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Old 04-13-2012, 02:55 PM   #21
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Are you comfortable with these expense ratios? Expense Ratios - Bogleheads A big headwind for the fund managers to overcome vs index funds, but not out of line for an active manager.
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Anyway...here are the funds I am using:

FAIRX- Berkowitz 1.02% ER
GRSPX- Chip Carlson 0.98%
YAFFX - Donald Yacktman 1.25%
FPACX - Steven Romick 1.28%
SAVIX, Colin and Ed Symons 1.48%
WPOPX - Wallace Weitz 1.37%

This are the 6 I am currently using, and have a few more that I follow and have used. Hussman and Ivy.

On the fixed income I am using
Fidelity Floating Rate
Osterweis Strategic Income 0.91%
Loomis Sayles Strategic Income 0.95%
Don't have a lot of exposure to bonds but some more though the 'equity' guys above as some have it in their fund as well.
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Old 04-13-2012, 02:56 PM   #22
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I wonder if you use a benchmark for your portfolio such as the Vanguard Value Index fund and the Vanguard Small-cap Value Index fund? Or the etf EFV for international value index? Or a combo of these to reflect the large/small/foreign distribution of your portfolio?

I can surely run the numbers using MStar. Not sure it is apples to apples as the indexes are set while these managers (heavily in large caps currently) move around as they see fit.

I am about to 'retire' for the weekend but will compare next week to see how they stack up. I will equally weight my 6 managers and then use 60/20/20 split on the Vanguard Indexes.
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Old 04-13-2012, 03:03 PM   #23
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Are you comfortable with these expense ratios? Expense Ratios - Bogleheads A big headwind for the fund managers to overcome vs index funds, but not out of line for an active manager.

Not sure comfortable is the right word, but I am aware of them...everyone hates paying fees especially in down markets.

Fees are a secondary screen for me, after the criteria previously mentioned. I would never exclude an investment in my portfolio based on just a fee. But I sure expect to beat an index given I pay the higher fee. And I understand each manager won't/can't do that each and every year. So hopefully this group can average out to above average returns.
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Old 04-13-2012, 03:39 PM   #24
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I can surely run the numbers using MStar. Not sure it is apples to apples as the indexes are set while these managers (heavily in large caps currently) move around as they see fit.

I am about to 'retire' for the weekend but will compare next week to see how they stack up. I will equally weight my 6 managers and then use 60/20/20 split on the Vanguard Indexes.
It's likely not worth your time to compare these managers/funds to benchmarks. The data size will be too small and the results will be entirely explainable by what the overall market was doing. To really know you'd need a complex study. Lots of academics have done them, but not against this particular special set of wizards. Anyway-good luck!
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Old 04-14-2012, 12:24 AM   #25
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Welcome, Cnote.

You are still in the accumulation phase, so IMHO 100% equities is the right way to go for now. Bond yields are low these days and IIRC are on the order of 2.2%--which you will only get if you hold them to maturity. When interest rates go up (they cannot go down much further), the resale value of a bond will drop. This would affect bond funds as well as individual bonds.

There is little risk in fixed income, but little return as well. It just drags down your total return unless interest rates are high when you buy in.

As far as riding value alone, maybe not such a good idea for you (although my holdings are value-biased) as you have a longer accumulation phase left than I do.

Growth might be good to have in your portfolio as well these days. It would ride world-wide recovery. Buying growth only appeals to me when a fund has low turnover. Growth means buy-and-hold to me.

The problem with only taking one asset class is that it is hard to read the future. I like to have several asset classes, but they all have to pay well. Volatile is OK, as rebalancing smooths that out, but they have to perform well over time for me.

Looking at your funds fees, you are giving away about 1% on average every year over index funds. That adds up over time. You might want to compare your funds to narrowly focused value index funds over the same time period.

I used to buy Forbes September(?) issue for their annual mutual fund honor roll, which rated mutual funds in three consecutive up and down markets (measured by peaks and troughs in the S&P 500 I think). They graded performance in down markets harder than up markets. My AHA! moment came when I noticed that the list was different every year--except that Vanguard's S&P 500 index fund was almost always on the list.

One of the biggest things you can do right now is put away as much as you can. I recommend 15% of your income and/or all of a spouses salary.

Cheers,

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Old 04-14-2012, 05:23 AM   #26
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. But I sure expect to beat an index given I pay the higher fee. And I understand each manager won't/can't do that each and every year. So hopefully this group can average out to above average returns.
If you don't compare to a benchmark, you will not know if your expectation to beat an index becomes fact or not.

Value investing has been taking it on the chin the last few years. Just compare VBR (VISVX) against VXF (VEXMX).

