Author Topic: Lower fees but at what price?  (Read 11024 times)

Clover

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Lower fees but at what price?
« on: April 15, 2014, 06:59:55 PM »
I'm new to the forum but I have noticed the theme of Vanguard as the preferred fund company because they are the low cost leader.   And I've seen several threads where people have been given advice to move theirs funds because Vanguard will save them money.  A few years ago I analyzed my portfolio to see if I should switch to low cost index funds and decided to stay put.  After hanging out on this site I decided to revisit the issue and did another comparison.  I went to morningstar.com and looked at the growth of a 10k investment in my fund over a 10 year period vs. that of the comparable Vanguard fund.

gfafx            20,716.42  vs.  vlacx    18,291.03
shsax    32,184.71 vs   vhcix     23,168.68
kdsax    23,611.96  vs  visvx         23,541.52
sgenx    25,692.15  vs  vhgex    20,035.13
tahyx    19,607.22  vs  vwehx    19,637.24
ekgax    25,898.70  vs  vhgex    20,035.13

Totals:   147,711.16   vs                   124,708.73

I was able to buy these funds on a load waived basis through my 401k but these morningstar numbers include the load.  And I will probably pay tons of extra money in fees over the years compared to the Vanguard funds.  But my goal is to accumulate the most money possible from my investments and for me that means staying put once again.

I do NOT think that Vanguard is a bad fund company, they are great.  And I'm NOT saying this as an endorsement for active funds vs. index funds.  But I am saying that if you already have a portfolio built, do your homework before you sell off your portfolio to move to Vanguard because they have lower fees.







 

 


foobar

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Re: Lower fees but at what price?
« Reply #1 on: April 15, 2014, 09:23:48 PM »
The hard part is comparing funds For example gfafx is a large cap growth fund.  vlacx is a large cap blend.. It should be compared to VIGAX. Growth slightly outpeformed blended over the past 10 years. Switch over to the growth index and you would have had 21.8k or an extra thousand bucks. It gets even harder when you look at things like kdsax and visvx. Both have the world small and value but if you look at the holding they are drastically different. KDSAX has a lot more micro caps and small growth while visvx throws in more midcap value. Your global funds have a higher US weight. Now some times the differences are important (i.e. I think vanguards small cap value fund skews too big and I expect them to trail a true small cap fund because of it) and some times it is just luck (growth out performing blend over the past 10 years).

personally I own a bunch of active managed funds. They are all in 401(k)s though. In taxable accounts, the trading generates to many capital gains which kill performance. In general I use active management when going small, sector, and emerging. I have found that for large caps, indexing works fine. YMMV.










I'm new to the forum but I have noticed the theme of Vanguard as the preferred fund company because they are the low cost leader.   And I've seen several threads where people have been given advice to move theirs funds because Vanguard will save them money.  A few years ago I analyzed my portfolio to see if I should switch to low cost index funds and decided to stay put.  After hanging out on this site I decided to revisit the issue and did another comparison.  I went to morningstar.com and looked at the growth of a 10k investment in my fund over a 10 year period vs. that of the comparable Vanguard fund.

gfafx            20,716.42  vs.  vlacx    18,291.03
shsax    32,184.71 vs   vhcix     23,168.68
kdsax    23,611.96  vs  visvx         23,541.52
sgenx    25,692.15  vs  vhgex    20,035.13
tahyx    19,607.22  vs  vwehx    19,637.24
ekgax    25,898.70  vs  vhgex    20,035.13

Totals:   147,711.16   vs                   124,708.73

I was able to buy these funds on a load waived basis through my 401k but these morningstar numbers include the load.  And I will probably pay tons of extra money in fees over the years compared to the Vanguard funds.  But my goal is to accumulate the most money possible from my investments and for me that means staying put once again.

I do NOT think that Vanguard is a bad fund company, they are great.  And I'm NOT saying this as an endorsement for active funds vs. index funds.  But I am saying that if you already have a portfolio built, do your homework before you sell off your portfolio to move to Vanguard because they have lower fees.

Clover

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Re: Lower fees but at what price?
« Reply #2 on: April 16, 2014, 05:08:24 PM »
Hi foobar, I agree that it is like comparing apples to oranges when you compare an index fund to a actively managed fund.  and I use index funds too, mainly in the kids 529 plans.

Cyrano

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Re: Lower fees but at what price?
« Reply #3 on: April 17, 2014, 05:56:13 AM »
Have you been consistently invested in those funds for ten years? If yes, congratulations. But if not, it's worth instead to look at whatever you were invested in ten years ago and ask, did it outperform? Those funds are in your 401k now because they have outperformed over 10 years. Many funds that did not no longer exist. There's a strong selection effect at work here, and outperformance over the last ten years isn't well correlated with outperformance in the next ten.

foobar

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Re: Lower fees but at what price?
« Reply #4 on: April 17, 2014, 07:53:21 AM »
My Dad's company used to offer him free consultations with a fidelity advisor for his 401(k). They guy asked why he was in so many 3 star fidelity funds. My Dad replied "They were 5 star funds when the last advisor suggested them":).

