Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Many of the most popular funds chosen by investors are from a slate of offerings from the largest fund providers which include, at the top of the list, Fidelity, Vanguard, and American Funds. And Fidelity and Vanguard are among the biggest providers of 401(k)s which therefore include a number of their own funds in the list of funds available within the ensemble. Meanwhile, American Funds are distributed widely by investment advisors and brokers.
But beyond high availability and visibility, many investors perhaps choose these mainstream funds because they have more confidence in well-known funds that in the past have had pretty good track records.
But...the most popular funds often do not wind up being better choices, and often worse choices, than perhaps those that could have been chosen merely by throwing darts at a listing all funds.
Thanks John. I always enjoy looking at various allocation models and the author lays out several nicely.
I'll withhold judgement on the overarching thesis here. Mainly because I see a tremendous amount of "mis-categorization" as regards the labeling of funds by M* and others. So ... I know that just because somebody labels a group of funds "global growth" or "equity income" doesn't mean members of the group are all that similar in approach or in their likely responses to different market conditions. Therefore, I'm always a bit suspect of such comparisons.
We shouldn't ignore the "hot money" aspect either - though suspect it's extremely difficult to gage. (Max Funds makes an effort.) Sudden shifts in investor sentiment are likely, in my estimation, to impact newer smaller funds more greatly than their longer established competitors. Some of this has to do with investor psychology and some with a smaller AUM being more easily impacted (as a % of the whole). To the extent their AUMs are increasing more rapidly during strong bulls, they should enjoy an advantage by having ever greater amounts of $$ to throw at their top performers. However, it seems to me equally plausible that these "less established" funds may well find themselves trailing their older and larger brethren under much different (negative) market and sentiment conditions. (And ... on re-checking the article to make sure I wasn't missing something here, I'm really amazed that he would base his "study" on such a brief period as 5 years.)
Still, I think it's a "given" that, all else being equal, smaller newer funds should outperform older more established ones (primarily because they are much more nimble). Than again, you're probably taking on more risk with a newer "less-tested" fund having a shorter track record. There are additional values to be had with many of the larger established houses that smaller firms may not provide. Things like easy to exercise exchange privileges into a wide assortment of family funds, often great phone support and record keeping, check writing privileges, slick websites with a host of additional resources, and often extensive research based newsletters. Somebody pays for these features one way or another. That somebody is you the investor. And. in many cases, that ain't all bad.
I deliberately shy away from the mega-huge big, gigantic names. Can't always do it. Retirement plans offer PRE-selected menus of funds to choose from. I see SFGIX has finally started to do something of late--- speaking of smaller funds/operations.
Comments
I always look forward to reading Dr. Madell's newsletter. Thanks for posting.
Old_Skeet
I'll withhold judgement on the overarching thesis here. Mainly because I see a tremendous amount of "mis-categorization" as regards the labeling of funds by M* and others. So ... I know that just because somebody labels a group of funds "global growth" or "equity income" doesn't mean members of the group are all that similar in approach or in their likely responses to different market conditions. Therefore, I'm always a bit suspect of such comparisons.
We shouldn't ignore the "hot money" aspect either - though suspect it's extremely difficult to gage. (Max Funds makes an effort.) Sudden shifts in investor sentiment are likely, in my estimation, to impact newer smaller funds more greatly than their longer established competitors. Some of this has to do with investor psychology and some with a smaller AUM being more easily impacted (as a % of the whole). To the extent their AUMs are increasing more rapidly during strong bulls, they should enjoy an advantage by having ever greater amounts of $$ to throw at their top performers. However, it seems to me equally plausible that these "less established" funds may well find themselves trailing their older and larger brethren under much different (negative) market and sentiment conditions. (And ... on re-checking the article to make sure I wasn't missing something here, I'm really amazed that he would base his "study" on such a brief period as 5 years.)
Still, I think it's a "given" that, all else being equal, smaller newer funds should outperform older more established ones (primarily because they are much more nimble). Than again, you're probably taking on more risk with a newer "less-tested" fund having a shorter track record. There are additional values to be had with many of the larger established houses that smaller firms may not provide. Things like easy to exercise exchange privileges into a wide assortment of family funds, often great phone support and record keeping, check writing privileges, slick websites with a host of additional resources, and often extensive research based newsletters. Somebody pays for these features one way or another. That somebody is you the investor. And. in many cases, that ain't all bad.
Regards