American Funds
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new_indy,
If you read 2 posts beyond my initial post I defined bulletproof. Obviously the value of ALL things will go down at some point. What I was getting at is relative to disasters at other fund families can American Funds maintain their current reputation through different market cycles. Also, who cares if CAIBX is down this year? Who cares if it remains down this year and next? That has no bearing on whether or not it is a good fund. What matters is that the fund company stays true to their philosophy so that as advisors we know what our clients own and can manage their portfolios appropriately.Yeah, the simple sale comes in when I tell my clients that ICA isn't flashy, doesn't make lot of noise, and will bore you to wealth. I ran a couple of hypos real quick based on your quote. I used IVV, EFA, and a 2% cash position for 5 years. The cash is the only variable I'm not sure if I'm high or low on. Those indexes in the % you used returned 11.1% on the trailing 5 years. ICA with the a load ($100K) was at 10.1% over the same timeframe. So yes, those indexes beat ICA. But ICA had a lower beta, higher alpha. Less risk for the same return. I didn't add any fees to the index portfolio either. Some place like ML would charge 1.5% annually or more (maybe less for an indy) to manage the money. So, throw that in and your facts are a little dicey. As long as the investments you are using are meeting the clients goals, does it really matter whether or not ICA beats the index?ICA is 75% domestic, 13% Intl, 12% cash. Owning those same 3 indexes the last 5 years (in same proportion) beat the returns of ICA -at NAV. Facter in loads and ICA loses even worse. The fact that they “beat the S and P” as they say at Jones and elsewhere is not apples/apples. It’s simply an easy sale.
I find it fascinating that some forum members focus so heavily on short-term results when discussing long-term investments. Does it really matter which funds are up this year and which are down?
new_indy, by encouraging us to look up the definition of "opportunity cost," are you implying that you in fact possess the crystal ball we all so desperately long for? Are you saying that you know which funds to move in and out of and when to move in and out of them? If you're trading stocks on a daily basis, then short-term performance is paramount, but I find it to be of little consequence in a 5, 10, 20-year plus investment.I don't think anyone said they were bad funds, just that they aren't bulletproof, but if they don't beat the indices then what is the point of investing in them? There are plenty of no-loads, ETF's, etc that have equal or better performance. In fact, if you are a true "buy and holder" just buy a quality diversified multi-national corp and history says you will likely beat the indices and most mutual funds by rienvesting the dividend over a 10 year period. Of course your revenue sharing and trails would vanish, but your clients would be "bored to wealth" and know exactly what they own.
Crystal ball…Nope. Just lot of historical charts that show the dangers of complacency, and an understanding that if you bought a loaded mutual fund at the beginning of this year and it is down 10%, then you are down 15% and you will get the pleasure of paying a capital gains tax at the end of the year on the distributions. How does a fund with a historic average of around 10% recoup that in a reasonable period of time?
Borker Boy,
You are right on the money. Making knee jerk decisions after a few months when investing in mutual funds is because of their short term performance is absolutely ridiculous.Don’t misrepresent my comments. I don’t make Knee-jerk reaction with mutual funds. In fact, I hardly ever put my clients in mutual funds unless there are monthly distribution issues, or other case by case reasons. If I have a client or prospect that insists on using funds, then I generally refer them along to the no-load market. They just don’t need an advisor to invest in funds and I don’t need the headaches. I was simply responding to the dangerous belief that any investment is “bulletproof”.
An up year of 30% should do it in about a year. Thats the funny thing about averages.How does a fund with a historic average of around 10% recoup that in a reasonable period of time?
So you put them in ETFs instead? Hate to tell you this but they don't need you for that either. If not ETFs, what are you using?Don’t misrepresent my comments. I don’t make Knee-jerk reaction with mutual funds. In fact, I hardly ever put my clients in mutual funds unless there are monthly distribution issues, or other case by case reasons. If I have a client or prospect that insists on using funds, then I generally refer them along to the no-load market. They just don’t need an advisor to invest in funds and I don’t need the headaches. I was simply responding to the dangerous belief that any investment is “bulletproof”.
We’ve had this discussion before spiff. I use etf’s sparingly as well and only in areas and markets I don’t feel comfortable understanding myself. I use many different products depending on my clients goals. I stay away from insurance products for the most part unless it is term life. Most of the things I use don’t mix well with Kool-aide, but as I said before in this thread, buying and holding your multi-nationals (not suggestions just ideas for you to research) such as PG, PEP, DHR, BRKa, UTX, XOM or many others you will most likely outperform mutual funds over the long haul. Plus you don’t have capital gains unless you sell. Stating that, you can’t totally ignore them because, as this thread started, nothing is bulletproof.
Sorry, I have a lot of converstations.
