"Winning Lazy Portfolios Using Fidelity Funds

[Art G]

Well, I started to look at a few of them. That 5.75% front-end load sure doesn't help the comparison.

After the load, I saw underperformance relative to their index. Sometime even w/o the load.

Here's the first I found that Yahoo matched to the S&P 500 index. It underperformed both w/wo the load in the 1, 3 and 5 year periods. It did manage to outperform in the ten year. How about you do the other 13?

-ERD50

VFINX
1 yr 5.39%
3 yrs 8.49%
5 yrs 12.69%
10 yrs 5.83%


AMRMX with LOAD
1 yr -2.61%
3 yrs 5.90%
5 yrs 10.16%
10 yrs 6.64%


AMRMX before LOAD
1 yr 3.33%
3 yrs 8.02%
5 yrs 11.47%
10 yrs 7.27%

ERD...LOL! I can see you've got one heck of an agenda, prove the other poster wrong no matter what the betterment of the board might be. I notice you pick ONE American Fund, and amazingly, it was the one with the worst performance of all.
Of course, even with the load, the 10 year returns were still higher with that one American Fund with a beta of .82.
FWIW, I certainly don't want to tell you which fund to use, but I'd say ANCFX is closest to the S&P index for historical purposes.

 

[FinanceDude]

Watch out for loads

Loads are as follows on A shares:

$1 - $24,999: 5.75%

$25,000- $49,999: 5.00%

$50,000 - $99,999: 4.50%

$100,000 - $249,999: 3.50%

$250,000 - $499,999: 2.50%

$500,000 - $749,999: 2.00%

$&50,000 - $999,999: 1.50%

$1,000,000 + NAV

One positive thing I can say about AF is that compared to their peers their operating expense ratios are definitely on the lower end. If one could find a way to purchase them without the loads it would be a reasonable choice.

They don't distribute through non-advisors. You would have to pay a management fee to be able to buy them at NAV, or invest $1,000,000 or more.

Even for me, a hardcore indexer, active funds play a role. For example, in my 403b I am forced to use active funds to target certain areas of my AA because there either aren't any passive funds available period, or my plan doesn't give me the option.

That's smart........

One should still focus on expenses though - high expense funds are very strongly correlated with poor performance.

Which is why I use AF for my MF clients.........

 

[Art G]

Good stuff. This has me thinking...

Where can you get >10 year historical data for American funds? EDIT: FOUND IT:
Files - Passive Investor | Google Groups

Take a look at the backtesting spreadsheet - you can plug in the American Funds data file and construct portfolios.

Would be really interesting to construct apples-apples portfolios and compare. My guess (just a guess, I'll have to examine this later) is that when after-load comparisons are done, American Funds don't look quite so hot.

innova, I'll bet you're wrong.

 

[ERD50]

ERD...LOL! I can see you've got one heck of an agenda, prove the other poster wrong no matter what the betterment of the board might be. I notice you pick ONE American Fund, and amazingly, it was the one with the worst performance of all.

No agenda Art G. It was simply the first on their alphabetical list (their drop down menu) that was matched to the S&P, which is the easiest and most relevant to compare to. It takes a bit of work to compare, so I stopped there - maybe you have a better source for comparison?

So show me that the other 13 were better. You are the one that made the claim. I'm interested. Show me that you are.

-ERD50

 

[FinanceDude]

Good stuff. This has me thinking...

Where can you get >10 year historical data for American funds? EDIT: FOUND IT:
Files - Passive Investor | Google Groups

Take a look at the backtesting spreadsheet - you can plug in the American Funds data file and construct portfolios.

Would be really interesting to construct apples-apples portfolios and compare. My guess (just a guess, I'll have to examine this later) is that when after-load comparisons are done, American Funds don't look quite so hot.

I thought we wanted to look at long term numbers, like 15, 20, 25 years? At least that was the earlier thought..........

 

[innova]

Art - we don't really need to get to the level of picking certain funds - you said it yourself that to do so would be 'cherry-picking' and I certainly agree.

Did you read the Bernstein link I posted? Here is my summary of part of it.

Consider the top 30 funds from the early 70's. You would probably agree that they were as well-regarded in that time as American Funds are today. Common wisdom would suggest that investing in those 30, which had a good track record at the time would lead to market-beating results. Do you disagree with any of that?

Take those 30, and compare against the lowly s&p 500 through 1998 (admittedly the paper is a bit old). Go ahead, look at the results.

Thats all I am saying. Odds are (demonstrably) poor that your American Funds will outperform a passive portfolio over 20+ years. I don't have an agenda, except that people come here to look for advice and debate topics. I think its important to see the other side of the argument.

 

[FinanceDude]

No agenda Art G. It was simply the first on their alphabetical list (their drop down menu) that was matched to the S&P, which is the easiest and most relevant to compare to. It takes a bit of work to compare, so I stopped there - maybe you have a better source for comparison?

