Managed Fund Risks

[renferme]

That was some good data mining. Where did you get your Beta from? It is certainly not 0.98 for Wellington if you're regressing Wellington against the S&P 500 or the TSM. It's more like 0.60. Why are you comparing Wellington to the S&P 500 anyway? They're totally different animals. If you compare Wellington to a better benchmark, 60% LV index and 40% corporate bonds, you'll find that Wellington didn't really produce much alpha.

- Alec

My info. came from Morningstar and Vanguard. I compare both funds because one is managed and one is an index fund - that was the topic of this thread.

 

[mickeyd]

yes its hard to keep beating the indexes year after year for most money managers but long term the better managers and funds still out perform.

You may be correct. Now name me 10 managers of active funds that beat the S&P 500 over the last 15 years?

Here, I'll start you out with the first one:

1. Bill Miller

2.

 

[unclemick]

Miller's a short term rookie:

Davis New York Venture
Fidelity Contrafund
Franklin Mutual Shares

35 yrs 1970 - 2005 per Bogle - 3 out of 335 at the 1970 start.

For those with strong hormonal urges, and do ya feel lucky Clint Eastwood types a read of Bogle's entire keynote speech at the May 15 Las Vegas Money Show might enable one to practice safe sex er managed fund picking going forward.

He starts with a plug for the Vanguard Diehards book - the managed fund stuff is toward the end.

heh heh heh heh - if one can forgo pure hot rod performance - a managed fund selected for Norwegian reason's - aka psst Wellesley - or like the Marines a few good fund's can provide current yield (income) with some inflation fighting power for an entire retirement.

Soooo - the winner's for the next 35 yrs are ??
Safe sex is easier

 

[brewer12345]

I tend to cleave to index funds for a simple reason: if there is any stock picking to be done, I'll do it for myself.

 

[FinanceDude]

I tend to cleave to index funds for a simple reason: if there is any stock picking to be done, I'll do it for myself.

Most don't have your knowledge about equities out there.........

 

[Nords]

Most don't have your knowledge about equities out there.........

But apparently they're better at picking active fund managers?

 

[lswswein]

But apparently they're better at picking active fund managers?

Come on Nords people need to be good at something : Picking fund managers is earier because there is more of them. probability of hitting a one when my pet monkey[MpM] throws darts is more because they sheets are twice as big. When MPM throws at stocks, it hits outside the board too often

 

[mathjak107]

i think that to some extent the statistics quoted for index vs managed funds is flawed . its flawed in the sence that a portfolio if done right consists of not just one fund but many funds and many asset classes.

having said that i also think that a major percentage of funds are funds that none of us would buy as they are poor performers , high fees or crappy mgmt. once you weed out all the crappy stuff the percentage of funds that on and off beat the indexes i imagine increases drastically.


now with many funds and asset classes in a well designed portfolio the chances of a better fund or manager beating its index becomes greater in at least one or more catagories..

throw in the fact that some managers may get lucky and not drop even half as much in a down turn as its index and you have a winning formula for a nice return. most index funds and indexers havent been indexing long enough to get caught in a real prolonged downturn with the fury of that fund being 100% invested.

 

[Alex]

I read this qoute somewhere, not sure who said it, but it sure is a good one!

If you gave a thousand monkeys a coin to toss ten times, odds are at least 10 or more would have all heads or all tails ten times in a row. When the monkey does it , we call it luck. When a mutual fund manager does it we call it skill......

 

[mathjak107]

the other thing that dosnt add up either to the statistics toughted is this.

fidelity has very few funds that are really really top shelf , they have quite a few that are middle range to upper range in performance..

yet look at how the big 3 newsletters that work with fidelity funds have done.

fidelity monitor actually beat even fidelity insight and fidelity adviser is right in there within a point or so long term too. its obvious that something happens when all these mid range to upper range active managed funds are molded into a diversified portfolio with different asset classes . the results all seem excellent and all use different funds . all 3 have probley beat the indexes according to the info on dfa's site and the risk adjustment is less.

remember statistics can show anything the writer choses . ultimately we all need a portfolio that meets our needs and lets us sleep at night. its all a means to an end.

 

[samclem]

having said that i also think that a major percentage of funds are funds that none of us would buy as they are poor performers , high fees or crappy mgmt. once you weed out all the crappy stuff the percentage of funds that on and off beat the indexes i imagine increases drastically.

I agree 100%! Once you eliminate all the managers with poor stock picking records, only the ones with good records will be left. I don't know why I didn't think of this before!

Of course, the ones with good records in the past might not be the ones with good records going forward. History says very few repeat.

