nicholas Fund. Third ave value. Sogen international. Mutual shares. Of course Fidelity Magellan. Those are just the ones I can remember. But they come and they go.
Held NICSX and NSEIX in the IRA for around ten years. Then I got nervous about Key Man Risk (a minor character in the Yp Man movies). Held NBGNX (another golden oldy) for about the same length of time. Sold for about the same reason.
Replaced the first two with PARMX and PRBLX. NBGNX was split into RWJ and BUFSX. Given the timing on those moves, it's going to take a while for things to shake out in my favor.
Zacks hasn't been my go-to place for the MPT data (alpha, beta, R), but I will explore it some more. There isn't much on the website on methodology or assumptions used.
I have used M*, PV, Stock Rover (SR) for MPT data.
But the usual cautions apply.
The MPT data are related to the benchmark(s) used and Zacks doesn't clearly identify those.
It is unclear whether Zacks uses monthly (e.g. for M*, PV) or daily (SR) return data - I assume monthly. BTW, the SDs at SR are much higher than those at PV or M* for this reason. The lesson there is never to mix the MPT stats from different sources.
Zacks "Similar Funds" show a handful of funds that I would hardly consider similar for several funds that I tried.
Zacks' categorization of funds is different too - so, it puts PRWCX in the LC-value or among capital-appreciation that typically are all-equity funds; most others put it in the moderate-allocation category. Of course, PRWCX has ranked as Zacks #1 in that group in these tough markets. It is a good fund, but Zacks #1 for it seems flawed.
I appreciate that free of cost I can pull up a stock on Zacks and get their quick read. Rarely does it influence my buy / sell decisions. But doesn’t hurt to look. Met a fella while traveling recently who swore by Boggleheads. I’ve never used them.
Comments
I think that his one of the reason's some/many invest with funds that are NOT index funds...thinking is that index fund results are based on group psychology to an extent and "it works until it doesn't"...
Hmm.
Unclear.
TSP isn't an IRA and it doesn't offer one. If TSP, did you signup for new brokerage window? Heard bad things about it - too expensive, etc. There is indeed TDF L2045; a unique aspect is that fixed-income portion included SV TSP G Fund and TSP TDFs are much more conservative that typical TDFs.
And yes one can quibble about the definition of active and passive as the S&P 500 actually has a committee of people selecting which stocks to include in it. But it’s worth noting that most employees in 401ks dollar cost averaging with their weekly paychecks into an indexed target date fund are not buying or just buying the S&P 500 in a bubble. They’re also buying foreign stocks and bonds in indexed form as well as small caps via a total market index. Moreover, because they’re buying at regular intervals every paycheck they are not merely buying a bubble, but buying both when the market rises and falls, at its peaks and troughs. So the end result smooths out their cost basis.
Sure there is a momentum tilt to market cap weighted indexes, but most active managers are afraid of deviating too much from the index and underperforming it dramatically when the market is rising. So they go down with the ship when the market falls. And their still much too high fees continue to kill their performance year after year. A handful of managers truly think differently, have low fees and the skills to be right when they think differently.
Personally, I try to stay as far away as I can from the major U.S. indexes - but do hold small bit an index fund based on a non-U.S. developed economy. Not saying I’m correct. Just my own perception of risk mitigation. I think Lewis is largely correct, as for younger workers looking decades ahead the relative valuation today of indexes is of much less consequence than for myself in my late 70s.
Some of us were not entranced by the ability to trade Fidelity Select funds seven times a day (hourly pricing) back then, and don't feel the need to trade ETFs tick by tick today. I make a change when I can no longer answer the questions: what do I expect from this fund and why is it part of my portfolio?
If I own a volatile fund, I expect it to go down more than the market. But I also look for it to more than make up that underperformance on the upswing. And I'll wait that out, unless there are specific reasons for me to doubt the fund or the management going forward.
Regarding VFORX, I generally agree that for many employees "one and done" is a great option. I would have loved to have had any sort of asset allocation option available when I started working and had no clue what I was doing.
If one is willing to pay double the expenses (0.11% ER vs VFORX's 0.06%), there's a fixed asset allocation fund that has done a little better. FFNOX correlates 100% with VFORX according to Portfolio Visualizer. I didn't believe that either, but that's what it says.
PV's performance analysis reports FFNOX having higher annualized returns, lower volatility, smaller max drawdown (based on monthly figures), better Sharpe ratio (to be expected given higher returns and lower volatility), even closer stock market correlation. Though its best year was inferior to VFORX's.
Of course all of these differences are rather small. This is simply an alternative for those who eschew Vanguard or don't like the idea of glidepaths.
We’ve discussed in the past that this approach works if one has socked away an amount of cash sufficient to outlast a multi-year bear market so they don’t need to pull money out of a deeply depressed equity portfolio. Folks have mentioned holding anywhere from 3 years worth all the way out to 5 or more years worth of cash. If I remember correctly, @msf is one who does that . Different strokes. I don’t hold a cash reserve (but do have a pension), so my inclination is more to limit big swings in investment portfolio. The “upside” would be that I’m 100% invested all the time.
