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Yawn. Same old, same old. Why only funds with 10-yr records? And how in the heck was PRWCX NOT on the list last time? They actually pay someone to do this?
From that list, MAPOX: over the 3 years through July 2016, underperformed a simple ETF portfolio of ~29% CORP, 26% SDY, 22% VIG, 8% KBWB, and a few smaller positions, by a cumulative 2.2% and at similar volatility. Where are the "superior risk-adjusted returns"?
I liked Kinnel's sorting approach. It's the approach that matters most, not the outcome.
Kinnel clearly specifies his multiple selection criteria and demands that all of them are satisfied, thus eliminating any weighting arguments. I'm not absolutely certain that I would choose those same criteria, but that's his choices. I surely admire the over performance he requires against a benchmark.
BobC, I don't understand your 10-year comment. Kinnel has elected to rate the funds based on fund management tenure if it exceeds a meaningful timeframe, not any fixed 10-year period. That seems like a reasonable criteria that allows market environment factors to statistically play out.
@JoJo26 The replicating ETF portfolio does not have to be static (just as the fund's composition changes over time). You can run the calculation periodically and adjust the portfolio. One variant of the methodology does this monthly based on a rolling chunk of history. No fund, even one with a high turnover, changes all its holdings overnight, i.e. there is some inertia. So, even if you run the calculation with a one-month lag, you can still get a reasonably good tracking. Applying that approach to MAPOX over the same period, you get the ETF portfolio cumulatively outperforming by ~1.9% at ~0.5% lower standard deviation. See goo.gl/2Z3V5Q
almost half from just American funds and Vanguard. If you insist on cheap and "parent's rating of positive.. based on M* criteria" all you get are the behemoths. There are really two criteria people should focus on in evaluating single category funds 1) am I getting my money's worth paying for active management over an index and 2) can I stand the volatility if that is what is required to beat an index fund.
This piece seem like a shill for more add dollars from American, Vanguard and Fidelity...and what is the point about the survey at the top of the piece asking if Kumal Kapoor wears deodorant
A new low for M*.. People need serious investment advice, not cutsie little quizzes
I'd maybe have some confidence in this if there was some track record of an actual live portfolio replicating certain funds. Hindsight is 20/20.
By definition, running a rolling calculation is 1-month forward-looking, not a hindsight. Conversely, you have no guarantee that any of these "fantastic" funds will continue to outperform on a truly risk-adjusted basis (i.e. taking all their exposures, and not just a single market factor, into account). As a matter of fact, the S&P Persistence Scorecard repeatedly shows that all winners eventually regress to the mean and below.
I'd maybe have some confidence in this if there was some track record of an actual live portfolio replicating certain funds. Hindsight is 20/20.
By definition, running a rolling calculation is 1-month forward-looking, not a hindsight. Conversely, you have no guarantee that any of these "fantastic" funds will continue to outperform on a truly risk-adjusted basis (i.e. taking all their exposures, and not just a single market factor, into account). As a matter of fact, the S&P Persistence Scorecard repeatedly shows that all winners eventually regress to the mean and below.
Running a rolling calculation is is exactly what it sounds like, "running a rolling calculation." There is nothing forward looking about it except for the fact that you are extrapolating those rolling periods into the future and assuming that the same (or something similar) will take place.
You are right, I do not know that "fantastic" funds will continue to perform well, but I have more confidence in fundamental managers in inefficient areas of the market than some backtest where you substitute 10 funds for 1 and would need to dynamically shift things regularly to achieve the same result (you aren't accounting for any of the transaction costs that would take place).
@JoJo26 The "some backtest" you are referring to actually tracks the very product of the "fundamental manager in an inefficient area of the market." In many instances, new ideas from such active managers turn out to be worse than the old ones. In other words, an investor would be better off sticking to a "backward-looking" replacement portfolio rather than using the fund a month forward. An additional alpha, continuous control of the overall portfolio exposures (as opposed to relying on some "charter" or "category" of a fund), ability to trade your assets during the day and without any penalties, or investing into an equivalent of a closed or high-load or high-initial-investment fund, obviously do not come free. If you have a small amount to invest, sure, trading costs are a consideration. Otherwise, these days you can place limit orders for a $1-2 commission on a reasonable number of ETF shares at any of the leading discount brokerages. That said, certainly, it may not be for everyone. At a minimum, an analysis, such as the one I provided above for MAPOX, shows whether the fund added value on a truly risk-adjusted basis.
