Since it's been a couple of years since I last checked my 4 Portfolios, I'm re-reviewing all of my investments. I used to follow M* recommendations for proportion of Value vs Growth balance, and it did appear then and in the past that Value companies DID eventually come back in favor during tougher times to help mitigate the usually much larger Growth fund losses. After all, "shares of a company with solid fundamentals that are priced below those of its peers, based on analysis of price/earnings ratio, yield, and other factors." (they put it better than I tried to)
But, in checking "VALUE" Mutual Funds and ETFs, ALMOST ALL of them have had greater losses than MANY of the Growth funds DURING the DOWN TIMES, along with the expected LOWER GAINS during the good times. This is not just for the period YTD, but over the last several years.
In looking at many of the actual stocks/companies that are considered "VALUE", so many just seem "Old School" to me, and ones that have not - and will likely not in the future - keep up with what is, and has clearly been for a couple of years, the overall market demands. (And, besides, so many of them I am philosophically opposed to).
The same seems to be true of almost all BOND funds. We've been at these incredibly low interest rates for a long time, so bond funds have been a good counter-investment, with enough minimal gains and certainly far less losses. Even though the government (and others) have clearly stated that there will be regular 3-4 annual increases, I'm thinking it could be at least another year or two. But, at any rate, most BOND FUNDS have not been doing well enough to end up with much more than CDs.
So I would really like to hear your opinions. I am considering keeping so-called "VALUE" and BOND funds to a MINIMUM, and keeping my LARGE % of CASH as my alternative option to those. The cash would then be used to ADD to my existing GROWTH funds WHEN THEIR MARKET WAS DOWN over 10% (assuming those funds were still logical to keep).
Comments
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Early in the day here and not fully up to coffee level; so I hope this makes some sense. You have probably already seen and figured out about the notification.
As to value and growth; I've never been a "pure" value fan. In theory, in my head; is that a value stock or fund should be/have a "buy low and sell high potential". But, I always have to ask, why is the stock or fund considered value in the first place. Is the area merely out of favor for period or is the stock or fund in a never-ending cycle for a good reason.
A worse-case example would be the early days of General Motors. The Dort Carriage Company (owned by some of the same folks who founded GM) was fast becoming a "value" company with the birth of the engine powered "carriage". But, surely there were folks who thought that the auto was not about to replace the horse drawn carriage. The carriage company, in a few years, became a ultimate value company; to the point of disappearing, while GM was the growth investment, yes?
There remains for any number of reasons, as to why the growth sector goes through cycles where the companies are out of favor/oversold and do become a "form" of value, but within the growth area. This is where my brain attempts to process the "buy low/hold/sell high" conditions. Value for the sake of value just doesn't do "it" for our house.
---A more recent example of two, long term wonderful growth funds are: FDGRX and FCNTX . I don't recall all events of the period, but these 2 funds, as well as large growth in general were in a funk from April, 2015 through Nov., 2016 (election). Those who purchased this area during this early time period likely scratched their heads about performance for this period. This is my best thought/view of "value"; but value within a growth area. This is where I attempt to find and understand what is going on.....but, with more profit potential versus a long term holding of a stock or fund that has been "value" directed for too long and "their/that" ship never comes in..........
Some investments have their day(s) in the sun and behind the clouds.....market cycles???
Sample: Vanguard value vs growth etf's
http://stockcharts.com/freecharts/perf.php?VTV,VUG&p=6&O=011000
---Bonds: Up until about 1 year ago we could and have run for shelter to investment grade bonds when the equity sector became twitchy......not the case today; except for the traders. At least, not to the case to make some money in this area during a down move in equity. The great bond run for excess profits, at least today/right now is flat, IMHO.
Does this make sense and/or readable to understand???
Okay, I have an early appointment today and must become presentable; and still need more coffee.
I'll do a @Old_Joe here and he should be directed to this thread, via a notification, to discover whether I've said anything nasty about him, as he will see my MFO name attached to the email he will receive......of which, I can't think of anything nasty to write about him.
Take care,
Catch
What is your value to growth stock ratio?