So show me that the other 13 were better. You are the one that made the claim. I'm interested. Show me that you are.

-ERD50

ERD50, you seem to have fast fingers, maybe you can help and then I can help. I have NOT been able to find the TOTAL return of the S&P from 1957-2007. (In 1957, the "old S&P Index 90" was "modified" into the "new" S&P 500 index)........

I agree that the index itself does NOT include the return of reinvested dividends, but in all fairness, most if not all mutual fund returns include reinvested dividends on the fund side, so we need to include them for a fair comparison. If you can find me the TOTAL return including reinvested dividends of the S&P, I can post the numbers of AF........thanks.........

 

[innova]

I thought we wanted to look at long term numbers, like 15, 20, 25 years? At least that was the earlier thought..........

It appears he was posting his reply without the benefit of this longer-term data (or he hasn't analyzed it yet).

 

[FinanceDude]

Consider the top 30 funds from the early 70's. You would probably agree that they were as well-regarded in that time as American Funds are today. Common wisdom would suggest that investing in those 30, which had a good track record at the time would lead to market-beating results. Do you disagree with any of that?

Take those 30, and compare against the lowly s&p 500 through 1998 (admittedly the paper is a bit old). Go ahead, look at the results.

Thats all I am saying. Odds are (demonstrably) poor that your American Funds will outperform a passive portfolio over 20+ years. I don't have an agenda, except that people come here to look for advice and debate topics. I think its important to see the other side of the argument.

For all I know, there were NO American Funds in those 30.......does he name the 30? Kind of like the "Nifty 50" stocks of way back when...........

 

[Art G]

No agenda Art G. It was simply the first on their alphabetical list (their drop down menu) that was matched to the S&P, which is the easiest and most relevant to compare to. It takes a bit of work to compare, so I stopped there - maybe you have a better source for comparison?

So show me that the other 13 were better. You are the one that made the claim. I'm interested. Show me that you are.

-ERD50

ERD, innova posted some spread sheets you can check out. I could go pull up the research for you, but what's the point? You are the immovable object.
BTW, alphabetically, that was not the first fund, AMCAP is. I guess I appreciate your time. It's your money. As financedude mentioned, don't forget to look 20 years, that was your original point I believe.

 

[FinanceDude]

It appears he was posting his reply without the benefit of this longer-term data (or he hasn't analyzed it yet).

OK.......well I asked for his help, he seems to be able to search the Internet far quicker than me.

Can we agree that the S&P 500 has a beta of 1.0?

 

[Art G]

Art - we don't really need to get to the level of picking certain funds - you said it yourself that to do so would be 'cherry-picking' and I certainly agree.

Did you read the Bernstein link I posted? Here is my summary of part of it.

Consider the top 30 funds from the early 70's. You would probably agree that they were as well-regarded in that time as American Funds are today. Common wisdom would suggest that investing in those 30, which had a good track record at the time would lead to market-beating results. Do you disagree with any of that?

Take those 30, and compare against the lowly s&p 500 through 1998 (admittedly the paper is a bit old). Go ahead, look at the results.

Thats all I am saying. Odds are (demonstrably) poor that your American Funds will outperform a passive portfolio over 20+ years. I don't have an agenda, except that people come here to look for advice and debate topics. I think its important to see the other side of the argument.

innova, can you direct me to your link, I'm not seeing it. And again, don't cherry pick American Funds, put 14 names into a hat, pull out three names and see how it works out for you. I used to be a non-believer myself, I chased returns, and then I saw a down market and saw how tough it was to make up for a negative 15% in one year.
BTW, overall, the S&P has not been that great of an investment. It just so happens that for a period of time in the 90's it outperformed most funds (probably because Fidelity was coming out with a new fund every week). I'd see Scott Burns using a one year comparison, then he had to go to 3 years to make his numbers work, then 5 years. However, historically (and by this I do mean 20 years +) buying the index ain't so hot.
P.S. without reading your link, I'd bet many great performing funds of the 70's are long gone, as are their managers. To compare what Peter Lynch did with his succeeding managers isn't fair. One more point for American Funds, they don't have any single manager funds.
BTW, thanks for your open minded attitude.

 

[FinanceDude]

OK..........I guess I'll make a confession. I use AF exclusively for my clients that are in funds, and I have owned them myself for 17 years.

I have no regrets, looking back. Not one client in my career as an FA has called up and screamed: "What did you do to me, those American Funds are terrible, and I'm firing you"!!!!!

 

[Art G]

OK innova, I found your link. Notice they compare the S&P to the top 30 funds. I never stated this was a fair comparison. Keep in mind that right now the best 30 funds are all gold funds. However, backtest those and you'll find they've probably greatly been outproduced by other funds. Originally we were talking about an easy way to outperform the indexes and the averages. I never said anything about chasing top returns. Heck, internet funds were returning over 100% for a year and a half, that doesn't mean they are the best funds for the next few years.
I really think we've branched off in a different direction now.

