Fidelity offering four new index funds and a muni fund with .07 ER

[big-papa]

OK, looking at NoLoad FundX's webpage, they show a $25K investment made in June 1980 and they compare against the SP500 till the end of December 2018
SP500: $1,475,664
FundX: $3,343,775

If I go to PortfolioVisualizer, starting June 2008 I get as examples:
SP500: $1,453,125 (Using "US large Cap" as the choice. Close Enough to FundX's results for SP500)
Small Cap Value: $3,469,924

Looking at the FundX chart, it appears the Max drawdown was 53% ('08 recession) - Seems the Target Date fund which was mentioned that lost 40% during the recession actually did better.
S&P500 according to PortfolioVisualizer was 51%
Small Cap Value Max Drawdown was 56%

Pretty easy in hindsight to find something better than something you have today, whether it's FundX NoLoad or a simple backtest of a low cost index.

 

[38Chevy454]

Well, you are correct to the extent that there are always actively-managed funds that outperform passive funds. The semiannual S&P SPIVA reports typically show that over a year roughly 1/3 of actively managed funds outperform their benchmarks. Over five and ten years the percentage drops into the single digits. So as passive investors we are beating over 90% of the stock-pickers.

To say that the answer is to buy an actively managed fund is incorrect. What you want to buy is an actively managed fund that will outperform in the future.

Well, again, top actively managed funds are easy to find by looking in the rear view mirror. Most web sites and financial publications will publish a list shortly after the end of every quarter. "Best Funds of 2018" for example.

The situation is this: The fund results are pretty much random. If over a year each manager flipped a coin, about half of them would be right. Subtract fees and (usually large) trading costs and you can understand why only 1/3 or so outperform. The randomness is also the reason that the percentage of winners declines with time. To win over time, a stock picker has to be repeatedly lucky. Few are. But some are.

So the problem becomes: How to pick a winner ahead of time? Nobel winner Eugene Fama and his regular co-author Kenneth French spent a lot of time and money trying to solve this problem. Here is French discussing the results: https://famafrench.dimensional.com/videos/identifying-superior-managers.aspx (Spoiler: They failed.) The paper that French is referring to was published IIRC a little over ten years ago and is 43 pages. For an amateur like me it becomes unreadable shortly after the abstract, but the conclusions are crystal clear. Past performance is no guarantee of future results. Ever heard that one before?

So no, @MI-Roger, randomly picking an actively managed fund is statistically very likely to produce a loser. And, as Dr. French explains, that is what any investor is doomed to be doing.

I agree with OldShooter, and there is simple math that can be applied to show why active managed funds can't stay on top for long:
Using the 1/3 value that can exceed the index:
Year 1 = 33%
Year 2 = 33% x 33% = 10.89% (let's be nice and round it up to 11%). So by end of year 2 we have only 11% that are beating the index.
Year 3 = 33% x 33% x 33% = 3.59% (let's be nice and again round up to 4%). So by end of year 3, only 4% have managed to stay above the index.
Year 4 = 33% x 33% x 33% x 33% = 1.19% By end of year 4, only slightly over 1% has managed to stay above.


So how do you know which year to bail out? Using a rear-view approach of picking one of the year 1 "33%'ers" you would be at best settling for year 2 results of having an 11% chance of beating the index.


My belief is that I would rather have 100% chance of meeting the index performance, vs 11% chance of exceeding the index performance and 89% chance of under performing the index.


Thanks to OP for the news, I will investigate those new funds. I just might put some of my investments into them. I'm not afraid of sectors and taking the smaller slice of the market pie, I just want to make sure the pie stays as high value as possible. Lower fees and higher probability of matching the index performance results.

 

[gauss]

I hadn't heard of stock licking. A new investments strategy?

Is that where all the folks who use to lick toads wound up?

 

[ERD50]

You need a high quality Fund Newsletter to identify those, and then react. ...For the first two options a newsletter such as I use, NoLoad FundX, will be of great benefit. I have subscribed for 30 years or so and done well when I follow their recommendations. ....

Can you show me that FUNDX has an advantage over passive investing? I see their mutual fund was started NOV2001, and www.portfoliovisualizer.com shows it to have under-performed both the S&P 500 index (SPY) and Total Market (VTI), and with increased volatility. Looks like it was doing OK, but has lagged since 2015?

I suspect that might continue, some periods better, some worse.

... My final statement in my personal opinion based on past and current experiences. I was invested in Fidelity's 2020 Target Date Fund prior to the Great Recession. I naively assumed the fund managers would move the fund goals from Growth to a defensive position as the recession hit in order to preserve funds for future growth when the recession ended. Wrong! The fund's focus stayed on Growth only, and the fund rode the recession down 40%. ....

Yes, that was naive. A cursory glance at the description and prospectus would inform you they maintain an AA based on time to retirement. So don't blame them for following through on their commitment!

