Do money managers earn their keep?

[Jay_Gatsby]

Interesting article on Yahoo! Finance regarding whether money managers earn their keep:

http://biz.yahoo.com/special/2fund06_article1.html

 

[cute fuzzy bunny]

Short answer: no.

I thought it was interesting that the guy writing the article characterized funds costing .4-1.1 and up as "inexpensive".

I make sour lemon face whenever I see any individual fund that runs over .50. It better be something pretty special...

 

[saluki9]

Short answer: no.

I thought it was interesting that the guy writing the article characterized funds costing .4-1.1 and up as "inexpensive".

I make sour lemon face whenever I see any individual fund that runs over .50. It better be something pretty special...

well if you get into international and emerging markets even index funds and etf's are in the 55 - 80bps range

 

[HFWR]

VWO - 0.3
EFA - 0.35

 

[saluki9]

VWO - 0.3
EFA - 0.35

EEM 77BPS

EPP 50 BPS

ILF 50 bps

DFISX 69bps

DISVX 79bps


My point was that you can't always get exposure to certain market segments that (I ) would like to for 15bps

 

[azanon]

Mutual fund performances include the management fees, so if you slap them up on a graph against their respective index, and the manager hasnt changed over the period of time, and the actively managed fund is winning (significantly), then it is worth it.

Take an example of one i own; Slap Janus Overseas over the top of the EAFE and decide for yourself if the 1.x% management fee is worth it. Again, remember, the actual fee is reflected in the performance.

I hear index funds beat 75-80% of actively managed funds. It makes me so thankful i'm not forced to pick a random, actively managed fund!

 

[samclem]

FWIW: Fidelity Spartan Intl Investors (FSIIX) with an effective ER of .10 is a good deal in a broad international index fund. The ER is this low only due to refunds by the management team, but if the ER shoots up in the future I'll take my marbles to Vanguard (it is a Roth IRA, so no tax consequences for moving it).

 

[Nords]

FWIW:  Fidelity Spartan Intl Investors (FSIIX)  with an effective   ER of .10 is a good deal in a broad international index fund.   The ER is this low only due to refunds by the management team, but if the ER shoots up in the future I'll take my marbles to Vanguard (it is a Roth IRA, so no tax consequences for moving it).

It's posts like these that make me wonder why we're still paying 1.38% for Tweedy, Browne Global Value (TBGVX).

But then it goes up another 1.5-2% that month... for the ninth or tenth month in a row... and somehow I never get around to doing anything about it.

Maybe it's because the managers seem to be such wild-eyed, thrill-seeking, extreme-sports happy-go-lucky free spirits.

 

[cute fuzzy bunny]

well if you get into international and emerging markets even index funds and etf's are in the 55 - 80bps range

Depends on how you get it. I dont own any funds earmarked "international", but in the target retirement and other funds I own according to the vanguard portfolio x-ray, 7.5% of my portfolio is "international stock". My ER is .19. I think my most expensive fund holding is .25.

 

[ERD50]

I hear index funds beat 75-80% of actively managed funds. It makes me so thankful i'm not forced to pick a random, actively managed fund!

True, but how do you know any selected managed fund will continue to outperform? Maybe their style was right for the past environment and wrong for the future one.

I could say the same thing about individual stocks. Plenty of them that beat the index by leaps and bounds. But how do you pick them out of the group, and how do you know they won't be losers after you buy them?

-ERD50

 

[HFWR]

EEM  77BPS

EPP 50 BPS

ILF 50 bps

DFISX 69bps

DISVX  79bps   


My point was that you can't always get exposure to certain market segments that (I ) would like to for 15bps.

And my CEE is 1.2%...

 

[saluki9]

Depends on how you get it. I dont own any funds earmarked "international", but in the target retirement and other funds I own according to the vanguard portfolio x-ray, 7.5% of my portfolio is "international stock". My ER is .19. I think my most expensive fund holding is .25.

The Vanguard total Int'l Index which is what they use in the target retirement funds has an er of .31. That is elavated because of an allocation to the emerging markets fund which has an er of .45

 

[azanon]

True, but how do you know any selected managed fund will continue to outperform? Maybe their style was right for the past environment and wrong for the future one.

