Mutual Fund Evaluation

[OkieTexan]

I would like to pick everyone's brain a little on evaluating mutual funds. The basic question is: Should I sell and seek a better opportunity or stay put based on past results? Of course we know that past results is no guarantee of future performance, right?

The fund I am considering is AIM International Equity Class A (AIIEX). It was started in late 1992. I bought $13,800 worth of it in March 1994. After 12 years, it is now worth over $40,000. I have weathered the severe downturn of 2002. It dropped to $15 a share NAV. It is now at $30. The expense ratio is about 1.84. So, it isn't a cheap fund; but the returns have been good. In 2006 it returned 27% including reinvested dividends.

What do you think? Is international ready for a correction? It's NAV is at an all time high. How would you make such a decision? Would you look at the holdings? the manager? Lipper likes it except for the expenses. Morningstar likes it, too.

Comments...........

 

[LOL!]

When I evaluate a mutual fund, I figure out which benchmark it should be compared to. AIIEX is international large cap growth, so the benchmark to me is EFA. I chart the fund and its benchmark with dividends reinvested. If the fund does not do better than the benchmark, then it's a loser even if it did well.

With open-end funds like AIIEX, I don't think you can go by NAV since it varies with distributions. I think you have to chart it.

So AIIEX is just fine. If it is in a taxable account, I would hold it, but would not add to it. I would just buy EFA or the Vanguard equivalent and save myself the 5.5% front-end load.

 

[renferme]

I would never consider a loaded fund.
I consider funds that do well in bear markets and have a low beta.
those are some of my considerations.

 

[LOL!]

Since I wrote "Hold", here's how I would decide to sell: My asset allocation plan is to have about 25% of my portfolio in international equities. If my international assets grew to 27% or more of my assets, then I would probably sell some of this fund to get back to 25%. If my international assets fell below 23%, I would not buy this fund, but I think I would buy DODFX, VTRIX, PID or DLS.

 

[Brat]

If you haven't found FundAlarm.com you should visit. The discussion board is great, the list of funds by benchmark (No Alarm, Three Alarm) is very useful. The commentary is edgy, it's author oft quoted in the financial press.

If you want to buy DODFX hustle, it is on the list of funds that may well close this year.

 

[OkieTexan]

Most of the charting sites, like Yahoo Finance, Morningstar, etc. will compare to the S & P 500, Dow and other US indexes. I haven't found one yet that can compare AIIEX to the MSCI EAFE index. That seems to be the most popular index to compare "foreign" funds from a US investor point of view.

 

[LOL!]

One of the best sites for research is investor.msn.com. Download, install, and use the "deluxe" toolkit there. You can plot multiple ticker symbols on the same chart, so it is trivial to compare a fund to any other fund, etf, stock or index or to several of them.

 

[lswswein]

You could use yahoo to chart your fund against any other fund. In this case you could choose one of the index funds based on MSCI EAFE and plot against that.

http://finance.yahoo.com/q/bc?t=my&s=AIIEX&l=on&z=l&q=l&c=EFA

Unfortunately EFA does not go far enough in this case so I instead chose the Fidelity Spartan International Index Fund (FSIIX).

http://finance.yahoo.com/q/bc?t=my&s=AIIEX&l=on&z=l&q=l&c=FSIIX

Interestingly AIIEX did a good job keeping up with an Index fund even after the high expense ratio. So unless you have need for the money I would not sell it but hold it. The advice would have been to sell if I could have provided an Index fund which comprehensively beat it.

For new money you can get a guaranteed low ER for about the same performance with the Fidelity Index fund. I also wne to monringstar and looked at the top 10 performers in the Intl Large Growth category. AIIEX is in the top and that does give some confidence that they are doing the right thing and you need not be in an hurry to sell.

hope this is useful
-h

 

[audreyh1]

Morningstar provides statistics on relative performance within category as well as an indicated of risk-adjusted return (how did the fund do return-wise given the amount of risk it took).

You can use these statistics to evaluate a fund's relative performance within a given asset class. You can easily see how your fund stacks up against it's peers.

Audrey

 

[gindie]

The Morningstar returns page for your fund is at: http://tinyurl.com/2taabz

 

[brewer12345]

Looking at total retrns for this fund vs. the EAFE on Bloomberg, they are pretty close. I think you are paying up a huge management fee and a lot of churn-related taxes for no gain and probably a lot more volatility.

I would seriously consider tossing this fund.

 

[OkieTexan]

Thanks to all of you for the tips on mutual funds. It is interesting to see the variation in thinking on investments. I suppose it is why advice is as difficult to give as it is to get! I try to use it all as learning tools.

Recently, I chose to dump an AIM Fund (Constellation CSTGX). That decision was easy. It's returns were lower. Analysts all over were advising the fund's management to "start performing or shut it down". So, I did. I only had $13,000 in it. It looked like a no-brainer to me. I could probably get a better return somewhere else.

However, with AIIEX, it is not such an easy decision is it? It may be time, as brewer suggests, to look deeper into the way the fund is managed. Now, with a lot more options to choose from, maybe a better deal is out there.