Currently, mine is 40% value 60% growth for my stock only mutual funds. In addition, my value stock funds have performed much better than my two cash sleeves which hold several types of cash items. They are US Currency (demand cash held within portfolios), (investment cash) a money market mutual fund (AMAXX), a bank savings account and my CD ladder. My savings account held at my bank is paying very little. Currently, I'm getting about 0.6% on my demand cash (brokerage account) and about 1.5% (7 day yield) on my money market fund and about 2.5% for recently purchased CD's. My domestic value stock funds are paying a combined TTM dividend of about 2.75% with a rolling 12 mo total return of about 7.5%. My global stock value funds are paying a combined dividend of about 2.25% with a rolling 12 month total return of 15.0%. My domestic growth funds combined are paying a yield of about 0.2% with a rolling 12 month total return of about 21.0% while my global growth funds have a yield of about 0.3% with a rolling 12 month total return of 17.6%. For my bond funds held within my income sleeve the combined TTM yield is 3.8% with a twelve month rolling total return of 4.1%. However, I did sell off my short term and limited term bond funds a couple months ago as their total return was back of what I could purchase new 12 month CD's with a yield of about 2.5%. I'm thinking the rolling 12 month return on the bond funds sold was about 2.2%. Since, their average yields (3.4%) were higher than their average total return (2.2%) there was an erosion of principal (1.2%). So, I sold them.
With this, I'm finding my value funds, my growth funds along with my bond funds are out performing all forms of cash held. I'm thinking this would also apply to my three hybrid fund sleeves, as well, plus a few other sleeves that I maintain within my portfolio. All of my investment sleeves seem to be out performing my two cash management sleeves year-to-date, for a rolling 12 month period and further on out.
I'm glad to see you have returned as you have brought with you some recent post that require good analysis towards portfolio management. At least this is the case for me.
Wishing you the very best as you ramp back up your investment endeavors.
Old_Skeet
I always enjoy your comments (and sense of humor) - and appreciate your taking the time to write them.
Your analogy of the carriage is exactly my point about so many of the "Value" funds today. Either that, or the company/stock has fallen out of favor for an extended time by investors for whatever reason.... or hedge funds shorting the stock for reasons of their own.
A big help for me when a MF I've liked for a long time has had an extended bad period is to look at the ratio of stock categories (tech, financial, health, etc) to see if the categ itself has been out of favor (like health, long-term care, solar, etc.) and also to look at the company names of their top 15 holdings. If it doesn't show they reduced their % allocation to the losing companies that, in my opinion, are not going to get any better, I remove that fund from consideration.
Thanks so much for taking the time to respond. The extra information really helps.
Using M* analysis figures, my transitioning portfolio is 22% Large Cap Value, 51% Large cap growth, 9.46% mid/small value and 18% mid/small growth - with 20% Cash. I'll be adding 10% more to cash and reducing my bond percentage from 23% to 15% or so. Not that far apart from yours.
I like the idea of your Global stock value funds. Would you mind letting me know a couple of your favorites? I've MINIMALLY recently invested in FEDDX, HJPSX and RISAX, but would like to increase my Foreign from 6% to 10% - as long as the volatility is not awful.
I recently also tried my first CEFs. PDI and EFT. Both have returns seem TGTBT, and 9% Yield PDI seems a little frightening, but very small amounts in both until I see how they go. I sold my long-term CALIF muni-fund and reduced CMF by half. I've kept THOPX.
I would be concerned about putting too much in a cash MF like AMAXX due to the illiquidity when I need to re-invest some of the cash, especially with such low returns. It did bother me to have the higher cash % just sit there doing nothing, but the end result was it did reduce the losses of the entire Portfolios substantially so I lose only 60% of the overall market. Yet, because of the higher growth %, my gains have been more than acceptable to me. We also have 70% cd's in Credit Union (2.2% or better for each) to our 30% investment accounts (not including the Trust fund income).
