Portfolio Management
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I'm curious to hear from any FA's doing discetionary Portfolio Management. Meaning SMA's where YOU are the manager. Especially within the wirehouse.
What are your reasons for running money that way? Are you using technology to scale it? Do you run models, and how many models do you run, MF's individual stocks? What about the fixed income piece? What do you charge? How do you make your decisions, and most important how do you sell it, position it, whatever?
I used to focus on SMA's. Over time I've come to the conclusion, that by running the money myself, i can not only be more tactical, but the clients feel its about me, rather than me being a salesman , outsourcing the money. It does take a bit more time, but with the block trading technology that I have available to me at SB, it's still scalable. Plus i enjoy it.
I have to admit that there are still times when I feel maybe I should be doing more MONEY MANAGERS, but I keep going back to ME. I run Portfolios of all stocks, all ETF's a mix, and MF's with an occassional ETF. Lately I am moving more toward the MF platfrom. I use a combination of firm research, outside research, and Dorsey Wright (which I am not an expert in, but know enough about to integrate it into my process). Curious to hear others thoguhts. Both in regards to running money and marketing the product3 Models: Preservation, Optimization, & Leverage (same positions only weightings are different).
Macro with momentum/RS overlay. Core (ETF) and satellite (stocks) strategy. 20 positions max.
Sectors: Energy, Materials, Technology, Emerging Markets,
Stocks: AAPL, OXY, GILD, V, GGB, PCLN
ETFs: DBC, ADRE, QQQQ, PXE
Equities:
2.00% first $500k, 25% (sequential) discount for each $500k thereafter
Bonds:
.50% flat
or
1% flat & Performance fee of 10-20% on accounts over $750K.
Householding:Yes
Blended billing: Yes
Back office: Morningstar Advisor Workstation
Reuters Bridge Channel
Front office/CRM: eMoney 360 Pro
Custodian: Fidelity
Skee - re core satellite -
do you use ETF's as core for any particular asset class - like - are you doing Large Cap Equity with ETF's or for part of that asset class? Any screening strategy? Lately I've been charging 1.5% flat, up to a million, or 1% flat for accounts $1 million up, for my MF accounts, since I need to factor in expense ratios (we use no loads and load waived A shares, but rebate any 12b-1's back to the client on the A's, so about .7 average ER). If I am using individual equities I'll start at 2, go to 1.5 for $1 million, using breakpoints not flat.Prat- At ML I’ve gravitated from seperate account SMA to almost entirely discretionary portfolio management where I run the portfolio. Similar reasons that you stated; lack of conviction in the outside managers, feeling disconected from the investment process, etc. I’ve been very happy with the outcome. I feel much more engaged in the process, and clients feel (rightly) that they are getting something unique.
Process is similar to Skee's. Overall philosophy is macro w/momentum. Sell the losers quickly, and let the winners run. Core is etfs, but generally broad market etfs. Satellites are tactical etfs, closed end funds, and an occassinal stock. Conservative accounts are 80% core - 20% satellite; aggressive accounts are generally the reverse. Intelectually this makes sense to me, and it has not been difficult to perform better than a blended benchmark net of fees. Fees are 2% to $250k, 1.75% to 500K, 1.5% to $1 mill and 1% over. I average about 1.75% with an average account size of about $400k. I also run an income portfolio at about 80bp. I wish I could charge a performance fee of 10-20% like skee, but, of course, in a wire that won't ever fly.Skee -
We also custody with Fidelity.
Is there any other trading platform, other than AdvisorChannel Workstation, that you use to build and transmit orders to Fidelity?
Just curious to know - I don’t have any issues with Fidelity’s trading platform… just wondering if you are using something else…
Thanks,
C
Can you guys talk a little more about macro/momentum?
I am assuming that means the tactical or sattelite piece is tops down, sector first, with consideration given to market and peer relative strength? I am struggling with fees, I guess becasue I am using mutual funds, and if I charge 1.5% then add the ER, even after rebating the 12-b1 fee to the client, it ends up costing the client 2.25, which means I need to get 9% to get 6.75 net to the client. Am I selling myself too cheap? Maybe I need to re-examine the viablity of usuing MF's. Maybe I should go back to ETF's and individual stocks. Need to hone a process.Ice - great stuff - thanks.
I use the SB technology to screen for 1st quintile Lipper MF;s, and for positive Alpha, and where possible, low beta. I am using funds for large cap growth and value for example, like Janus Advisor Forty, and Pioneer Cullen Large Cap Value. I need to re-look at the numbers vs the benchmark, but I think they both outperform for 1, 3 and 5 year. I am using them in combo with Vanguard, and I share large cap ETF's to lower the total ER on the portfolio. And in the case OF Janus Adv Forty, to get more diversification. But you bring up some great ideas, that I'm going to consider. This is a great thread, for me at least, extremely useful. Thanks for all the great ideas.I use that Janus Forty fund too. It’s done really well. Also Touchstone Large Growth (TEQCX) on the C share managed by Louis Navallier has outperformed on the 1, 3, 5, and 10 year.