 

[innova]

However, historically (and by this I do mean 20 years +) buying the index ain't so hot.
P.S. without reading your link, I'd bet many great performing funds of the 70's are long gone, as are their managers. To compare what Peter Lynch did with his succeeding managers isn't fair.

You would need to read the link to see why you're wrong on the point of historically the s&p 500 not being a good investment - its not just the 90's.

Why aren't many of the formerly great performing funds around, I wonder? Could it be that when performance turned south they were merged / eliminated?

FWIW, as I said before - this is really about passive vs. active, using the s&p 500 as an example only. I'm sure your portfolio of AF does well - the overriding point here is that based on past history of active funds(in general), its is overwhelmingly UNLIKELY you will earn excess return(alpha) in the long term, and you would be fortunate to equal market return - especially after paying larger expenses compounded over many years.

Article on persistance of past performance:
Past Performance

 

[Art G]

Here's my confession, I used to chase returns. I used to try to find that fund that's blowing away the market. Back in the early 90's I met with a guy from American Funds who, when I asked how come American Funds are underperforming others, replied, "hey, we're not the best, but we're not the worst". I laughed in his face! What the heck kind of recommendation was that?!! Then I watched what happened in 2000, 2001, 2002 and saw that while many funds gave back results, overall American Funds stuck pretty close to even. I realized that the one or two down years were taking me five to get back to where I was, so now I try to avoid wild swings. Can I guarantee American Funds will continue at this rate? Heck no! But their strategy of buy and hold stocks with dividends seems sound.
Of course with that said, they were a few months ago the largest holder of GOOG, so perhaps they need to remember their own strategy.
BTW, one of their managers told me, if they buy a stock and want to sell it before a year, they had better have a pretty good reason why. They spend two to three weeks visiting any company they invest in before buying. Hard to knock the strategy there. JMO

 

[FinanceDude]

I have 7 funds I am posting, I just need ERD50 to give me the total return of the S&P 500. I am listing the returns of these funds at MOP (market offering price) so we take loads into account, and for the benefit of all:

Fund Date of Inception Lifetime Avg Return
AMCPX 5/1/1967 12.06

AGTHX 12/1/1973 15.10

AMRMX 2/21/1950 12.20

ANCFX 8/1/1978 13.99

AIVSX 1/1/1934 12.72

AWSHX 7/31/1952 12.53

AMECX 12/1/1973 12.30

 

[Art G]

You would need to read the link to see why you're wrong on the point of historically the s&p 500 not being a good investment - its not just the 90's.

Why aren't many of the formerly great performing funds around, I wonder? Could it be that when performance turned south they were merged / eliminated?

FWIW, as I said before - this is really about passive vs. active, using the s&p 500 as an example only. I'm sure your portfolio of AF does well - the overriding point here is that based on past history of active funds(in general), its is overwhelmingly UNLIKELY you will earn excess return(alpha) in the long term, and you would be fortunate to equal market return - especially after paying larger expenses compounded over many years.

Article on persistance of past performance:
Past Performance

innova, again I've already answered, but you are wrong in this regard. They don't discontinue funds, they don't merge funds, and they may be more passive overall than the index funds.

 

[innova]

Round and round we go.

Notice they compare the S&P to the top 30 funds. I never stated this was a fair comparison. Keep in mind that right now the best 30 funds are all gold funds.

Read carefully. The 30 funds were not sector funds, they were well-diversified funds.

Originally we were talking about an easy way to outperform the indexes and the averages. I never said anything about chasing top returns. Heck, internet funds were returning over 100% for a year and a half, that doesn't mean they are the best funds for the next few years.

Since the evidence is so strong against persistance of short-term performance (see previous link), the only way then to get market-beating returns over longer timeframes is to chase returns, is it not?

Its clearly not easy to do so, and the vast majority of funds fail at it.

Then I watched what happened in 2000, 2001, 2002 and saw that while many funds gave back results, overall American Funds stuck pretty close to even.

If you had a proper asset allocation (including bonds) for your ability, willingness, and need to take risk you would not have suffered large losses in 2000-2002. For example, my portfolio which is 80/20 overall equities/bonds lost only 6% in the worst of those years.

Besides, we don't care about year to year anyway. We care about total compounded return, after-taxes (if applicable). Thats the only return that we can spend.

BTW, one of their managers told me, if they buy a stock and want to sell it before a year, they had better have a pretty good reason why. They spend two to three weeks visiting any company they invest in before buying. Hard to knock the strategy there.

Absolutely. They do seem better than most active managers.

 

[innova]

No, you didn't!