And FUNDX dropped more than that (though the years leading up were better, so the they still stayed ahead - until they didn't in 2015), but it doesn't indicate that these fund managers managed to get into a defensive position.

I don't see the attraction. FULL DISCLOSURE - I bought the No Load FUND X newsletter for a while, forget the years. It did OK, but over time, I just didn't feel confident it would reliably beat a passive, broad based index.

-ERD50

 

[gwraigty]

Yes, but the beginning of the time period when the fund is identified has to have been time zero and the end has to be some years later. Using the rear view mirror it is easy to identify winners. Not useful though.

I'm not speaking of picking a top ten actively managed fund based on the last X years as mentioned in an article. I think that you're misinterpreting what I'm saying. I simply mentioned a website that provides a useful tool to compare a specific investment to another. I may have learned about it from this forum, in fact.

For the sake of the question asked some posts ago, Portfolio Visualizer can be used to compare an index fund with an actively managed fund, provided it's an apples to apples comparison. Large cap index vs. large cap, for example. Plug in 2 or more symbols and look at the results.

Yes, yes, past results are no indication of future results, blah, blah, blah. Absolutely right. It's what there is to look at though. Unless you have a crystal ball.

I'll just leave it at that.

ETA: Most of our ETF/fund investments are passive.

 

[big-papa]

I agree with OldShooter, and there is simple math that can be applied to show why active managed funds can't stay on top for long:
Using the 1/3 value that can exceed the index:
Year 1 = 33%
Year 2 = 33% x 33% = 10.89% (let's be nice and round it up to 11%). So by end of year 2 we have only 11% that are beating the index.
Year 3 = 33% x 33% x 33% = 3.59% (let's be nice and again round up to 4%). So by end of year 3, only 4% have managed to stay above the index.
Year 4 = 33% x 33% x 33% x 33% = 1.19% By end of year 4, only slightly over 1% has managed to stay above.


So how do you know which year to bail out? Using a rear-view approach of picking one of the year 1 "33%'ers" you would be at best settling for year 2 results of having an 11% chance of beating the index.


My belief is that I would rather have 100% chance of meeting the index performance, vs 11% chance of exceeding the index performance and 89% chance of under performing the index.


Thanks to OP for the news, I will investigate those new funds. I just might put some of my investments into them. I'm not afraid of sectors and taking the smaller slice of the market pie, I just want to make sure the pie stays as high value as possible. Lower fees and higher probability of matching the index performance results.

Minor nit. These new funds aren't sector funds. Sectors are things like utilities, real estate, energy, biomedical, chemical, etc. and Fidelity has had offerings in those areas for years. Except for the muni bond fund these new funds invest to varying degrees in factors, mainly size and value.

 

[MI-Roger]

Yes, yes, past results are no indication of future results, blah, blah, blah. Absolutely right. It's what there is to look at though. Unless you have a crystal ball.

I'll just leave it at that.

ETA: Most of our ETF/fund investments are passive.

I agree 100%. And it sure is fun to bait the bears of the index find afficianados. Sorry guys, but it is a miserably hot weekend here in Michigan and this outlet provided entertainment without cooking my brain in the Triple digit temperatures. d; )

 

[ERD50]

Index Funds are for people who are content with lower earnings by buying the losers as well as the winners. ...

Lower than what?

Can show us how to reliably pick the investments that will do better in the future (anyone can pick past winners, just like yo or I can pick past lottery ticket winners!)?

FUNDX isn't it.

-ERD50

 

[Chuckanut]

For the 12 month period ending 6/30/2019:
S&P 500 yielded 10.2%
DJIA yielded 12.0%
Top Actively Managed Funds yielded 18.5%

Great information!

Alas, my time machine is broken and the parts I need to fix it won’t be invented until 2162 at the earliest. Can you give us the the top actively managed funds for the 12 month period ending 6/30/2020?

 

[OldShooter]

Minor nit. These new funds aren't sector funds. Sectors are things like utilities, real estate, energy, biomedical, chemical, etc. and Fidelity has had offerings in those areas for years. Except for the muni bond fund these new funds invest to varying degrees in factors, mainly size and value.

A distinction without a difference. I just scanned a bunch of internet dictionary definitions and virtually all of them say something like: A sector of a large group is a smaller group which is part of it." By these definitions and in my view, the S&P 500 is a market sector, as is the EAFE.

"Factor" is most correctly used in a very narrow sense stemming from the original Fama/French three "factor" asset pricing model. For them a "factor" is a characteristic of a stock and does not define a grouping of stocks. Further, stocks can have multiple factors -- small and value for example.

What would you call a fund that invested in small cap energy stocks? A sector fund? A factor fund?

But it really doesn't matter. Like it or not the words are and will be used somewhat interchangeably and context will make the meaning clear.