Ice- I think there might be a fair amount of gains you're leaving on the table by going the passive route.I must be missing something. I agree most managers will underperform. It also depends on the time frame you are looking at. But looking at the Google Finance interactive chart, from the beginning of March 2001 to now, the S&P has done about 13%. Navallier has done 45%.
Since the inception of the Janus fund in October 2002, the S&P was up 74%, Janus is up 140%, and Navallier is up 110%. I don't call that luck or style drift. That is good management.ice is right. snaggle not making good sense.
there is not an active manager in the world that will say they can beat the APPROPRIATE index over time by more than a point or two. Show me a domestic stock fund that consistently "beats the S and P" and I will show you a fund that includes more than domestic stock (usual choices to add are cash and intl stocks, maybe some bonds or hi yld). it is the extra asset classes that add the "alpha", not stock picking! IT IS ALL MARKETING! Easy to sell all that "beat the market" crap. I belive in the Efficient Market Theory and stick to funds/ETFs with avg exp of 20 bps. In the WSJ on sat, article said that in the last 3 years, only 1% of 2300 active funds "beat the S & P" IF YOU COUNT TAXATION. Pitiful. But it's easy to sell.[quote=newnew]ice is right. snaggle not making good sense.
there is not an active manager in the world that will say they can beat the APPROPRIATE index over time by more than a point or two. (Only a point or two? That adds quite a bit over time) Show me a domestic stock fund that consistently "beats the S and P" and I will show you a fund that includes more than domestic stock (usual choices to add are cash and intl stocks, maybe some bonds or hi yld). it is the extra asset classes that add the "alpha", not stock picking! IT IS ALL MARKETING! Easy to sell all that "beat the market" crap. I belive in the Efficient Market Theory and stick to funds/ETFs (plus what % commission or fee? Is your allocation static or tactical? Point is, where do you add alpha, or do you believe that alpha is not achievable? Indexing by definition eliminates alpha. To benchmark, you would simply use the indexes matching the ETFs in the same proportion and after fund costs and broker cost you are subtracting alpha.) with avg exp of 20 bps. In the WSJ on sat, article said that in the last 3 years, only 1% of 2300 (what about the other 9000 actively managed equity funds, how many of them beat the S&P?)active funds "beat the S & P" IF YOU COUNT TAXATION. Pitiful. But it's easy to sell.[/quote]So how are you setting up those accounts? Are you wrapping the Vanguard and other index funds?
Please all of you investment wizards out there listen to Ice. He knows what he is talking about.
ice- I DO NOT believe that active managers can win by a point or two. I said that THEY would never say that they do MORE than that--I was referring to Snags outrageous comment that one fund beating an index by ALOT (more than one or two points) was the result of "good management". Ridiculous. We are in agreement.----------- If some of you want to insist on active management, fine, but you are ignoring decades of academic studies and the 1990 Nobel prize in Econ--all of which say, basically, "its the asset class, stupid". The rest is for show "I am DOING SOMETHING for my clients (picking winners)"
[quote=iceco1d]
Snags I like to use Vanguard usually for indexing (and yes, I charge a fee for it). I am also trying to integrate T. Rowe Price into the low cost mix as well. For the actively managed pieces of portfolios I primarily use Oppenheimer, Goldman, and Russell (some bond funds, tax managed funds, emerging markets, BRIC, etc.). Keep in mind, I am only talking funds right now - no ETFs, no stocks, no bonds, etc. I would say, generally 60-75% of my (fund) portfolios are index and/or very low cost funds, and the remainder is active. Fee starts at 1.5% and can go as low as .6% (but generally not lower than 1.0%). [/quote] This is what I was looking for. So at 1%, is it safe to say to your clients that you can pretty much guarantee that they will always underperform the benchmark by at least 1.2% including fees and expenses? It's kind of like in baseball. If I sit on the bench, I can guarantee I won't strike out. But I can also guarantee I'll never get a base hit...just some splinters in my ass (fees).No, Id say it’s more like you are trying to hit a home run every time while Ice is trying to take what the pitcher gives him. No he won’t hit as many homers as you but overall he’ll be a more valuable asset to the team.
[quote=iceco1d]
No Vanguard wholesaler has ever taken me to lunch either...[/quote] Hmmm...I had a great Kobe beef burger today for lunch from a wholesaler...It was delicious! You and I could sit here all day long til we're both in a LTC facility and we'll do nothing more than bang our heads against the wall...Again, in Modern Port Theory an Efficient Frontier exists. You, Mr Prospect, need to be on it. What part of the curve you possess is based on your risk tolerance. (this info is out there, I do not make it up!). My job is to keep you on it, without regard to emotion, but with regard to tax efficiency.