In my global equity sleeve found in the growth & income area the funds held are American Funds, Capital World Growth & Income (CWGIX), Eaton Vance Tax-Managed Global Dividend Income Fund A (EADIX) and Dreyfus Global Equity Income Fund A (DEQAX).
In my global growth sleeve found in the growth area the funds held are American Funds New Perspective Fund A (ANWPX), American Funds Small Cap World Fund A (SMCWX) and Thornburg Global Opportunities Fund A (THOAX).
My emerging markets fund, American Funds New World A (NEWFX) is held in my specialty sleeve which is found in the growth area of the portfolio. In addition, this sleeve also holds my ALPS Global Private Equity Fund A (LPEFX) and my Virtus Global Infrastructure Fund (PGUAX).
These three sleeves would be where my global all equity funds are held. I have another sleeve that holds my global hybrid funds. The funds held within this sleeve are American Funds Capital Income Builder A (CAIBX), Pioneer Multi Asset Income A (PMAIX) and Thornburg Income Builder A (TIBAX).
Hope this helps.
Old_Skeet
Thanks for the information, David! I had not known of these two.
At first glance at DSENX, when I saw SWAPs, Shorts, etc. as their top investments, that deterred me. I've been trying NOT to learn about those (or Options, etc.) as more time in my life is already spent glued to the computer than I want. BUT, Doubleline is certainly reputable so I checked further. AND I only had one investment in that Large Value M* category I keep track of that also was not in the red YTD (LRGF). Both also good longer returns, but LRGF lost less during down periods, while gaining more during better periods. On the other hand, DSENX 'Worst 3 Months' (-6.48% Aug to Oct 2015) and 'Best 3 months' (+10.33% Jan-Mar 2018) were EXACTLY the right comparison amounts I was looking for my "minimal gains but good enough and safer category" - and very similar to LRGF. So I'll add DSENX to my 'Watch' list and then check DLEUX. Thanks again for taking the time. Cathy
Thanks Old Skeet - that was so nice of you to take all that time to give me some suggestions to look at. I was fascinated because NONE of them were in my Watch list of 172 Global/Int'l equities. So I checked the first 4, and found them all to be load funds. I understand why MF managers would want to charge upfront load to dis-incentivize (?word) buyers from selling out at the first downturn. But I have found I can usually find as good or better returns funds without loads. Also, a few of those on your list are closed to new investors. In my recent rechecks of all my investments (and screens for comparable or better ones), I've frequently found the best ones are either N/A in TDA or Closed.
I do like the 3 categories you chose - generally global rather than country specific. But I've always been fascinated with Matthews funds specific to Asia/China, etc. but I'm just too worried about whole political situation to look further.
I did buy BCSVX (Foreign Small/Mid Growth), FEDDX (diversified emerging markets), HJPSX (Small Blend Japan). So, unless the political climate changes, or one of my watch list consistently outperforms during good and bad times, I'll probably leave my minimal investments in those alone without buying anything new in that category.
Cathy
Yes, many of my A share funds currently owned came to me by way of transfers. And, because even though a commission was paid (sales load) they carry some benefits over fee based account investing. Today, most fee based accounts (new school way) charge at least a 1% fee on balances held within these fee based wraper accounts plus the investor pays fees on the mutual funds themselves. That's fees on top of fees.
Under the old school way an investor paid a commission and generally the fees associated with with load funds were less than those of no load funds. Plus, A share investors are free to do nav exchanges with the same family of funds with no additional commissions paid. In addition, my fees paid on my sales load funds seem to be back of no load fund fees. Overall, Morningstar estimates my fees at 0.87% on invested mutual fund assets. In looking at some no load funds their fees seem to be much higher 1.2% and on upwards ... and, then add the account wrap fee. Again, fees on top of fees. I have no fees associated with the accounts that hold my A share mutual funds.
Since, someone in my family at one time did pay a sales load these funds seem to me to still be my low cost avenue. In addition, I'd have large cap gains to pay if I sold out of them.
So, what might be the best investment path for me might not be for you.
Best regards,
Old_Skeet
Thanks for your time,
Derf
Thanks for the question.