Furthermore, when constructing your "benchmark portfolio", I think you have to enter the buys and sells as well. So if you buy WPOPX on 3/9/2009, in your benchmark of indexes, you enter a similar buy for VISVX on 3/9/2009.
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Old 04-14-2012, 10:06 AM   #27
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Looking for ideas to achieve my early retirement goal. Right now I am mainly using mutual fund with managers that have a value based investing approach, invest a large portion of their own money beside mine, can move to cash, can invest anywhere (not limited by prospectus to a Mstar box) they see value..ie US, international, small, mid, large, etc. I am almost 100% equity right now using 6 fund managers that meet my criteria in both my SIMPLE and Rollover IRA. What little fixed income I have is invested in Strategic Income Funds and Floating Rate Funds. The Roth IRA is invested in stocks of silver mining companies, Oil ETFs, Healthcare ETFs and some other various stocks.

Investable assets are 134k with annual savings of $16,500. (plus the wifes pension) She will be full retirement age at 55 with her 30 years of teaching.

Will mutual funds get me to my goal? Do I need more individual stock exposure? Emerging markets? Should I lower my SIMPLE contribution in favor of an after tax account for pre-age 59.5?

Time to go explore the rest of this forum.
Thanks.
I looked up the 6 funds you mentioned to see their YTD return and the percent of the fund in fixed income. The 6 funds have fixed income percentages between 9.6% (FAIRX) and 38.1% (FPACX). Except for FAIRX, they all trail a simple portfolio index funds.

So to answer your title question, I think the answer is a resounding NO. Your selection of mutual funds are not gonna work. You should probably ditch actively-managed funds and use another route.

You may also wish to increase your annual contributions to reach your goal. You should be able to put $17,000 into your retirement plan as well as $5,000 each into his and her (Roth) IRAs.

Good luck!
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Old 04-14-2012, 10:12 AM   #28
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It's likely not worth your time to compare these managers/funds to benchmarks. The data size will be too small and the results will be entirely explainable by what the overall market was doing. To really know you'd need a complex study. Lots of academics have done them, but not against this particular special set of wizards. Anyway-good luck!
I think it is valid to either benchmark against a very small set of index funds you might consider for a "lazy portfolio", or to select the closest index to each individual active fund you chose. I compare my overall results to the average of the EAFE and S&P500 including dividends and each fund against a comparable index. I don't go so far as to track buys and sells, that's too much work. If one of my active funds underperforms the index for a number of years I'll be happy to switch to the index instead. Of course looking backward they have all beat my comparison indexes for the last 10 years or as long as the fund/index has been in existence. Otherwise I wouldn't have selected them in the first place. The question is were they smart or just lucky?
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Old 04-14-2012, 11:07 AM   #29
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If one of my active funds underperforms the index for a number of years I'll be happy to switch to the index instead.
But why would you do that? If one of your active funds underperforms the applicable index or a particular passive portfolio, there will always be another active fund "star" that has done better. If (past) outperformance (or star quality of the manager, etc) was a good enough reason to choose your present active funds, why wouldn't you do the same thing in the future? Because I think you know where this leads--to the performance chasing that usually ends badly. Seems a shame to even get on that path.
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The question is were they smart or just lucky?
Yes. And while it may scratch some itch to compare a particular manager to a benchmark, the various ways to slice that (risk adjustment, performance in up markets, down markets, high inflation, stock market climbs led by value stocks, led by growth stocks, etc) would require decades of data collection to yield anything resembling a high confidence level. The managers don't stay in place long enough, and can't be guaranteed to remain in place long enough after I "place my bet," to make this approach practical. Especially in taxable accounts where jumping to a new fund involves paying CG taxes.

I do own some active funds, but not many. Most are legacy holdings and all have low ERs.
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Old 04-14-2012, 02:18 PM   #30
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Its trivial to find funds that have beaten their indexes in the past... another thing entirely to pick the ones that will do so in the future.

A little dramatic, but not all that far from the truth: picking a good active manager by looking at his history is somewhat like picking the next number on a roulette wheel by analyzing the last couple dozen rolls.

Ok, so investing isn't 100% luck (like roulette)... but you get the point.

Although some managers are truly better than others... there is a lot more luck involved than skill overall (specially when looking at only 5-10 years of history). Finding a skilled manager in a sea of lucky ones with similar or better results is the difficult task... not impossible, but difficult.

Index's are a sure way to match an index's return (obviously)... most people will take that sure bet over the small chance of being lucky or good at picking active managers to try and beat it, since only a small percentage will be able to.
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Old 04-14-2012, 03:51 PM   #31
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If one of your active funds underperforms the applicable index or a particular passive portfolio, there will always be another active fund "star" that has done better. If (past) outperformance (or star quality of the manager, etc) was a good enough reason to choose your present active funds, why wouldn't you do the same thing in the future? Because I think you know where this leads--to the performance chasing that usually ends badly. Seems a shame to even get on that path.
I'm young and foolish. I'll try it once. If I can't pick a superior fund then I'll index. But already there has been some data from Morningstar that says it is not a hopeless task. So far I've been happy with my picks.