@JoJo26 That's your term, not mine, which is why I used it in quotes. The existence of such areas is largely a myth concocted by managers who claim to add value, but in reality, do not do so when their product is properly adjusted for exposures and risk it has. Check out the recurring findings in S&P SPIVA reports, for example: "The high-yield bond market is often considered to be best accessed via active investing, as passive vehicles have structural constraints that limit their flexibility and ability to deal with credit risk. Nevertheless, the 10-year results for the actively managed high-yield funds category show that over 90% of funds underperformed the broad-based benchmark." Note this statement is based on a single benchmark; if custom benchmarks were applied as described above, the outcome would certainly be even worse.
I'm suggesting he actually run a live portfolio using his methodology to replicate (and enhance) a fund's performance... I'm not sure what's so hard to understand about that.
Because he actually uses this methodology to invest in a portfolio based on his findings and then we see how it ends up actually performing... It's proof of concept. Would you ever invest in an active manager just because they tell you some story and haven't proven that what they do actually works? NO.
Backtesting with the actual performance data would work for me. Same as when I see how a mutual fund has done.
Right, stories are not as good --- although note that investors here and elsewhere make that decision all the time; a large percentage of Snowball's smart discussions of 'finds suggested to look at' entail "they tell you some story and haven't proven...". But I guess markot06 has not done what I thought.
Conversely, keep in mind that by investing in an actively-managed fund you have absolutely no guarantee that the past performance will be repeated. As a matter of fact, many studies (incl. one from M* about its own * system) show how past "winners" quickly became "losers." No active manager can produce alpha day in and day out. So, in addition to establishing real performance benchmarks, one of the purposes of this replication/tracking exercise is to determine the periods of out- and under-performance on a truly risk-adjusted basis.
Comments
GBLAX "This fund makes the Fantastic 45 in its first year of eligibility. Launched in February 2011 ..."
I liked Kinnel's sorting approach. It's the approach that matters most, not the outcome.
Kinnel clearly specifies his multiple selection criteria and demands that all of them are satisfied, thus eliminating any weighting arguments. I'm not absolutely certain that I would choose those same criteria, but that's his choices. I surely admire the over performance he requires against a benchmark.
BobC, I don't understand your 10-year comment. Kinnel has elected to rate the funds based on fund management tenure if it exceeds a meaningful timeframe, not any fixed 10-year period. That seems like a reasonable criteria that allows market environment factors to statistically play out.
Best Wshes.
This piece seem like a shill for more add dollars from American, Vanguard and Fidelity...and what is the point about the survey at the top of the piece asking if Kumal Kapoor wears deodorant
A new low for M*.. People need serious investment advice, not cutsie little quizzes
Conversely, you have no guarantee that any of these "fantastic" funds will continue to outperform on a truly risk-adjusted basis (i.e. taking all their exposures, and not just a single market factor, into account). As a matter of fact, the S&P Persistence Scorecard repeatedly shows that all winners eventually regress to the mean and below.
You are right, I do not know that "fantastic" funds will continue to perform well, but I have more confidence in fundamental managers in inefficient areas of the market than some backtest where you substitute 10 funds for 1 and would need to dynamically shift things regularly to achieve the same result (you aren't accounting for any of the transaction costs that would take place).
An additional alpha, continuous control of the overall portfolio exposures (as opposed to relying on some "charter" or "category" of a fund), ability to trade your assets during the day and without any penalties, or investing into an equivalent of a closed or high-load or high-initial-investment fund, obviously do not come free. If you have a small amount to invest, sure, trading costs are a consideration. Otherwise, these days you can place limit orders for a $1-2 commission on a reasonable number of ETF shares at any of the leading discount brokerages.
That said, certainly, it may not be for everyone. At a minimum, an analysis, such as the one I provided above for MAPOX, shows whether the fund added value on a truly risk-adjusted basis.
How would that work? Is this not just replication of contents at a moment in time at lower cost?
Right, stories are not as good --- although note that investors here and elsewhere make that decision all the time; a large percentage of Snowball's smart discussions of 'finds suggested to look at' entail "they tell you some story and haven't proven...".
But I guess markot06 has not done what I thought.
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