[quote=AllREIT]

When  EDJ moves to a fee platform, the IR's will again be outclassed by everyone else who is more intelligent/thorough. The only way to cure this problem is to move to a business model based on best practices. And EDJ must do enough training so that IR's can understand, internalise, and explain those practices. 

[/quote]

The other problem with this will be their "top advisor" presentations on converting a business to fees. Since Jones is so damn high and mighty they won't let anyone from the outside talk to their advisors you will have 20+ year vets teaching newbies and they won't know any more than the newbies about a fee business. Probably even less. It should be a great comedy of errors for our observation.

[quote=CIBforeveryone][quote=AllREIT]

When  EDJ moves to a fee platform, the IR's will again be outclassed by everyone else who is more intelligent/thorough. The only way to cure this problem is to move to a business model based on best practices. And EDJ must do enough training so that IR's can understand, internalise, and explain those practices. 

[/quote]

The other problem with this will be their "top advisor" presentations on converting a business to fees. Since Jones is so damn high and mighty they won't let anyone from the outside talk to their advisors you will have 20+ year vets teaching newbies and they won't know any more than the newbies about a fee business. Probably even less. It should be a great comedy of errors for our observation.

Thoughtlessness is not an excuse for competence/incompetence.

Good point, but I favor thoughtful diversification over thoughtful fund jockeying. There some generally "good" fund families, ETFs, cash, certificate choices. Those buy hold folks, as typified by the core philosophy at Jones, are generally on to something. Looks like their just catering to taste on the expanded wrap account program.

[quote=CIBforeveryone][quote=AllREIT]

When  EDJ moves to a fee platform, the IR's will again be outclassed by everyone else who is more intelligent/thorough. The only way to cure this problem is to move to a business model based on best practices. And EDJ must do enough training so that IR's can understand, internalise, and explain those practices. 

[/quote]

The other problem with this will be their "top advisor" presentations on converting a business to fees. Since Jones is so damn high and mighty they won't let anyone from the outside talk to their advisors you will have 20+ year vets teaching newbies and they won't know any more than the newbies about a fee business. Probably even less. It should be a great comedy of errors for our observation.

[/quote]

Actually, I worry about this, too.  There aren't going to be too many people to turn to for direction (that you can trust).  BUT, you have to start somewhere, and it's a step in the right direction.  It will definitely be interesting.

[quote=silouette]

Thoughtlessness is not an excuse for competence/incompetence.

Good point, but I favor thoughtful diversification over thoughtful fund jockeying. There some generally "good" fund families, ETFs, cash, certificate choices. Those buy hold folks, as typified by the core philosophy at Jones, are generally on to something. Looks like their just catering to taste on the expanded wrap account program.

[quote=AllREIT]
Also all this moaning about closed fund's. Roll your own fund with ETF's. I  hope everyone realises that the almost all of the outperformance of value funds vs the S&P500 vanishes when you benchmark them against S&P500 Value index/Russell 1K Value.
[/quote]

I'll agree with this statement, because you used the word "almost".  Of course, there's still actively managed Large Value funds that blow away their "best fit" benchmark. 

I feel that the most efficiency is found in the large cap parts of the market -- because of the prominence of the companies involved they recieve more analyst and media coverage on their equity and debt, supporting the "EMHypothesis".  But this efficiency gradiates from efficient to less efficient as you get smaller in market cap, or decrease in regulation (some foreign securities).

REIT, I like a lot of your posts, and feel that you offer a lot of informative and entertaining bits.  But once you posted something along the lines that all alpha is eroded by the expense of active management.  I couldn't agree with this less.  Using the same asset allocation model, our wrap accounts that hold etfs underperform our wrap accounts that hold actively mnged open end mutual funds. 

So comparing apples to apples (wrap accounts investing according to the same risk-tol. based asset-allocation models, and same 1% wrap fee, taken monthly), our actively managed accounts do better. 

P.S., I’m not trying to be argumentative, just wanted some inputs on the EMH/Indexing vs. Managed topic, and real world experiences.

