on the failure of focus

Comments

• WABAC

  July 10

  I know a website where you can search for funds by their partial name, like select, or focus.
• davidrmoran

  July 10

  Interesting. If it was not a matter of choosing / strategy, and was in other words more random, you might expect that fewer (notionally 'best of the best') would invariably be better.
  Same as when you compare TR for XLG, VOO, and VONE 10-5-3-1y. Diworsification and all that.
• Devo

  July 10

  @david_snowball I have tried to figure out how to capture concentration risk better for portfolios. I have not succeeded given the tools at hand. I am convinced however that most investors have few good ideas. All the money comes from those ideas and everything else is a go along waste of time. I would rather have managers focus than not focus. If they can't make money, then get out. But going with the non-focused is a waste of fees and money. It also doesnt taste a manager's level of conviction or investing skills. No person can have 75 good ideas for stocks and holding 1-1.5% per position is just blah.
• msf

  July 10

  Am I missing fund pairs or an insight?
  
  Probably too new to provide meaningful performance insight are the three Vanguard Advice Select funds.
  
  Vanguard 2021 launch announcement
  
  In particular, Vanguard Advice Select Dividend Growth (VADGX) is described as "A more concentrated version of the strategy used in Vanguard Dividend Growth Fund."
  
  VADGX / VDIGX - Select wins over lifetime (since 11/9/2021)
  
  Another of the funds, Vanguard Advice Select International Growth (VAIGX) is described as using "as a more concentrated version of the strategy used in Vanguard International Growth Fund" (VWIGX). However, since management of the latter is split between Baillie Gifford and Schroeder, this isn't a good pairing for comparison.
  
  But a comparison with Baillie Gifford International Growth (BGESX) may be apt, especially since the two BG managers of VWIGX are the two longest managers at BGESX. Though BGESX is concentrated (56 equity holdings, per M*), VAIGX is doubly focused, holding only 28 equity securities.
  
  VAIGX / BGESX - Select wins over lifetime (since 11/9/2021), losing "only" 10.03%/year vs. an annualized 11.49% loss for the BG fund. Though the latter held the lead until February of this year.
  
  IMHO what this really shows for Vanguard conspiracy theorists (I count myself among them) is that Vanguard is pushing investors either out or into managed accounts. These select funds are available only in managed accounts.
  
  
  
• MikeM

  July 10 edited July 10

  Not apples to apples, but a comparison where the manager uses an alternative strategy using specific stock picks compared to the same strategy using representative index ETFs would be Leuthold Core Investment, LCORX versus LCR. I would assume LCORX is picking their best stock picks represented in the LCR indexes.
  
  Amazing to me, but using PerfCharts, it shows starting at LCR's inception, Jan 2020, to today, a bit over 4 1/2 years, LCR and LCORX both have the exact accumulated return, 39.6%. The trend lines don't lay exactly on top of each other, but close, and they end up with the same return.
  
  I don't know what to make of this other than management's preferred stock picks (LCORX) don't return any more or any less than a comparative index (LCR). The gain or loss is in the management process.
• BaluBalu

  July 10 edited July 10

  +1 @Devo.
  
  I would add that if you are a bottom up only investor / fund, focus can hurt biggly. High conviction with no flexibility can be dangerous. Having an eye on macro / momentum, in addition to focused, bottom up approach, allows one to navigate better. Some of you know examples of funds that practice focused approach with multi year losses.
• Mark

  July 10

  Wondering quietly, isn't a focused fund comprised of an existing fund by definition a different strategy?
• yogibearbull

  July 10 edited July 10

  I compared SP50/XLG, SP100/OEF, SP500/IVV. All 3 had comparable SDs, but,
  
  performance-wise, XLG < OEF < IVV.
  
  I didn't expect that despite their ERs of 20 bps, 20bps, 3 bps, respectively.
  TestFol XLG OEF IVV MAX
  
  Edit/Add. Performance for other timeframes,
  3 Years IVV < OEF < XLG
  5 Years IVV < OEF < XLG
  10 Years IVV < XLG < OEF
• davidrmoran

  July 10

  >> 10 Years IVV < XLG < OEF
  
  ??
  
  Not when I graph TR $10k growth at Fidelity; rather, what you'd expect:
  
  XLG $39,782; OEF $36,332; IVV $33,403
• yogibearbull

  July 10 edited July 11

  @davidrmoran, I tried PV for 10 years, and the results were closer to your results. I double-checked TestFol and its numbers are the same as before.
  
  It looks that TestFol has some error in the data for XLG and its numbers for XLG are consistently lower (compared with PV).
  
  New picture with PV:
  
  3 Years IVV < OEF < XLG
  5 Years IVV < OEF < XLG
  10 Years IVV < OEF < XLG
  That is what I was expecting because SP500 has become increasingly concentrated in mega-stocks. But at the time of my previous post, I didn't suspect errors in TestFol, so simply noted that the results were unexpected.
  