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And while it may scratch some itch to compare a particular manager to a benchmark, the various ways to slice that (risk adjustment, performance in up markets, down markets, high inflation, stock market climbs led by value stocks, led by growth stocks, etc) would require decades of data collection to yield anything resembling a high confidence level. The managers don't stay in place long enough, and can't be guaranteed to remain in place long enough after I "place my bet," to make this approach practical. Especially in taxable accounts where jumping to a new fund involves paying CG taxes.

I do own some active funds, but not many. Most are legacy holdings and all have low ERs.
As a practical matter I try to benchmark using the index I would use to replace an active fund. It might be a global index if the manager has a wide ranging style. I'm not trying to judge only the fund manager's stock picking skills. If he overweights sectors and does better than a common index that's fine with me. I'm not looking for style purity. I'm not going to slice and dice indexes to match all the manager's moves. If he beats the index I would replace him with, he's stays. If not, he goes. And I'll give him/her at least 5 years to work with since I don't expect a win every year.

I select funds by 10 year returns and team management (not looking for one genius), and replace with index funds, so that's not performance chasing in any sense. I'm looking for long-term managers and stick with them. I've made my picks. Maybe in 20 years I'll be all index funds!
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Old 04-14-2012, 03:52 PM   #32
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....
Index's are a sure way to match an index's return (obviously)... most people will take that sure bet over the small chance of being lucky or good at picking active managers to try and beat it, since only a small percentage will be able to.
I don't think the part I bolded is true. Indeed, I think the opposite is true. There are alot of indexers on this forum, but this forum ain't the real world.
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Old 04-15-2012, 12:18 AM   #33
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I don't think the part I bolded is true. Indeed, I think the opposite is true. There are alot of indexers on this forum, but this forum ain't the real world.
what I meant was most people here (my assumption since I'm still fairly new to this board).

However, you are correct - clearly many people are investing in those funds to keep them going. I've been contemplating starting one myself actually. 1% on a 50 million MF sure beats my current gig...
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Old 04-16-2012, 09:11 AM   #34
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I looked up the 6 funds you mentioned to see their YTD return and the percent of the fund in fixed income. The 6 funds have fixed income percentages between 9.6% (FAIRX) and 38.1% (FPACX). Except for FAIRX, they all trail a simple portfolio index funds.

So to answer your title question, I think the answer is a resounding NO. Your selection of mutual funds are not gonna work. You should probably ditch actively-managed funds and use another route.

You may also wish to increase your annual contributions to reach your goal. You should be able to put $17,000 into your retirement plan as well as $5,000 each into his and her (Roth) IRAs.

Good luck!
I havent looked at the YTD numbers as compared to Vanguard funds (I will) but in all seriousness, 1Q or even 4 months is surely not a 'resounding no.' Quarter fluctuations from Q to Q mean little to me, especially at my age. But even throwing age out the window, if one quarter fluctuations bother you, you shouldn't hold any equities.

I would look at 1Q numbers for informational purposes, and to keep an open eye, but am much more concerned with 3-5-10 yr numbers. Heck, if my managers loose to the index for 3 Q's but for the year outperfrom....I would still be happy. I would also still be happy if they outperform the 'indexes' 6.5 out of 10 years. This of course going with after fee returns. But again, my hope with the screens in place is to get that outperformance number even higher.

Simple plan maximum is $11,500. I do not have a 401k. Could start the 403b for the wife though.

Also, of even greater importance/impact is how these 6 managers, held in equal amounts, performed vs the said indexes in 2008. I will run that as well. But I guess take the results for what they are worth.
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Old 04-16-2012, 10:40 AM   #35
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Cnote,
....Welcome to the forum. As you have probably already figured out we are an extremely diverse group here. Some of us got to or are working towards early retirement though LBYM and saving and investing. Some others through toiling for years in jobs that eventually produce nice pensions. Some others through starting and building their own businesses. Some other lucky few through nice inheritances. Most of us actually have some combination of a couple of those scenarios. Among the savers and investors here are some who are very astute and many others of us who just plod along dollar cost averaging into an assortement of funds. The history has been that either method seems to work to build wealth. Your introduction has caused a big discussion of the merits of one investment strategy versus another. Many of the savvy investors here HATE fund expenses, and with good reason. Fund expenses can over time really eat into overall investment results. OTOH, in a fund that is producing good results year after year in comparison to others the overall results are far more important than the expense percentage. In my most humble opinion I do not think it matters so much. The fact that you are "in the market" and perhaps just as importantly adding to that with your annual savings should build you a nice portfolio. I do think that your DW's pension may be as important to your early retirement plans as your portfolio. If she can stick with teaching for 30 years, which is a pretty tough road and can get as many advanced degrees as possible along the way her pension could provide more lifetime income than your investments. I think you can realistically set a goal now of retiring at 55 on her pension plus money from your investments providing a bridge until you both start drawing SS. If the investments do really well you might be able to retire before 55. If not then you may have to adjust to a plan for retiring after 55. Either way you will be far ahead of most people your age. Way to go.
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