[quote=Big Taco][quote=AllREIT]Also all this moaning about closed
fund’s. Roll your own fund with ETF’s. I  hope everyone realises
that the almost all of the outperformance of value funds vs the
S&P500 vanishes when you benchmark them against S&P500 Value
index/Russell 1K Value.[/quote]

I'll agree with this statement, because you used the word "almost".  Of course, there's still actively managed Large Value funds that blow away their "best fit" benchmark. [/quote]

That last bit usually vanishes if you benchmark against the "Pure-style" s&p indexes (available in ETF's from Rydex). The best way to outperform your benchmark is to specify the wrong benchmark. So if I run a small cap value fund, I'd want to be benchmarked vs the S&P 500, or even better that s&p 500 pure growth index.

Most alpha vs the S&P500 vanishes after you adjust for value/small cap exposures. In most cases that residual alpha is not persistant nor statisticly significant vs  normal market varience.

Personally, I think alpha is an unsolvable problem, so I focus on asset allocation, psychological toughness, risk management, and investing in my speciality area (being speciality finance companies).

[quote]I feel that the most efficiency is found in the large cap parts of the market -- because of the prominence of the companies involved they recieve more analyst and media coverage on their equity and debt, supporting the "EMHypothesis".  But this efficiency gradiates from efficient to less efficient as you get smaller in market cap, or decrease in regulation (some foreign securities).[/quote]

This has been back and forth debated b/c of the issue of the "glamour premium." Look at the stocks Warren Buffet own's, and you'll see he has a lot of large cap stocks. Lots of large caps suffer from "Boring stock syndrome".

XOM is boring, GOOG is good. Both are large caps.

As for small caps, its hard to say, because there is alot of analyst coverage out there, but its not from the normal shops. There is actually an etf "STH" that focuses on stocks with less than 3 analysts and good fundamentals.

This is also good time to bring up the question of why don't the retail brokerage analysts cover more dividend stocks that would be useful for retail investors to own.

[quote]REIT, I like a lot of your posts, and feel that you offer a lot of informative and entertaining bits.  But once you posted something along the lines that all alpha is eroded by the expense of active management.  I couldn't agree with this less.  Using the same asset allocation model, our wrap accounts that hold etfs underperform our wrap accounts that hold actively mnged open end mutual funds. [/quote]

Since I don't know the specifics of your situation, I'll limit myself to saying that in general, actively managed money does not outperform its benchmarks. You may be lucky, and have found good managers, but the odds are against it.

Alpha has to be judged against the costs of obtaining it, it is very easy to outperform (usually based on luck alone) before the impact of fund expenses. 

[quote=Big Taco][quote=AllREIT]Also all this moaning about closed fund’s. Roll your own fund with ETF’s. I  hope everyone realises that the almost all of the outperformance of value funds vs the S&P500 vanishes when you benchmark them against S&P500 Value index/Russell 1K Value.

I'll agree with this statement, because you used the word "almost".  Of course, there's still actively managed Large Value funds that blow away their "best fit" benchmark. [/quote]

That last bit usually vanishes if you benchmark against the "Pure-style" s&p indexes (available in ETF's from Rydex). The best way to outperform your benchmark is to specify the wrong benchmark. So if I run a small cap value fund, I'd want to be benchmarked vs the S&P 500, or even better that s&p 500 pure growth index.

Most alpha vs the S&P500 vanishes after you adjust for value/small cap exposures. In most cases that residual alpha is not persistant nor statisticly significant vs  normal market varience.

I agree, impurity in mutual fund's styles play a role when we're talking about the elusive 'alpha'.  Still, I use software to xray, and look holistically at the asset allocation of each portfolio.

Personally, I think alpha is an unsolvable problem, so I focus on asset allocation, psychological toughness, risk management, and investing in my speciality area (being speciality finance companies).

We focus on the asset allocation also, based on a clear understanding of the client's risk tolerance, and managing client expectations

It sounds like you may have some of your own "active management" influence if you're overweighting Specialty Financials?

[quote]I feel that the most efficiency is found in the large cap parts of the market -- because of the prominence of the companies involved they recieve more analyst and media coverage on their equity and debt, supporting the "EMHypothesis".  But this efficiency gradiates from efficient to less efficient as you get smaller in market cap, or decrease in regulation (some foreign securities).[/quote]

This has been back and forth debated b/c of the issue of the "glamour premium." Look at the stocks Warren Buffet own's, and you'll see he has a lot of large cap stocks. Lots of large caps suffer from "Boring stock syndrome".

XOM is boring, GOOG is good. Both are large caps.