BTW - The folks that hold a lot of reserve cash have done very well the last couple years. I never could have envisioned 2 or 3 years ago the kind of returns cash / cash-like investments have delivered the past couple years. To have anticipated that requires one with more intelligence and foresight than I possess. Wasn’t it only 2 years ago that Powell was describing inflation as “transient.”?
Definitely spite it up
Do tqqq Tna Tsla soxl soxs
Keep you at the chart bench from markwt open until end weekday if you have free time lol
1-3% of mine swing trades csp or cc (mostly csp)
Csp cc Delta 10 15 definitely worth a look
Hi sir - two separate accts
Tsp: all tsp fund divided evenly- s i c and tsp L2040 L2045 L2050, 10% G fund
Sep Ira: @ Vanguard have Vang 2040 2050 and also Iwm vo voo etc other vehicles mentioned (tsla snow lcid Pltr etc)
Thank you for the clarification
Did not pay attention if LFunds in tsp are more conservative than target date fund in Vang or fidelity etc... Thank you for pointing it out
Or stuck with warm Bavarian wheat beer day after day.
Maybe in education parlance - Accept the class for what it is, not what you would like it to be.
FWIW, I'm in Stillers' camp. My wife and I have owned FSELX for many years.
I realize that it's dangerous to own a single-industry fund, but I believe in this industry. Many years ago, my 403b had T Rowe Price Science and Technology fund as my largest holding. When I moved to Fidelity (and had to be in Fidelity funds), I chose FSELX.
We also chose FSELX for my wife's Roth IRA when they first became available.
I feel that science and technology, in the broad sense, will always be successful (at least in my lifetime) and I'm willing to withstand volatility. So, to some degree, success depends upon ones entry point.
I aso have some other managed funds, some index funds and a slug of dividend paying stocks.
David
1. Sogen International is still around but with a different name, First Eagle. This family of fund is excellent. Jean-Marie Eveillard retired and replaced by a team led by Matthew McLennan.
2. Mutual Series funds was sold to Franklin Templeton. Micheal Price passed away in 2022. They still do okay but nowhere as good as those days back in the 90's.
But why not fsptx given your trp previous choice? I believe in semiconductors too, same as biotech, but ....
From - Retraining Your Brain
Article quotes Buffet as saying you shouldn’t buy anything you wouldn’t be willing to own for 10 years. I think that gage is a good starting point. I don’t like following more than 20 different holdings, so that’s enough to motivate me to dampen down the trading.
The text is presented in a single, unbroken, stream of sentences, so I don't recommend reading. A few highlights:
"Although the managers we interviewed were divided on when a market downturn would come, almost all agreed that one is long overdue. When it does happen, many fear stock prices could sink 20% to 40%".
The dateline of the piece is Oct 12, 1987. Black Monday was exactly one week later, when the Dow dropped 22.6% in a single day. That was after selloffs Oct 14-16 that resulted in the Dow declining 4.6%.
https://www.federalreservehistory.org/essays/stock-market-crash-of-1987
Results:
1. VWNDX, then managed for 23 years by John Neff (age 56). Had a wide lead over #2 winner.
2. MUTHX, then managed by Max Heine and Michael Price (age 36). Money says that Price had been managing with Heine for 13 years, which would date back to his joining Heine Securities in 1975. Money also describes Price as the principal manager. But the 1995 prospectus for the fund says that Price had been managing the day-to-day operations for five years (i.e. starting around 1990).
" In contrast to our top two funds, both of which employ a primarily conservative (and contrarian) approach, eight of the top 10 ... are either aggressive growth or long-term growth funds."
3. NICSX - managed by founder
3. (tie) ACRNX - managed by founder, Ralph Wanger
5. SEQUX - managed by founder
6. PENNX
7. Evergreen Fund - managed by founder
This fund is hard to trace. Evergreen funds were owned by First Union Corp. (banking company), which merged into Wachovia in 2001, which was acquired by Wells Fargo in 2008. Somewhere along that line the Evergreen fund may have gotten renamed or merged into another Evergreen or Keystone fund.
Evergreen was so scandal-ridden (e.g. 2001-2003 trading abuses, 2008 ultra short bond mispricings), not to mention merely being owned by Wells Fargo, that it's no surprise one cannot find a trace of it now. I especially like the lead in the CBS piece on the ultrashort bond fund: "There's really only one word that can be used to describe people who engaged in the sorts of activities Evergreen is accused of: crooks."
8. FMAGX. "(up 1,795% to July 1 [for past 10 years], compared with 590% for Windsor). ... . One of the reasons for Magellan's downgrading is that the fund, like many growth seekers that remain fully invested in stocks at all times, is likely to stumble in declining markets."
VPMCX, only 3 years old at the time, came in at #12.
Perhaps a good summary of attitudes at the time is this part of the text:
So we're near the end of two pages of discussion on this topic and not ONE time has the term "alpha" been stated and no attempts have been made to assert its relevance/importance in this discussion. (Another reason why I generally find worthless the annual/interim discussions of the performance of all stock funds vs indexes.)
