FUNDS. Many STAR MANAGERS who leave for other firms, or form their own firms, don’t succeed as well (JUCAX with Bill Gross was a classic disaster). The reason may be the vast analyst, research and data support systems that they relied on at their old firms. Almost 42% of these managers didn’t even last 5 years at their new firms; the startup costs at their own firms may be high. Many firms now use multi-manager team model that reduces the impact of anyone leaving. Notable exceptions/successes include GQGPX with Rajiv Jain (and Jefferey Gundlach who succeeded with DoubleLine against all odds; notably, Howard Marks underwrote most of the initial setup costs). (By
@lewisbraham at MFO)
Many fund companies (BLK, IVZ, WT, Fidelity, etc) are flooding the SEC with new SPOT-CRYPTO ETFs and daring it to reject them all – while there are noises in the DC about GENSLER’s/SEC approach, and in a recent ongoing court case SEC vs XRP/Ripple, the judge wasn’t very sympathetic to the SEC arguments or its general approach to securities regulations. BlackRock’s/BLK spot-crypto approach is novel in that it will use Coinbase/COIN trading platform, but the Nasdaq/NDAQ exchange will provide assistance for detecting fraud, manipulation, etc. BlackRock has had 576 ETFs approved with only 1 rejection, so, will its spot-crypto ETFs be its 2nd rejection, or does it know something that others don’t? Anyway, several other filers have also adjusted their spot-crypto ETF filings in a way similar to BlackRock. On another front, Fidelity, Schwab, etc are developing an alternate crypto exchange that is modelled after traditional US exchanges. (One thought is that the SEC suddenly throws in the towel by saying that this crypto stuff has now sufficiently matured, or Gensler is just dumped).
An insightful Q&A:
Louis-Vincent GAVE, Gavekal Research. There are huge GEOPOLITICAL shifts going on in Europe, Asia, Middle East. It’s astounding that the peace deal between SAUDI ARABIA and IRAN has been brokered by CHINA (!) – this is like the peace between France and Germany after WWII, and possibly, a future peace between China and India. For China, an immense benefit will be a land pipeline from Saudi Arabia to Iran to ? to China. The possibility of a US/Western oil shipment embargo for China during any conflict with the US has spooked China. Then, there is this new DOLLAR DIPLOMACY that is causing gradual but steady shift away from dollar-trading and dollar-reserves into local/regional currencies. The dollar index (based on a fixed currency basket) is outdated – many already use trade-weighted dollar. The EMs ex-China are actually booming now, but the EM indexes are held back by the heavy weight from lagging China. Forget AI and Nasdaq, the markets in Argentina, Brazil, India, Indonesia, Mexico have outperformed. It still isn’t too late to participate as the EMs are under-owned and most US investors have sworn off the non-US markets. Nothing against AI, but AI will also be huge in EMs, and people would find better/cheaper alternatives to overpriced MSFT, NVDA, etc.
JAPAN is finally changing – it has inflation and rising rates and there will be a massive shift from bonds to equities. But it will be very volatile near-term (it is said that Japan is the most cyclical among the global markets). CHINA has lagged because it didn’t have huge stimuluses during the pandemic and its Covid problems are hardly over. But that is changing. Soon, the world may wake up to the day when Chinese global auto exports will exceed those by Japan. President Xi Jinping has to realize that China’s future lies in the tech sector and everything else will be secondary (economic growth, domestic consumption, etc) (with his power assured, he may flip on policy easily). Many Chinese stocks have sold off sharply, are under-owned, but have huge future potential.
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Comments
Investors who chase star managers often don't properly
consider conditions which corresponded with success.
I'm guilty of doing this myself years ago...
"All of which illustrates a larger point: Fund managers don’t drive performance by themselves.
In its conclusion, the study points to other factors in departing managers’ future success,
including the investment culture of the new firm, its analytical resources, and fees —
despite the authors’ before-fee focus."
They are primarily a research firm. although they have UCTIS funds with a 3% management fee!
A reasonable way is to invest in top-performing categories/funds, just as stock traders find top-performing categories and then look for stocks in that category.
From my experience after watching and researching funds for decades, most times, managers that outperformed, it's because their style fit markets in that period...or...they found a niche that worked well.
These types of markets can last for years:
2000-2010: the SP500 lost money; value, SC and international did much better(FAIRX,SGIIX)
2010-2021: US LC growth did better than most (QQQ)
PIMIX took advantage of the broken MBS of 2008 and had several years of better performance than stocks + better performance than many bond funds for more years + better SD = better Sharpe ratio.
Basically, invest in the market you have, not the market you wished you have.
BTW, the above does not mean fast trading and/or trading 100% of your portfolio.
@Sven- Exactly.
Add- BTW, Just for the heck of it I bought 100 of the AF ETF CGGO a couple of months ago. So far, so good... ahead $115. I sent $100 of that to MFO a little while ago, so I'm still ahead $15.