As for small caps, its hard to say, because there is alot of analyst coverage out there, but its not from the normal shops. There is actually an etf "STH" that focuses on stocks with less than 3 analysts and good fundamentals.

This is also good time to bring up the question of why don't the retail brokerage analysts cover more dividend stocks that would be useful for retail investors to own.

[quote]REIT, I like a lot of your posts, and feel that you offer a lot of informative and entertaining bits.  But once you posted something along the lines that all alpha is eroded by the expense of active management.  I couldn't agree with this less.  Using the same asset allocation model, our wrap accounts that hold etfs underperform our wrap accounts that hold actively mnged open end mutual funds. [/quote]

Since I don't know the specifics of your situation, I'll limit myself to saying that in general, actively managed money does not outperform its benchmarks. You may be lucky, and have found good managers, but the odds are against it.

We filter well, and when the playing field has been narrowed by certain parameters, we research what's left, running them through some routines.  I know you don't like to hear this, but one of our biggest problems is funds that we use closing.

Alpha has to be judged against the costs of obtaining it, it is very easy to outperform (usually based on luck alone) before the impact of fund expenses. 

I'm comparing actual, bottom line returns of etf wraps and fund wraps, with the same underlying asset allocation models, same wrap fee (1%, taken monthly).

For myself, I am my own superstar manager. So good, I have to be registered with the SEC. 



If you finding funds that work for you, more power to you. Personally,
I do my own ETF wrap which attempts to replicate DFA funds. Then on top
of that I add my own expertise (or lack thereof) in REITs to the
portfolio.

[quote=AllREIT]For myself, I am my own superstar manager. So good, I have to be registered with the SEC. 

If you finding funds that work for you, more power to you. Personally, I do my own ETF wrap which attempts to replicate DFA funds. Then on top of that I add my own expertise (or lack thereof) in REITs to the portfolio.
[/quote]

The bad one's don't have to register with the SEC?

[quote=AllREIT]For myself, I am my own superstar manager. So good, I have to be registered with the SEC. 

If you finding funds that work for you, more power to you. Personally, I do my own ETF wrap which attempts to replicate DFA funds. Then on top of that I add my own expertise (or lack thereof) in REITs to the portfolio.
[/quote]

Stop me if this has already been discussed on here, and I'm also being lazy, because I could probably google this myself...  I've heard of DFA's, from reading Trevor Moriens site, and other trade articles.

Why are they so special? 

Do you really have to take a rigorous qualification course to offer them?  

Do you have to be a RIA only to offer them? 

How are they different from asset allocation index funds?

I spoke with a client, who is also an RIA (has insurance with us), and this person was essentially bragging about a fund family that they sell that no one in [a huge tri-state-plus regional area] can sell.  I said: "you mean DAF?"  they corrected me, said "DFA", oops...  anyway: Was this person blowing smoke?  Or are they really that exclusive?

[quote=Big Taco]

[quote=AllREIT]For myself, I am my own superstar manager. So good, I have to be registered with the SEC. 

If
you finding funds that work for you, more power to you. Personally, I
do my own ETF wrap which attempts to replicate DFA funds. Then on top
of that I add my own expertise (or lack thereof) in REITs to the
portfolio.
[/quote]

Stop me if this has already been discussed on here, and I'm also being lazy, because I could probably google this myself...  I've heard of DFA's, from reading Trevor Moriens site, and other trade articles.

Why are they so special? 

Do you really have to take a rigorous qualification course to offer them?  

Do you have to be a RIA only to offer them? 

How are they different from asset allocation index funds?

I spoke with a client, who is also an RIA (has insurance with us), and this person was essentially bragging about a fund family that they sell that no one in [a huge tri-state-plus regional area] can sell.  I said: "you mean DAF?"  they corrected me, said "DFA", oops...  anyway: Was this person blowing smoke?  Or are they really that exclusive?

You know, REIT, I'm starting to feel that in an age where people will argue EMH on the grounds that there's so much real-time information, I will argue that there's an EAT.  (the A stands for Academic). 

If the DFA guys are "some big wheel's in academic finance", then when it comes to asset allocation indexing, vanguard or fidelity no load, or you with your etf wrap, etc... has to be close to what DFA is doing?  They're privy to much of the same statistical back testing, computing power, ability to hire academic talent, and of course, we're talking about INDEXing here, right?  That takes most guess work out right there, doesn't it? 