"If I had some ham, I could make a ham sandwhich, if I had some bread."

 

[unclemick]

Closing up 13th year of ER - handgrenade wise 65/35 stock/bondish, 0.21% ER Target Retirement 2015.

And then, and then roughly 15% individual stocks - hope springs eternal.

Heh heh heh - it's da hormones folks! - happens every generation - it's incurable.

 

[mathjak107]

I agree 100%! Once you eliminate all the managers with poor stock picking records, only the ones with good records will be left. I don't know why I didn't think of this before!

Of course, the ones with good records in the past might not be the ones with good records going forward. History says very few repeat.

"If I had some ham, I could make a ham sandwhich, if I had some bread."

i think pretty much we all could pick out the top funds we would want to go with if we had to. they may not be top every year but long term they always seem to outperform.

either not dropping as much in some years or rising the most in others , yet they always seem to do very well. lets throw out a new statistic and im guessing at this. we could probly eliminate 75% of all activly managed funds from our selection pool and just use the remaining 25% and i bet we would do great.

 

[samclem]

lets throw out a new statistic and im guessing at this. we could probly eliminate 75% of all activly managed funds from our selection pool and just use the remaining 25% and i bet we would do great.

Here's a variation on your idea: What if, for the moment, we just talk about large cap stocks. Lets take your idea even farther--don't stop at the worst 75%, instead, weed out the worst 82% of active managers . One convenient way you could have gotten performace better than 82% of the large-cap active managers for the ten years ended 31 Dec 2004 was to just buy the S&P 500 index. Wow.

This is typical. In the same period, index funds outperformed active funds in all nine of the Morningstar domestic style boxes. Sure, a small or very small percentage of active funds beat the indexes, but it's often not even the 25% criteria you said you'd be satisfied with in your post ( see below). So, why not save the ER and just buy the index?

("Romper Room" Graphic below reproduced from the article at the link)
Percent of active funds outperformed by index funds (1994 - 2004)

value blend growth

Large 66% 82% 84%

Mid 89% 79% 95%

Small 68% 53% 63%

https://flagship.vanguard.com/VGApp/hnw/VanguardViewsArticlePublic?ArticleJSP=/freshness/News_and_Views/news_ALL_gusinterview_01252005_ALL.jsp

I understand the allure of believing in the hot stock picker--I really do. But the data don't support the idea that they are out there and that they can be picked in advance.

 

[mathjak107]

the point is with certain funds you dont have to know in advance whos hot. just have them in your selection pool. as an example fidelity equity income.... they now have a 13% annual average return for over 40 years ,the life of the fund. fidelity balanced has beaten its index for the last 5 years in a row. the point was there are so many actively managed funds out there once you drop all the perpetual crap that you would never ever buy and none of us would buy you can keep a pretty decent selection pool and not go wrong with any of them. you would be increasing the odds you will out perform far higher than those statistics show.

statistics about index funds are alomst like crime reports in a way.

here in new york city the odds of being mugged hypothetically may be 30% if you include areas you or i would never ever go to, but if we drop those areas from the statistic being we will never ever go there than our own odds may drop to 1%. i think thats the point im trying to make. its not about knowing in advance who's hot , its doing your homework and knowing who to stay away from. and use funds with long term good records and management.

dont get me wrong there is nothing wrong with indexing except for the fact certain indexes end up getting weighted and dominated by whats hot and over valued by design , its still a simple great way of investing but its not the be-all and end all that the statistics indexers throw around would indicate.

i have been looking to reduce the swings in my portfolio's over the last few years by going to a bucket system and dividing my mix into 3 seperate portfolio's for 3 different time frames . all i really need to achieve is an average of 7% or so to meet my goals.

lately the newsletters have been getting more defensive shifting to proven funds that have always fallen less in down turns and i like that stratagy, remember im looking to tighten up the swings. im more interested in not getting poorer right now, not about squeezing out every last gain of the market indexes . perhaps if i felt more aggressive id let the un-managed 100% invested index funds ride thru a bear market but im no longer interested in doing that.

 

[mathjak107]

coincidently one of the fidelity newsletters i follow is making an exchange on one of the large cap funds. its going into the fidelity s&p500 index fund.

why not an actively managed fund ?

the reason given aside from the fact that 30% of the s&p 500 earnings come from operations overseas and a weaker doller helps these companies, the reason given is the following:

the leadership in the s&p 500 is very very narrow at this point. its hard for a fund manager of a large cap fund to get away from loading up on these leaders and to out perform the index .

there you go, perfect opportunity for an index fund.