A look at the big picture may help. Here is my investment mix:

38% - Large Cap Core
16% - International Value
11% - Mid Cap Growth
10% - Small Cap Core
17% - Bonds
08% - Cash Equivalents

I don't think I am over exposed to International stocks; so perhaps I could look for a cheaper fund in the same arena. Some have suggested that I reduce my exposure to stocks (now at 75%) to about 60 - 65% since I retired.

Once I decide to hold or dump AIIEX, then I have to decide where to put it.
This is all a lot more fun now that I have time to research it and ask questions!

 

[saluki9]

Looking at total retrns for this fund vs. the EAFE on Bloomberg, they are pretty close. I think you are paying up a huge management fee and a lot of churn-related taxes for no gain and probably a lot more volatility.

I would seriously consider tossing this fund.

Ding ding ding, we have a winner

While this fund does have 3 year and 5 year alpha of about 1.6% the important R Squared (% of returns explained by the index) is 92.87%

Basically you're paying 1.7% for an index fund.

 

[brewer12345]

Once I decide to hold or dump AIIEX, then I have to decide where to put it.
This is all a lot more fun now that I have time to research it and ask questions!

Just to keep things simple, I would suggest you separate your asset call allocation decision from your choice of investment vehicle. So you may wish to reduce your equity allocation and drop AIIEX. Figure out your new target allocation ("where you are going") and then decide on the funds that you will own ("how you will get there").

 

[OkieTexan]

Basically you're paying 1.7% for an index fund.

This may be the case. Since it tracked some of the index funds mentioned earlier in the thread, maybe they followed the crowd and turned it into an index fund. They all did pretty well in 2006. When the indices fall, they have to try something else. The world is pretty crowded with indices these days. However, I see your point. One can get an index fund much cheaper than 1.7%!

Right now, I am leaning toward selling it. As Brewer suggested, I should decide the strategy first, make the plan, then implement. Sounds like project management, doesn't it?

 

[cute fuzzy bunny]

Ding ding ding, we have a winner

Hey, quit using my copyrighted material. Or send me a costco hotdog in the mail.

 

[saluki9]

Hey, quit using my copyrighted material. Or send me a costco hotdog in the mail.

Man, are those some tasty dogs or what? I don't mind doing that because I can also get a slice of the combo pizza at the same time. And I can pick up some beer for my superbowl party and 100 rolls of toilet paper at the same time.

 

[cute fuzzy bunny]

Crap, now I have to go over there for a hotdog. Sigh. There goes the diet I was on for the last half hour. I actually priced out buying the package of the same hotdogs and rolls there. Its cheaper to buy them at the snack stand than to buy them and make them at home. Definitely a loss leader.

Oh well, Gabes outgrown his little electric car and I need to get him one of those red maclaren race cars or that big escalade. The neighbor kids he plays with (4 and 6) got little gas quads for christmas and he was looking pretty longingly at them while zipping around in his 6 volter. And I need a big tray of sushi and 20 rolls of paper towels and four pounds of cottage cheese.

 

[brewer12345]

And I can pick up some beer

I wish I could. The costco booze supply chain doesn't appear to extend as far as NJ.

 

[saluki9]

I wish I could. The costco booze supply chain doesn't appear to extend as far as NJ.

Brewer, I didn't think you would subject yourself to that mass produced swill?

 

[brewer12345]

Brewer, I didn't think you would subject yourself to that mass produced swill?

Nah, I rarely buy beer usually just wine and spirits.

 

[laurence]

My Costco carries Karl Strauss Amber Lager, I would humbly submit this as quaffable in a pinch.

I can't believe they don't sell booz at your Costco, brewer, that really stinks!

On topic, good Lord, 5.5% front load? At the very least, don't put any more into it. I would sell as well. Be glad you got a decent return.

 

[cute fuzzy bunny]

I bought my wife a $10 bottle of "budweiser brew masters private reserve" at sams club yesterday. Doesnt say much about whats inside except that its supposed to be "the good stuff" and 8.5% alcohol. I'm guessing its going to be closer to an ale than a pilsner, which means I just bought MYSELF a $10 bottle of budweiser...

 

[laurence]

I bought some beer called Steel Reserve, or some such (has 211 on the can), it calls itself "high gravity". So I had 4 of them on Saturday, like I normally do with MGD, and promptly passed out. DW says, "Uh, dear, did you miss the label on the can that says 8.1%". Doesn't that mean I had a twelve pack, or nearly so, of regular beer? I was so sick.

 

[brewer12345]

I bought some beer called Steel Reserve, or some such (has 211 on the can), it calls itself "high gravity". So I had 4 of them on Saturday, like I normally do with MGD, and promptly passed out. DW says, "Uh, dear, did you miss the label on the can that says 8.1%". Doesn't that mean I had a twelve pack, or nearly so, of regular beer? I was so sick.

Heh, means you had almost 7 normal beers. Perils of high gravity brewing...

Presently I have two things on tap: a rather sweet stout that is about "normal" strength (roughly 5% ABV), and a slightly sparkling off-dry cyser (cross between mead and hard cider) that clocks in at 11.5%. One day last week DW told me she had a pint (!) of the cyser during the day.