The transfers came several ways. Those by gift retained the donor's cost basis. Those that came by inheritance received cost basis step ups. Since they were retitled, to me, years back they have appreciated in value. Thus sizeable capital gains have been built through my years of ownership.
With this, I now sell some fund shares annually and harvest some of these capital gains. Kind of a self built annuity (of sorts).
Old_Skeet
Thanks again,
Derf
Not an accountant or tax specialist. Below is a short blurb on my experience.
My broker handled all the transfers along with doing the cost basis step ups for inherited shares. I did receive cost basis step ups on my mutual funds that came, to me, through inheritance but not through gifts. In addition, I got step ups on real estate inheritance retitlements as well.
Retitlement, in simple words, is the process involved in changing ownership.
For inherited mutual fund shares in regular taxable accounts, the tax basis gets stepped up to whatever their value was on the date of death. That's true for all fund shares, regardless of when they were bought, or whether they were obtained through outright purchase, or from reinvestment of fund distributions.
https://www.fool.com/knowledge-center/taxes-on-inherited-mutual-funds.aspx
@davor
Thanks for your replys. It appears I need to see tax accountant. I was about ready to trash account info from wife who passed a number of years back. I've kept accounts separated so this should help.
Thanks again,
Derf
You noted above in this thread:
"Today, most fee based accounts (new school way) charge at least a 1% fee on balances held within these fee based wraper accounts plus the investor pays fees on the mutual funds themselves. That's fees on top of fees."
I know some folks who use advisers; some small independent advisers as well as the larger companies with whom some smaller advisers have become a part of over the years.
In either case, 1% is an average fee; being "adviser fee" for the small, independent organizations and the name "wrapper fee" for the large organizations.
As you note "wrapper fees"; I will presume some of your investments are inside of a large, adviser organization.
***A few questions:
---Based upon your writings, I presume you manage your own investment choices.
With this in mind (if accurate), what is your advantage to maintain an account that charges 1% for doing none of the work?
--- 2. Regarding your investment firm connection and that your investments are likely stuck with this firm. Is one able to negotiate the "wrap fee"? If they are not really providing an adviser service, why give away 1% of your hard earned monies?
Thank you.
Catch
Sorry to learn of the loss of your wife. I offer my condolences. Perhaps, there will at least be of a half step up for you under joint titlement. And, perhaps even a full step under certain circumstances. I'm thinking seeking a tax specialist opinion along with that of your accountant is wise. Be prepared to show the source of funds came from your wife's non marriable assets to get the full step.
Good luck. And, I am sorry to learn of the loss of your wife.
Old_Skeet
A dated article (2009), but I believe the step up basis concepts are still valid...always verify.
patellawoffices.com/blog/general-estate-planning-and-probate/navigating-the-step-up-tax-basis-rule/
I have no wrap fee based accounts.
All of my brokerage accounts are of the old school type. However, the firm that I am currently invested with does offer an advisor fee managed account platform. After hearing their presentation I chose not to invested in it. After my study and research the old school account type, for me, was the less expensive. So, I passed on the fee based managed money platform as it was presented. Later, the borker did call and advise he had received authority to discount the fee. Again, asked if I might be interested. I, again, passed.
I'm finding that the average investment advisors of today are more of a sales person who's task it is to gather assets for the firm's managed account fee program(s). They are not the old school knowledgeable advisor. Recently, I asked one of these new school advisors that knocked on my door a few questions to qualify them to continue our conversation. These were simple questions most knowledgeable investors and advisors would have known the answers to. One of these questions was what is the TTM P/E Ratio for the 500 Index? Their answer given was for the forward estimated P/E Ratio. After, showing him through my smart phone linking into Asvisor Perspectives I showed him what the TTM was. And, also linking to the WSJ I again showed this young man what both the TTM Ratio and F/E Ratio was. Since, he failed to answer correctly, I asked him to move along.
I'm thinking I'd go the Index route to investing before I'd start paying managed account wrap fees with new money put to work. I'll continue to pay the commission if I can't do a nav transfer or simply park the money in cash as I've got plenty of capital at work in the markets as it is.