I don't disagree with you that holding those companies would have done whatever you wanted. Most people don't have that kind of discipline. When their stock hits the newspapers they get nervous. When their stock drops $5, or $5000 for Mr. Buffett, they start thinking about selling. Kudos to you for having the gumption to build your own stock portfolios. However, I personally prefer to have a guy with CFA or CFP or some other alphabet soup version behind his name do the due diligence for me. I have an uncle who has millions. His upstairs office overlooks a golf course that overlooks the Monterey Bay. He has a guy that does his investing that believes like you do. He asked me one time what was wrong with taking his millions and buying 20 shares of BRK A. I didn't have a really good answer for him. The power of the kool aid was strong that day.An up year of 30% should do it in about a year. Thats the funny thing about averages.[/quote][quote=new_indy] How does a fund with a historic average of around 10% recoup that in a reasonable period of time?
new_indy do you think one year is a reasonable period of time?
[quote=newnew]ICA is 75% domestic, 13% Intl, 12% cash. Owning those same 3 indexes the last 5 years (in same proportion) beat the returns of ICA -at NAV. Facter in loads and ICA loses even worse. The fact that they “beat the S and P” as they say at Jones and elsewhere is not apples/apples. It’s simply an easy sale.[/quote]
Was ICA balance exactly the same over the last 5 years? I don’t know but what I do know is the adjustments in the balance is why you hire the mutual fund managers. newnew are you adjusting your allocation for you clients base on what you know is happening to the markets in India, high yield bonds, the industrial sector and gold?
That is why CAIBX is so succesful. Its components are basically ICA, Bond Fund, and CWGI. The return is about the same is the comparable weightings of each (i.e. 20% Bond Fund, etc.). But CAIBX did it with far less risk (volatility) than the combo of those three. That’s because the managers are tactically re-weighting each componant.
Indexes may have the same returns, but managed funds can often do it with less volatility.
Max…no I don’t think 1 year is a reasonable period of time. Do you really think ica will turn in a 30% return next year? How about a 15% 2 years in a row? It could happen I suppose, but what I do has been pretty successful so far, I see no need to start following the crowd.
Remember your ownership/loanership training? What do you really own when you buy a mfd? At the end of the day all you own is smoke and the belief the the manager knows what they are doing. Going off on a tangent, but following that line of reasoning: If you read a prospectus and look at the percentage of money the Manager actually has in his own fund compared to his net worth you generally won't find a huge percentage (assuming you find the information at all). Why would that be? He is there to manage the money on a day to day basis isn't he/she? Why don't they have 100% of there assets in their own fund family? Yet what percentage of your client's assets are locked up into one fund family?[quote=new_indy]Max…no I don’t think 1 year is a reasonable period of time.
[/quote]I will have to disagree with you on this, I think 1 year is a reasonable time to recover from a 10%-15% down year. Of course you could bounce back 30% in 6 months and stay flat for the other six months. I'm not going to take the time to research that though.
[quote=new_indy] Do you really think ica will turn in a 30% return next year? How about a 15% 2 years in a row? [/quote]
Pulling out the handy dandy ICA guide I see that in the last 73 years ICA has been down 10% or more 7 years and it has been up over 30% 9 years, with another 3 years up over 29%. ICA has done over 15% two years in a row 22 time in the last 73 years. So yea I think ICA could do 30% or over next year, even more likely to do over 15% per year for two years.
QUOTE=new_indy] If you read a prospectus and look at the percentage of money the Manager actually has in his own fund compared to his net worth you generally won't find a huge percentage (assuming you find the information at all). Why would that be? He is there to manage the money on a day to day basis isn't he/she? Why don't they have 100% of there assets in their own fund family?
[/quote]
I don't know how you would find out what the net worth of a fund manager and I would tend to believe that most mutual fund managers have a good portion of their investments with their company, but it's no something I would spend a lot of time to investigate. Primarily because I do think it would be difficult to find. I concede this point to you.
QUOTE=new_indy] Yet what percentage of your client's assets are locked up into one fund family? [/quote]
I only invested in no load mutual funds for about 20 years before joining Jones, so the one family A shares model is uncomfortable for me. So, as long as I can hit a breakpoint I almost always use at least 2 fund families. So only my smallest clients have only one fund family.
I would guess that the guys at AMF or Hartford or Fidelity have ALL of their money with their own companies. I’d guess it’s a company policy. After all, how would it look if Jim Lovelace had $1 mil in CAIBX and $5 mil in VFINX? Now, he might have money in CWGIX or NEWFX or ABNDX too, but probably not outside of AMF.
Actually you can read the numbers in the prospectus addendum under additional information. It won’t give you complete information, but it will give you an idea. Frankly I think it should be fully disclosed, just like any CEO of a corporation. After all, they are what investors put money behind, not the stocks in the funds.