So then...
https://www.investopedia.com/terms/a/alpha.asp
Excerpt:
What Is Alpha?
Alpha (α) is a term used in investing to describe an investment strategy's ability to beat the market, or its "edge." Alpha is thus also often referred to as “excess return” or “abnormal rate of return,” which refers to the idea that markets are efficient, and so there is no way to systematically earn returns that exceed the broad market as a whole. Alpha is often used in conjunction with beta (the Greek letter β), which measures the broad market's overall volatility or risk, known as systematic market risk.
Alpha is used in finance as a measure of performance, indicating when a strategy, trader, or portfolio manager has managed to beat the market return over some period. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index or benchmark that is considered to represent the market’s movement as a whole.
The excess return of an investment relative to the return of a benchmark index is the investment’s alpha. Alpha may be positive or negative and is the result of active investing. Beta, on the other hand, can be earned through passive index investing.
Please temporarily couch your bias for/against Zack's. Just using a page of theirs below to illustrate the relevance/importance of it in this discussion, and in the scoping of funds that consistently outperform benchmarks.
https://www.zacks.com/stock/news/2079438/is-t-rowe-price-all-cap-opportunities-fund-prwax-a-strong-mutual-fund-pick-right-now?cid=CS-YAHOO-FT-mutual_fund_equity_report-2079438
Excerpt:
Risk Factors
With a 5-year beta of 1, the fund is likely to be as volatile as the market average. Another factor to consider is alpha, as it reflects a portfolio's performance on a risk-adjusted basis relative to a benchmark-in this case, the S&P 500. Over the past 5 years, the fund has a positive alpha of 2.72. This means that managers in this portfolio are skilled in picking securities that generate better-than-benchmark returns.
https://fundresearch.fidelity.com/fund-screener/results/compare/overview/averageAnnualReturnsYear3/desc/1?order=&tickers=PRWAX,FXAIX
FWIW, PRWAX beats the S&P for ALL SIX YTD-to-Life interim periods. We are current and LT holders of PRWAX (drumroll) because of its alpha and those results.
Bottom Line: Use the incessant annual/interim articles to help you identify which PMs/funds are the ones that consistently outperform their benchmarks. Avoid concentrating on the headline news that, um, duh, most of them don't.
I would add that the referenced PRWAX has also not consistently beaten its benchmark even in calendar years, let alone rolling ones. Morningstar benchmarks it against a Large Growth index and T. Rowe benchmarks it against the Russell 3000. In both cases, there are lagging years:
https://troweprice.com/financial-intermediary/us/en/investments/mutual-funds/us-products/all-cap-opportunities-fund.html In fact, the fund has lagged its T. Rowe-chosen Russell 3000 benchmark in both 2022 and 2021 as well as 2016 and 2014--lumpy but strong overall performance.
Fun Trivia question: What fund manager holds the record for beating the S&P 500 the most consecutive calendar years in a row? The old-timers here should know. The answer in a way explains why you can't really put much faith in most active managers long-term.
Finally, I would note that the best use of a consistent alpha metric--as opposed to an intermittent alpha one--might be for identifying fraud. There is probably something fishy going on with a fund that beats its benchmark every single year. I bet Madoff had some really high alpha.
I’ve found the thread to be far from worthless. I’ll side with @dstone42 who seemed to find much merit. Off-script? Perhaps. But that’s how discussions often run. No. I don’t do alpha. Found it in the past to be of little value to how I invest personally. But, yes, it is one metric some might find valuable.
If you have a widely disperse portfolio with several different sleeves, each representing different types of investments and risk characteristics and if you periodically rebalance those back to neutral so that the more volatile components are kept in check you may not need to measure the alpha of every holding.
Replaced the first two with PARMX and PRBLX. NBGNX was split into RWJ and BUFSX. Given the timing on those moves, it's going to take a while for things to shake out in my favor.
I have used M*, PV, Stock Rover (SR) for MPT data.
But the usual cautions apply.
The MPT data are related to the benchmark(s) used and Zacks doesn't clearly identify those.
It is unclear whether Zacks uses monthly (e.g. for M*, PV) or daily (SR) return data - I assume monthly. BTW, the SDs at SR are much higher than those at PV or M* for this reason. The lesson there is never to mix the MPT stats from different sources.
Zacks "Similar Funds" show a handful of funds that I would hardly consider similar for several funds that I tried.
Zacks' categorization of funds is different too - so, it puts PRWCX in the LC-value or among capital-appreciation that typically are all-equity funds; most others put it in the moderate-allocation category. Of course, PRWCX has ranked as Zacks #1 in that group in these tough markets. It is a good fund, but Zacks #1 for it seems flawed.
https://www.zacks.com/
What happened after that streak ended is more important as a lesson I think about active management than the streak itself. Admittedly, LMOPX is a somewhat different fund than the original, but the original suffered too afterwards: https://reuters.com/article/us-legg-mason-miller/legg-masons-bill-miller-leaves-firm-amid-faded-glory-idUSKCN10M1DV Will such a streak happen again? Possibly. It could also end just as badly.