Lifetime Avg Return

May I point out that this is largely irrelevant. We need to know compounded return. Average returns are not meaningful.

 

[FinanceDude]

Why aren't many of the formerly great performing funds around, I wonder? Could it be that when performance turned south they were merged / eliminated?

Typically funds are merged to hide bad performance. All I know is that continues to be a problem.

FWIW, as I said before - this is really about passive vs. active, using the s&p 500 as an example only. I'm sure your portfolio of AF does well - the overriding point here is that based on past history of active funds(in general), its is overwhelmingly UNLIKELY you will earn excess return(alpha) in the long term, and you would be fortunate to equal market return - especially after paying larger expenses compounded over many years.

Well, that is the classic case for investing in passive/index funds. There are SOME people out there (like me) who DON'T index, but not for the UPSIDE (some of which I am willing to give up) but the DOWNSIDE (something no index fund can hedge).

I must be the only person in America that's OK when I am down 10% when everyone else is down 20%, as an example. However, I think that's ok.........

Article on persistance of past performance:
Past Performance[/quote]

 

[FinanceDude]

May I point out that this is largely irrelevant. We need to know compounded return. Average returns are not meaningful.

From their website:


Average annual total returns with sales charge [MOP (maximum offering price)]: Returns assume all distributions are reinvested and reflect applicable fees and expenses. Fund results are for Class A shares and reflect deduction of the maximum sales charge of 5.75% for equity funds and target date funds.

 

[ERD50]

ERD, innova posted some spread sheets you can check out. I could go pull up the research for you, but what's the point? You are the immovable object.

You made a statement - I asked you to back it up. How does that make me 'immovable'?

BTW, alphabetically, that was not the first fund, AMCAP is. I guess I appreciate your time. It's your money. As financedude mentioned, don't forget to look 20 years, that was your original point I believe.

You are right - I was going down the list looking for stock funds, wasn't sure if AMCAP was or not so I skipped it at the time, moved on to AMRMX - but anyway. AMCAP underperforms for the 1, 3 and 5 year periods also, but it also outperforms for 10 year:

AMCAP

LOAD ADJUSTED RETURNS
1-Year: 1.32%
3-Year: 5.60%
5-Year: 10.88%
10-Year: 8.22%


VFINX
1 yr 5.39%
3 yrs 8.49%
5 yrs 12.69%
10 yrs 5.83%


I'm more interested in seeing how a fund did in bull/bear markets from the past 20 years than I am specifically in it's total 20 year performance. Especially the bear markets. That tells me something about the volatility that I am concerned about.

OK..........I guess I'll make a confession. I use AF exclusively for my clients that are in funds, and I have owned them myself for 17 years.

I have no regrets, looking back. Not one client in my career as an FA has called up and screamed: "What did you do to me, those American Funds are terrible, and I'm firing you"!!!!!

No offense FinanceDude, but I'm not sure that the people that feel they need the services of an FA would be the ones to compare the after-expense, risk-adjusted returns of an investment. Offhand, the two funds I looked at appear to have done well when you go back ten years, so they should be happy if that is true of the ones you put them into, and they have been in them for ten years.

I'm trying to figure out if they (or some strategy) is/are appropriate for someone like me.

OK, many in this forum do seem averse to active funds. I honestly do not think that is from ignorance or bias - it is from lack of compelling data. Then the big claims from the active fund fans are often followed by 'I know I'm right - you find the data to back up my claims!'.

-ERD50

PS -I see there were a number of posts while I was typing - I just don't have time to respond right now, pls don't take that as a lack of interest! Real life calls!

 

[innova]

Well, that is the classic case for investing in passive/index funds. There are SOME people out there (like me) who DON'T index, but not for the UPSIDE (some of which I am willing to give up) but the DOWNSIDE (something no index fund can hedge).

Understand your position there. Have you ever heard this:

"Just prior to the second worst bear market in the postwar era (73-74), mutual-fund cash reserves stood at only 4%. Cash positions reached about 12% in the ensuing low"

"In the market correction of mid-1990, when the S&P 500 fell 14.7%, actively managed funds fell an average of 17.9%"

--Swedroe (Only guide to a winning investment strategy you'll ever need, 2005).

Would you be willing to expand on the topic of downside protection? Are you relying on the fund manager to protect the fund from loss or do you have some other mechanism?

I'll share mine: I take risks only on the equity side - my bond holdings (20%) are IT treasury and TIPS. Safest bonds w/ risky stocks.

 

[Marquette]

No offense FinanceDude, but I'm not sure that the people that feel they need the services of an FA would be the ones to compare the after-expense, risk-adjusted returns of an investment.

Tangental to FinanceDude, who enjoy reading on here, but the tipping point for us in firing our Ameriprise advisors was the minute we sat down and figured out our after-expense return compared to comparable risk indexes.