I could say the same thing about individual stocks. Plenty of them that beat the index by leaps and bounds. But how do you pick them out of the group, and how do you know they won't be losers after you buy them?

Ultimately, that the decision before you.   Do you think that perhaps they just had a style condusive to the market they performed in, or do you believe its likely they are truly talented at what they do, and can adapt to even new scenarios.    I think there are some you can feel that the latter is more likely than the former, and ultimately what do you have to lose..... they they just end up performing average, or (gasp) a few tenths worse than the index?

I would like to see what percent of stock funds the S&P500 has beaten since 2001.  I bet it isnt even 30%.

Ive said before I think this forum community overemphasizes the impact of management fees.  Far more important to 1. Simply invest enough 2. Have appropriate asset allocation  3.  Not market time   Do those 3 things and the rest is minor details. Not doing one of these 3 things properly are the only things that are going to really screw your retirement portfolio.

 

[justin]

I would like to see what percent of stock funds the S&P500 has beaten since 2001. I bet it isnt even 30%.

Ive said before I think this forum community overemphasizes the impact of management fees. Far more important to 1. Simply invest enough 2. Have appropriate asset allocation 3. Not market time Do those 3 things and the rest is minor details. Not doing one of these 3 things properly are the only things that are going to really screw your retirement portfolio.

Like it or not, costs matter. I would submit costs are one of the MOST important elements affecting investment returns, and one that is easily controlled with a substantial degree of certainty.

VFINX - Vanguard S&P 500 fund - Outperformed 58% of funds over 5 years and 74% of funds over 10 years in the Large Blend category of funds (per morningstar.com)

VTSMX - Vanguard Total Stock Market Index - Outperformed 81% of funds over 5 years and 77% of funds over 10 years in the Large Blend category of funds (per morningstar.com).

I'll take those odds. "Above average" is ok with me.

I'm sure you'll find a dozen actively managed international small cap value commodities leveraged funds to refute my point.

 

[samclem]

I'm among those who think expenses matter quite a lot.

- $100K invested in a fund for 20 years and gets 7% return.
-- If your ER is .20 %, then total value will be $371K
-- If your ER is 1.2 %, then total value will be $304K


- Or, from a viewpoint we can all appreciate on ths board: We spend a lot of time discussing the annual safe withdrawal rate. The difference between a 3% and a 4% withdrawal is a lot when it comes to real qualty of life for many of us. So, if you are in that position, would you choose to take a 3% withdrawal rate and give the other 1% to mutual fund expenses? I guess that would make sense if you were highly confident that the management team added a lot of value--I'm not convinced that many do, and I'm even less convinced that I can pick 'em in advance. So, I'll stick with the low-ER funds and use the bucks for something else.

samclem

 

[cute fuzzy bunny]

The Vanguard total Int'l Index which is what they use in the target retirement funds has an er of .31. That is elavated because of an allocation to the emerging markets fund which has an er of .45

I think I'm paying a smaller percentage due to the scale of the holdings of the sub funds by the main TR fund. I dont think i'm paying much extra, as if I held just the other parts of the TR on their own in proportional amounts, the overall average ER I'd be paying wouldnt be significantly lower. It seems to me to be a way to get a little international exposure without paying full price.

 

[maddythebeagle]

- Or,  from a viewpoint we can all appreciate on ths board:  We  spend a lot of time discussion the safe withdrawal rate each year.  The difference between a 3% and a 4% withdrawal is a lot when it comes to  real qualty of life for many of us.

or how about having to work a few more years, because you transferred some of your wealth to mutual funds/investment advisors

 

[ERD50]

Do you think that perhaps they just had a style condusive to the market they performed in, or do you believe its likely they are truly talented at what they do, and can adapt to even new scenarios. I think there are some you can feel that the latter is more likely than the former,

Well, actually, I've been looking at the Fairholme Fund (FAIRX) - it does seem to do slightly
better in both Up/Down markets:

http://tinyurl.com/hq3oz


-ERD50