Again, I'm not trying to be obnoxious, just curious.

[quote=Big Taco]If the DFA guys are “some big wheel’s in academic
finance”, then when it comes to asset allocation indexing, vanguard or
fidelity no load, or you with your etf wrap, etc… has to be close to
what DFA is doing?  They’re privy to much of the same statistical
back testing, computing power, ability to hire academic talent, and of
course, we’re talking about INDEXing here, right?  That takes most
guess work out right there, doesn’t it? [/quote]



I’m not getting what you are talking about.



The point is process and tools. DFA funds are useful tools for people
who believe in EMH/Passive investing and want slightly more
sophisticated tools just ETFs. DFA funds provide a smooth skew towards
smallcap/value vs ETF’s which tend to be more discrete.



Thanks to low fund turnover, their small/micorcap funds tend to hold more illiquid stocks.



EMH’ers care about process, believing realised results are due to luck/factor exposure.

As far as my EAT (efficient academic theory) goes, if EMH is based on the idea that there's so much real-time info on all investments in the marketplace, that any inefficiencies are immediately zeroed out (is this correct?), then there must be enough real-time accessible data that we don't need these braniacs from DFA, you should be able to get passive asset allocation index funds from vanguard, fidelity, etc.  Is this a viable argument?

what I'm saying is: if they truly believe in EMH, a) then that makes security selection a moot point, because they'll just want whatever's in the appropriate indexes based on their AA, b) and marketing timing is of course, moot, because there's no inefficiency to exploit, right? 

So if it all just comes down to 1) lowest expense 2) matching passive indexed investments with appropriate AA, then what is DFA offering that a vanguard (T Rowe,Fidelity,etc.) AA index fund won't?  I don't get it yet.  Are they tactically allocated?  or static AA?  I thought EMHers wouldn't go for tactical ANYthing, because they feel there's never any worthwhile inefficiency to exploit? 

I'm definitely not in my element on a EMH discussion, because I don't beleive all the markets are very efficient.  That's why I'm asking.  I don't know if the basis for my reasoning is correct.

If EMHers don't worry about market timing or security selection (because their index funds will buy/sell a security when it enters/exits the index based on market cap), then it would seem that the only thing left is a) fees, and b) Asset Allocation, right? 

So DFA does better (tactical?) asset allocation and lower fees than other passive asset allocation funds? 

I think the efficient frontier is a piece of crap...

1.  Not everyone has access to the same information.

2.  Too much in financial statements is based on estimates.

3.  There are too many unknowns in companies that rely heavily on R&D.

4.  It is too easy for management to massage the numbers.

5.  All of this gets amplified with stocks that get little coverage.

MPT is a nice theory, and it might work if everything was 100% transparent, but I don't see this matching reality, and thus, I'll never be an indexer.

[quote=Indyone]

I think the efficient frontier is a piece of crap...

1.  Not everyone has access to the same information.

2.  Too much in financial statements is based on estimates.

3.  There are too many unknowns in companies that rely heavily on R&D.

4.  It is too easy for management to massage the numbers.

5.  All of this gets amplified with stocks that get little coverage.

MPT is a nice theory, and it might work if everything was 100% transparent, but I don't see this matching reality, and thus, I'll never be an indexer.

[/quote]

I agree.  I know that stats will say that 80-90% (or whatever) of funds underperform relevant benchmarks... well, out of nearly 20,000 funds, there should still be enough fodder out there for those who have the systems to find the good ones.  And that's just funds.  Of course there's so many other actively managed investments to plug into asset allocation models... 

that's not to say that some of our wrap accts aren't made entirely of etf's, but my whole tirade began because over the last 3 yrs (when we began using etf's), none of our etf accts have outperformed our fund wrap accts.  We want to offer the best investments to clients, so I'm not going to be closed minded.  that's why I was asking AllReit questions on this.

[quote=Indyone]I think the efficient frontier is a piece of crap…

MPT is a nice theory, and it might work if everything was 100% transparent, but I don't see this matching reality, and thus, I'll never be an indexer.[/quote]

wait, do you not like EMH, or MPT, or both?

and on the EMH once again, I remember reading a blog from Travis Morien about how he attended a conference w/ Fama & French, and his perception was that even one of those guys wasn't as gung-ho about EMH as would be expected... but that's hearsay.