Addition: excerpt from Lewis Branham’s article, For retirement account, the ER of the R6 shares (without the 12-b-1 fee) are reasonable. Now these actively managed ETFs are also competitive on their fees to other firms as WisdomTree.
My guess is - it’s pretty much a toss-up in terms of quality offerings between private and publicly owned firms, but don’t really know. In the back of my head is always the thought some “activist” investor (or group headed by one) could take control of - say TRP - and gut it for quick profits while leaving it unprepared for sustained future success.
At one time, Bogle worried that some other firm like American Funds could go noload before he had the chance to implement his big new idea after being fired from Wellington Management (a load shop until then) - index and active funds that were and low-cost and noload. It seems that American Funds instead went in the direction of zillion classes - its Retirement R6 classes have the lowest ERs, and it now also sells F-1 classes on 3rd party brokers as noload/NTF (Fido, Schwab). It has also gotten into the ETFs that are farthest from load funds. Do its fund brokers and load fund holders like this? NO, but American Funds sees that as a declining pool of fools who unknowing pay a lot for the same stuff that is available for free in various channels.
I had American Funds R6 in my 403b until the plan changed to mostly index funds and TDFs - another disturbing trend.
My 403(b) is entirely in the R-6 WaMu fund and I've been very pleased, plus a bunch of R-6s in a growth-oriented SMA. (I also hold several other AF A-shares in taxable and while I don't like 12(b)-1s, when they were purchased I didn't really think about that ... but they're more than doing fine, so I leave them alone.)
We knew nothing about funds then, but fortunately we had a very good AF advisor who helped us understand the ins and outs, and what the whole thing was all about. Part of that 5% paid his salary, and I have to concede that he was a big factor in our present financial well-being in retirement.
When your knowledge is above average, you don't need a FA.
I never invested with AF funds. Suppose I start with 1 million using an American financial adviser.
1) The FA invested in 3 AF funds. Do I pay 5% = $50K?
2) After 3 years, international stocks look great and I want to invest 0.5 million in it. I sell 0.5 million from the funds I own and buy the new fund. Do I pay a new 5% for the new fund?
3) Can you invest in other fund families? Do you pay any commission to buy Vanguard/Fidelity funds?
Here's an example: https://schwab.com/research/mutual-funds/quotes/summary/gfafx
American Funds never charged any load when selling and reinvesting in a different fund. You would have us believe that you know everything about everything, but your world view is so self-centered that all that you accomplish is pomposity and arrogance. Hubris... how pathetic.
But I'm pretty sure that many others have already commented on that.
In my opinion, no one should ever pay 5%, and most should not pay even 1% annually when Vanguard's annual fee is 0.35% for its all-index investment options and 0.40% for an active/index mix. A good adviser can and should have a clear plan that lasts for years, and only make changes in major events, and why most who need advice should do it every several years or in major events.
Our workplace plan (1970s) had but 1 option if you wanted to invest in equities, It was through Templeton funds. The A shares’ normal front load was 7%. But, as a group, we got a discount down to 4.7% - and we were happy just to be able to invest with a very good fund house for the day. Total ER including the 12B-1 fee was a bit over 1% on an international fund.
I suppose I could go “all-index” today and construct a portfolio with under a .50% average ER if I wanted to do all the work - including the ever ongoing research. But. I don’t. So, I’m “dumb and happy” paying somewhere around 1% in return for some fine managed approaches. Not everybody wants to shoulder all the investment decision making.
FD said, ”In my opinion, no one should ever pay 5% …” -
A bit unclear to me to what that’s referencing. It’s perhaps a reference to the front loads some of us paid decades ago when it was common. Interesting question whether anyone today would pay such a high load. Never say never. So, possibly I would if the investment were attractive enough. But, yes, by today’s standards 5% is very high.
Generally speaking, with very few exceptions, my desired target is .60 or better on active management fees for mutual funds and with no 12(b)-1 fees thrown in. How some funds (including AF classes, like 529-series and some R-shares ) can still charge 1.X or more per year blows the mind, though I realize that by paying more, those people are allowing me to invest in a 'cheaper' or 'much cheaper' share class.
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Backend load class B has disappeared. Brokers found those easy to pitch to customers but there were complaints, including about improper disclosures, when it came time to sell (the selling broker may be gone from the firm by them but the firms are stuck with liability). Brokerage firms hate liabilities and arbitrations. So, class B has almost disappeared.
The WORST class by far is class C, the steady or spread load. Firms recover the front load within 5-7 years but high class C loads continue forever. There was some talk to auto-converting class C into class A after 5-7 years, but that rule/law got stuck somewhere. Some firms allow frequent trading in these, so some fund traders say that this isn't a bad class for them. But it's a bad class for most.
The best may be the newest no-load, no-ER class W, but the catch is that it's available only through advisors. Some ER may be shown but all of it is waived for retail buyer. However, the firms get a cut from the advisory fees - some firms make W class available only through its affiliated advisors.