  Edit/Add, 7/11/24. I contacted TestFol on this issue. It acknowledged the problem for XLG and fixed it promptly. Interestingly, my old linked runs now show the updated data for XLG (and they are now close to those from PV), but those for OEF and IVV are unchanged (i.e. I didn't have re-run those TestFol).
  
  Many have now started using TestFol because after the recent update, FREE Portfolio Visualizer (PV) is quite limited or unfriendly. As this is sort of off topic for the OP, I won't post more here, but interested posters can find details at,
  https://ybbpersonalfinance.proboards.com/post/1550/thread
• bee

  July 10

  FAIRX comes to mind as a fund that succeeded as a focus fund and then for a combination of reason failed significantly.
  
  Hennessy Japan Fund = HJPNX attempts to identify best Large Cap Japanese companies.
  HJPNX - 27 Holdings
• davidrmoran

  July 10

  ybb, maybe stick w (or at least doublecheck via) Fido and/or stockcharts?
  
  (rather than post mistaken conclusions)
• chang

  July 23

  Recently made this comment on BB, it seems to be related to this topic:
  
  “I have no aversion per se to concentrated funds (fewer than approximately 30 stocks). I’ve seen it work fine, but I’ve also seen it not work. For some reason, OAKMX has historically beaten OAKLX, which is worrisome: if a manager’s “best ideas” underperform ALL his ideas, then something’s got to be wrong… hmm?”
• FD1000

  July 23 edited July 23

  Concentration by itself doesn't work. I have been using concentration + momentum + best risk/reward funds + being in the right wide-range categories.
  Since I started in 1995, there have been three long term cycles
  1995-2000 + 2010-2020 = US Large cap tilting growth
  2000-2010 = US Value, some small cap and some international
  
  BTW, I changed the number of funds from 5 (2000-2018) to only 2-3 since retirement in 2018 because I can only find very limited great ideas.
  
  You can read how I did it (here).
• WABAC

  July 23

  
• mskursh

  July 23

  I think it would also be fair to say that the surviving focus/select funds that exist today or have long track records are standing on the corpses of many that have gone extinct as with most of the mutual fund industry but probably even more so when you have heavy concentration.
• Charles

  July 24 edited July 24

  on the success of focus ...
  
  Concentrated Investing: Strategies of the World's Greatest Concentrated Value Investors
• Charles

  July 24

  @mskursh.
  
  "... the surviving focus/select funds that exist today or have long track records are standing on the corpses of many that have gone extinct..."
  
  ouch.
  
  "Standing on the shoulders of giants" is a metaphor I've embraced for years.
  
  But corpses?
  
  Never heard that before.
  
  But maybe I should have.
• Tarwheel

  July 24

  I’ve had poor results from concentrated funds, the few that I’ve owned. However, I’ve had good results from some funds have more limited holdings— not concentrated but not sprawling either. Example, PRBLX. The problem with concentrated funds, IMHO, is they often perform differently than the overall markets. That’s great when they’re outperforming, but can be hard to stomach when they underperform for extended periods.
• WABAC

  July 24 edited July 24

  IIRC, when I read Random Walk back in the 80's, Malakiel was saying you could build a diversified portfolio with 20-30 Stocks. He might have changed that over the years. After poking around on the internet, it seems many people agree.
  
  Anyway, seems to me a concentrated, or focused, fund is something heavily weighted to one, maybe two, ideas. And you can have that problem no matter how many stocks are in the portfolio.
  
  Given the number of examples in the OP, we could be dealing with random chance.
• BaluBalu

  July 24 edited July 24

  I would check if there is a correlation for single vs multiple managers in the long term success of focused funds.
• FD1000

  July 24 edited July 24

  The key word in Random Walk was COULD but why would anyone do it?
  The SP500 or VTI beat most manage stock funds and definitely individuals over long term.
  Malakiel, Bogle, and Buffett all agree.
  Add to it the fact that these fund managers are trained professionals who work 40 hours weekly.
  So why buy individual stocks?
  I can see an exception such as, take 10% of your portfolio and buy 5 stocks and let them run for decades.
  I have a good friend who invest $3000 in several stocks in early 90s, all trailed the SP500, except MSFT who made him 1.5 million.
  
  --------
  
  Many still miss a point. VOO,VTI can also be one of the 3-5 funds you select.
  I never believed in holding your funds for decades because leading categories change, market change, and good managers can start lagging, the reasons don't matter, they just lag.
  Finally, the execution matters, when to switch or not.
• mskursh

  July 30

  Charles said:

  @mskursh.
  
  "... the surviving focus/select funds that exist today or have long track records are standing on the corpses of many that have gone extinct..."
  
  ouch.
  
  "Standing on the shoulders of giants" is a metaphor I've embraced for years.
  
  But corpses?
  
  Never heard that before.
  
  But maybe I should have.

  not really a saying (I don't think) just something I typed as it came to me. what I find fascinating is that the industry does a fantastic job of making it seem like the mutual funds that are dead never existed in the first place.