Etfs vs mutual funds

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Feb 26, 2009 11:41 pm

I am new to the industry and have many questions. For the first one, I have heard many opinions supporting both. Can I get some ideas from you guys about building portfolios with each. I suppose etfs have lower commisions but which is best for the client? Does it boil down to hiring a manager aka mutual fund or buying etfs and being the manager yourself?

Feb 28, 2009 10:54 am

Use a manager who implements with ETF's.  Mutual Funds should (in my opinion) only be used for clients who have under $25k.  They are a thing of the past.  Everyone else should have some type of actively managed portfolio.  I like to use an active ETF manager.

Feb 28, 2009 6:37 pm

Baba
can you mention a few names of active ETF managers? I am doing it myself. I would gladly turn it over to one if i could find one who does what i do, which is very tactical

Feb 28, 2009 9:42 pm

I agree with Baba.... I use an active/tactical ETF manager for 25-30% of the portfolios I do..

Mar 1, 2009 8:42 pm

Not to be a commercial for them, but they are awesome....they are on our managed account platform.


www.tagllc.net
Mar 2, 2009 8:45 pm

I would have to disagree about mutual funds being a thing of the past. Cetainly ETFs have gained immense popularity in the last few years. However, as far as most people I encouter they either A) have no clue what an ETF is or B) don't know the different between an ETF or mutual fund is. Its still easier to pitch a mutual fund portfolio than it is an ETF portfolio to a prospect/client.


Don't get me wrong, I use actively managed ETF portfolios as well. I just think they can be just as effective as a properly allocated mutual fund portfolio.
Mar 2, 2009 8:48 pm

funds are overly expensive to take up more than 25% of any portfolio... unless the clients don't qualify for anything else..

Mar 2, 2009 8:54 pm

explain a little more squash. rememeber im new. and at jones

Mar 2, 2009 9:22 pm

Mutual Funds have additional costs other than what is listed on the prospectus.. including trading costs, which are estimated to be 0.60% for every 100% in turnover...

 
Also for non qualified you are getting taxed(capital gains/dividends) at the end of the year as if you owned it the entire year.
 
For example the managed ETF portfolio I used charges 65bps(.65%) that is including trading charges..
 
Also mutual funds have to worry about other issues also, redemptions, increased cash, manager turnover(which can sometimes change the style).
 
Many mutual fund investors own between 5 and 10 funds. The average equity fund has in excess of 80 holdings.  If properly diversified, this would represent holdings of 400 to 800 at the very least – with very unknown holdings and weightings for investors.  There is tremendous overlap exposure possibilities at any given time, one manager could be selling the same stock another is buying.  This creates capital gains tax exposure that is unnecessary and could result in double payment for a transaction that didn’t need to occur.  Since you cannot speak directly with the managers of the funds you are at complete mercy their decisions are prudent and in agreement with your goals and objectives.  Also the average mutual fund manager has only been managing their current fund for approximately 5 years.
 
 
Mar 2, 2009 9:23 pm

Sorry about the changes in font, my Internet Explorer was acting goofy, shrunk the first part down so far I couldn't see it..

Mar 2, 2009 9:38 pm

I understand the expense parts. That is why I am trying to learn about ETFs because I don't have enough time to do individual stock research. But if there is other ways then fill me in a little and I will play catch up later. I am assuming you are talking individual equities and you manage the portfolios yourself? I assume the only other way is to be the analyst also and research equities. At Jones, we are limited on choices. I was told I should quit thinking so much and sell A share American Funds or I would starve.

Mar 2, 2009 10:21 pm

Not trying to hate....but Jones doesn't have the fee based model active ETF's managers are best suited for...


The portfolios Squash and I are talking about are basically transparent mutual funds...implemented with etf's rather than individual stocks.  If that doesn't make sense, just keep selling A shares.  
Mar 2, 2009 11:22 pm

Yeah it makes sense. So you advise clients to invest in a portfolio that TAG provides and let them manage it for you? I am assuming that you are not an advisor then, just a smart shopper or do you build portfolios modeled after TAG's portfolios. I am more curious on learning some of the managing parts of the business. Despite the title I was given, I do not consider myself a Financial Advisor. I think Jones guys should still be Investment Representatives. Not sure how they pulled that one off.

Mar 3, 2009 12:36 am
Baba Booey:

Not trying to hate....but Jones doesn't have the fee based model active ETF's managers are best suited for...


The portfolios Squash and I are talking about are basically transparent mutual funds...implemented with etf's rather than individual stocks.  If that doesn't make sense, just keep selling A shares.  
 
Nothing wrong with A shares certainly. A case can be made for just about anyway you would like to build your book. That's the beauty of this business.
Mar 3, 2009 9:39 am
JAXSON:

Yeah it makes sense. So you advise clients to invest in a portfolio that TAG provides and let them manage it for you? I am assuming that you are not an advisor then, just a smart shopper or do you build portfolios modeled after TAG's portfolios. I am more curious on learning some of the managing parts of the business. Despite the title I was given, I do not consider myself a Financial Advisor. I think Jones guys should still be Investment Representatives. Not sure how they pulled that one off.