Investing for me is entertaining and one of the ways I use to pass time now that I am in retirement. And, from time-to-time, I'll contract to work an assignement.
Thanks.
Catch
If you put $100k or more into it, the one you want is DSEEX.
There is quite a bit of explanatory posting on it here, if you poke around.
If only the euro version was having any success.
Regards,
Ted
iShares S&P 500 Growth: (IVW)
YTD. 2.37
1yr. 21.57
3yr 12.27
5yr. 14.98
10yr. 11.04
15yr. 10.20
iShares S&P Value: (IVE)
YTD. -(3.02)
1yr. 10.08
3yr. 7.98
5yr. 10.57
10yr. 7.35
15yr. 9.20
10yr. Treasury:
2003: 0.39
2004: 4.49
2005: 2.87
2006: 1.96
2007: 10.21
2008: 20.10
2009: -(11.12)
2010: 8.46
2011: 16.04
2012: 2.97
2013: -(.90)
2014: 10.95
2015: 1.28
2016: .69
2017: 2.80
If you do that, be sure to include RPG and RPV (can't start 15y ago), to assess how 'large-capness' is key.
Growth has really taken off the last couple years.
For the last 5.5y it was interesting (for me) to see how CAPE differs from LCV, when it does.
And FWIW, I use the CAPE fund, DSENX, as my large cap value play. GTLOX on the growthier side of large cap.
That was very interesting. I did not know some of that information about load funds, and your average expense ratio is, as you said, nicely below the average. I do hope I did not offend you or imply that no one should invest in load mutual funds. This is just my personal preference, mainly because there are so many thousands of mutual funds still out there that it was the easiest for me to eliminate checking those types and at least narrow my watch lists down a little.
Thanks for the follow-up, David. The only fund I invested over $100,000 in has been VTMFX. That was several years ago and performed as I expected since then by cutting my entire portfolio losses significantly during bad times, but still giving enough better returns than CDs during the good times. But now, I'm reducing even that fund significantly as I don't want to keep that high overall percentage of bond funds.
Thanks for the stats, Ted. One of my current "re-evaluations" is how my existing investments will perform once tax rates start increasing. I looked to find out which periods since 2000 had higher rates, then used M* charts to compare my investments performance during the worst rate increase period times. Also checking the dates of the "Worst 3 month" period helped a lot if the investments were related to the bond prices.
P.S. I don't understand why there is so much panic over a measly possible 2% (or even 3%-4%) 10 year rate. Am I missing something? We were excited when we refinanced our mortgage down to below 7% a few decades ago before we paid it off, and my husband said he paid way more than that for his home even longer ago.
Thanks, Mike. I HAD noticed ONE fund I was looking at that M* said had a load, but TDA did NOT show any load fee. I had not thought that this waiving may apply to a lot more funds. I wonder if M*'s "TAX COMPARE" page shows AFTER TAX stats WITH LOADS or WITHOUT. They do include Expenses in their After Tax sections, so it will be interesting to re-check some funds IF M* DOES include the reduction for loads.
My great grandfather was an investor, my grand parents were inestors, my parents were investors, I'm an investor and so is my son. With this most of the commissions paid were many, many years ago and over time many of these mutual fund investments migtrated from one generation to another through transfers.
While some bark about sales loads they are missing an important message. Start early in investing putting a few dollars back while you'r young and continue to do this letting the power of compounding work. I'm totally surprised as to what my portfolio has become.
I have no regrets that I started investing though commission based funds; and, even today, for me, they are still my low cost option over broker accounts that charge wrap fees, etc. And, I understand why they want me to convert as they will make more. I ask them (from time-to-time) when the subject comes up ... What was so wrong with the Old_ School Way? Today, brokers are young folks and their assignment is to gather money putting it into fee based programs. They can't build and construct a portfolio as the old_school brokers could. They simply do a risk assement and then place you into one of their firms investment programs that fit your risk assement.
Old_Skeet is staying old_school.
Wishing you the very best with your investing endeavors.
Old_Skeet