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Mutual Fund Monitoring
Old 11-02-2014, 02:46 PM   #1
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Mutual Fund Monitoring

For mutual fund investors, what are some things that you watch for in your investments that may cause you to decrease or eliminate the allocation you give to individual mutual funds?

For example here are some things that I currently watch for:
  • Manager Change. A manger change could be a signal that the direction and performance of the fund will change. How much I decrease my allocation depends on the fund family (some fund families have a multi-manager system with a successful culture of manager rotation), the experience of the new manager (has he managed a similar fund well) and possibly how long they were groomed for the position, and how much money the new manager puts in the fund (if he isnít willing to risk his own money, why should I?).
  • Fund Closure. Iíve noticed that sometimes when a fund that I own closes, it under performs for a couple years after the closure. I view a fund closure as a sign from the management that they either already have more money in the fund than they can handle Ė or they think they will have too much money if they keep the fund open. How much I decrease my allocation may depend on if I think they closed the fund in time (but I probably wonít be able to tell). I certainly wonít get completely out of a closed fund because it likely closed due to recent stellar performance that quite possibly was caused by stellar management. But Iíve started backing down my allocation to closed funds a for a couple years after closure. The re-opening of a closed fund might be my clue to move the allocation back up (I figure the management is telling me they can handle more inflows).
  • Too Large a Cash Stake. A few years back I noticed that one of my small cap stock funds had an over 50% allocation to CASH! I just checked and it is currently 74% Cash (very glad I dropped it). I understand some of a fundís allocation to cash to account for flows in/out and to have available for market opportunities, but this is way out of line especially for a fund that I had allocated as part of my aggressive allocation. I dropped the fund completely and forever.
  • Performance. This is a hard one since I donít like to judge a fund too much by short term performance. And by the time long term performance is affected by something that has gone wrong with the fund, I could end up holding a stinky fund for a long time. I guess a short term lag might make me look to see if there is something fundamentally changed (like the other points) to cause concern.
  • MorningStar (M*) Analyst Rating Decrease. Not all of my funds are rated by M*, but if I have one that was rated as Gold and M* drops the rating to Neutral, Iím certainly going to read the analyst report to see why they lost confidence in the fund.
What else do people look at?
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Old 11-02-2014, 02:55 PM   #2
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None of those things apply to the index mutual funds I own. So I only look for one thing:

1. Is it an index fund? If no, then I don't own it.
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Old 11-02-2014, 03:18 PM   #3
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Quote:
Originally Posted by LOL! View Post
None of those things apply to the index mutual funds I own. So I only look for one thing:

1. Is it an index fund? If no, then I don't own it.
+1. Now isn't that simple?

With the added bonus you will likely outperform those managed funds. Shhhh, before everyone figures this out!

-ERD50
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Old 11-02-2014, 03:24 PM   #4
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1. Is it an index fund? If no, then I don't own it.

The truth. Greater tax efficiency, better performance, lower cost.
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Old 11-02-2014, 03:29 PM   #5
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Quote:
Originally Posted by LOL! View Post
None of those things apply to the index mutual funds I own. So I only look for one thing:

1. Is it an index fund? If no, then I don't own it.
I almost added that this probably only applies to those that invest in managed funds. But then I was thinking that even with index funds you probably need to check that the fund is actually tracking to the index it is supposed to track to.

I mostly have managed funds, but I use some index funds too. I use them when I can't find a managed fund that I like in a particular area and I also use them when I'm looking for a tax efficient fund in an un-sheltered account.
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Old 11-02-2014, 04:10 PM   #6
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I only pay attention to three things:

Is the pile still big enough.
Have I reached a re-balance band.
Do I have any unrealized losses in taxable account that I need to book.
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Old 11-02-2014, 04:17 PM   #7
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I have only index funds and watch only dividend increases or in rare cases/years decreases.
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