 
I am a Financial Advisor, not an Investment Manager....I get paid to allign my clients with best or breed managers, make sure they are on-track for retirement, make sure they continue to invest during tough times, not sell out at the bottom of the market...and make sure they don't run out of money during retirement.
 
I don't get paid to recommend CSCO over INTC...
Mar 3, 2009 11:20 am

That's the direction I would like to go. I am not sure how much longer I will hang out here. If You have a sec or two PM your background and so forth. Also do you reccommend CFA, CFP, or other types of continuing ed. Thanks

Mar 3, 2009 1:59 pm

Jaxson - unless  you have people to talk to about ETFs or mutual funds, it's a moot point.  You need to learn to prospect and close business before you need to worry about ETFs vs mutual funds. 

 
I can make a very good case for you that, using the right money managers, an actively managed portfolio can absolutely outperform an ETF based portfolio.  Conversely, iceco1d could make a very good case for the opposite.  I would only take your mentors advice so far.  You have to do your homework and find out what money managers in the Jones system work well together.  For instance, ANCFX is a great G&I fund from American, but Hartford's ITHAX is a great growth fund that just kills anything growth related that Jones has to offer.  American also doesn't have a mid cap or small cap domestic fund.  You'll want to find one. 
 
You'll eventually want to consider CFP, but get your business on its feet before you commit yourself to that program.  We have a very smart guy in our region who just about got himself fired because he was studying for the CFP instead of running his biz.  So, now he has his CFP for his biz card, but his business is in the toilet.  Shoot for $30 million AUM before you start the CFP.  Or consider waiting until you hit Seg 4.  Ironically those two will probably happen about the same time. 
 
Baba - "but Jones doesn't have the fee based model active ETF's managers are best suited for"  -  If by this you mean that Jones advisors can't build a custom ETF portfolio and manage it themselves, you are mistaken.  You might want to check your facts before you tell the new guy something like this. 
Mar 3, 2009 3:00 pm

Mentor? What's that? Oh you mean the guy that asked a newbie like myself if he should sell prefered Bank of Amer stock a couple weeks ago. I may be wrong but I personally want to stay away from most financials right now common or pref. Or maybe I could get a hold of my field trainer and ask him.... oh yeah he went to RJ while I was in KYC. I think I will continue figuring things out myself. I have done enough to get this far. Besides most in my region are busy trying to save there own a$$. They don't have time to f with me. I most likely will be gone soon anyway.

 
Spiff I am just aking for information not advice. You can give me advice another time on another post.
 
If anyone else would like to share information or lead me in a direction to some good Financial Advisor (not Investment Rep) info and resources it would be appreciated.
Mar 3, 2009 3:13 pm
Spaceman Spiff:

Jaxson - unless  you have people to talk to about ETFs or mutual funds, it's a moot point.  You need to learn to prospect and close business before you need to worry about ETFs vs mutual funds. 

 
I can make a very good case for you that, using the right money managers, an actively managed portfolio can absolutely outperform an ETF based portfolio.  Conversely, iceco1d could make a very good case for the opposite.  I would only take your mentors advice so far.  You have to do your homework and find out what money managers in the Jones system work well together.  For instance, ANCFX is a great G&I fund from American, but Hartford's ITHAX is a great growth fund that just kills anything growth related that Jones has to offer.  American also doesn't have a mid cap or small cap domestic fund.  You'll want to find one. 
 
You'll eventually want to consider CFP, but get your business on its feet before you commit yourself to that program.  We have a very smart guy in our region who just about got himself fired because he was studying for the CFP instead of running his biz.  So, now he has his CFP for his biz card, but his business is in the toilet.  Shoot for $30 million AUM before you start the CFP.  Or consider waiting until you hit Seg 4.  Ironically those two will probably happen about the same time. 
 
Baba - "but Jones doesn't have the fee based model active ETF's managers are best suited for"  -  If by this you mean that Jones advisors can't build a custom ETF portfolio and manage it themselves, you are mistaken.  You might want to check your facts before you tell the new guy something like this. 
 
I told you I wasn't trying to hate...all I was saying is that Jones isn't known for having the suite of advisor programs that other firms are...I think you would agree with that.
Mar 3, 2009 3:37 pm

Baba - I understand you weren't trying to hate, but the comment you made was incorrect.  

 
Jaxson - My apologies for offering you a piece of advice.  You are obviously in a much better position than I originally thought.  See, I thought you were new to the industry.  I thought you didn't understand the cost differences and performance differences between an ETF portfolio and a mutual fund portfolio.  I thought you understood that there are some qualifications you have to meet before you can even sit for the CFP or get reimbursed for it by your current (and evidently temporary) employer.  You must already be fully verson on MPT, core/satellite portfolios, turnover, internal trading costs, tracking errors, and all those silly little things.  You must already be aware that your options with looking at ETFs within the confines of EDJ are limited. 
 
Perhaps you should do my LP (and your ego) a favor and find out where your original field trainer went.  And follow him.  Hope you have your BME this month noob.