10 years is a blink of an eye in investment terms. You time a cycle where value beats growth or Large beats small and you are going to draw different conclusions on what to invest in.  Funds also change a lot over time as assets grow and managers come and go.

In general the strategy you pick (growth versus value, small versus large, foreign versus US) makes up ~90% of the difference in performance. The actual picks and expenses make up the rest. The exception is when you go really focused (i.e. you pick 3 stocks. If 10 years ago you picked Apple, exxon, and Wells fargo your pretty happy. You picked RIMM, Bank of America, and BP not so much. Today the winners look clear. Back in 2004 it wasn't. ) where individual stock performance is what matters.



Have you been consistently invested in those funds for ten years? If yes, congratulations. But if not, it's worth instead to look at whatever you were invested in ten years ago and ask, did it outperform? Those funds are in your 401k now because they have outperformed over 10 years. Many funds that did not no longer exist. There's a strong selection effect at work here, and outperformance over the last ten years isn't well correlated with outperformance in the next ten.

waltworks

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Re: Lower fees but at what price?
« Reply #5 on: April 17, 2014, 08:02:25 AM »
You are just cherrypicking here. You can dig up lots of funds that outperformed lots of others over various random amounts of time, but that has basically zero bearing on what will happen going forward.

On the other hand, minimizing fees is something you can control, and hence one of the great attractions of Vanguard.

-W

Clover

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Re: Lower fees but at what price?
« Reply #6 on: April 17, 2014, 01:37:17 PM »
Have you been consistently invested in those funds for ten years? If yes, congratulations. But if not, it's worth instead to look at whatever you were invested in ten years ago and ask, did it outperform? Those funds are in your 401k now because they have outperformed over 10 years. Many funds that did not no longer exist. There's a strong selection effect at work here, and outperformance over the last ten years isn't well correlated with outperformance in the next ten.

I've owned all of these funds since at least 2006, some of them longer.  So, thanks!
« Last Edit: April 17, 2014, 02:01:41 PM by Clover »

Clover

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Re: Lower fees but at what price?
« Reply #7 on: April 17, 2014, 01:41:07 PM »
You are just cherrypicking here. You can dig up lots of funds that outperformed lots of others over various random amounts of time, but that has basically zero bearing on what will happen going forward.

On the other hand, minimizing fees is something you can control, and hence one of the great attractions of Vanguard.

-W

Cherry picking?  This is my own portfolio.  My advice was for people to check carefully what they have before selling. 

Another Reader

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Re: Lower fees but at what price?
« Reply #8 on: April 17, 2014, 02:16:56 PM »
Well managed funds often outperform their benchmark index over long periods of time.  Good fund managers are not common but some mutual fund companies seem to find more of them.  If you can get the better American Funds without paying the load (Class A shares), those are often good funds to hold in a 401k or similar retirement plan where you don't get to make the menu.  I was never particularly impressed with most of Vanguard's actively managed funds and almost all of Vanguard's growth in recent years resulted from the increasing popularity of indexing.

Using the hypothetical growth of $10,000 tells you a lot about the fund, including the volatility as well as the performance.  I used that graph a lot in evaluating the choices in the 457 plans.  Our plans usually contained so many bad funds we would run them through Fund Alarm for laughs.  Sadly, Fund Alarm has disappeared.

I agree with Foobar about where active management really makes a difference - small cap, sector, and emerging markets.  I also agree index funds are useful for tax efficiency in taxable accounts. 

Nords

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Re: Lower fees but at what price?
« Reply #9 on: April 17, 2014, 03:49:11 PM »
But I am saying that if you already have a portfolio built, do your homework before you sell off your portfolio to move to Vanguard because they have lower fees.
For example, you could study the effects of fund expenses over a period of longer than 10 years.  Because although you may be able to invest enough in 10 years to reach financial independence, you're hopefully going to be living off your portfolio for a heckuva lot longer than that.

I'm also pretty sure that your high-cost active fund managers will earn enough in fees to be able to reach their own financial independence within 10 years...

brewer12345

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Re: Lower fees but at what price?
« Reply #10 on: April 17, 2014, 04:39:26 PM »
The other nasty thing about actively managed funds is that they frequently have a lot of turnover and therefore generate tax liabilities far in excess of index funds/ETFs.  In retirement it is extremely easy to pay little or nothing in income taxes if you can manage your taxable income closely.  Hard to do if you get a big distribution at the end of the year.

Another Reader

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Re: Lower fees but at what price?
« Reply #11 on: April 17, 2014, 04:56:43 PM »
Yep, I have been paying those low taxes since I gave up that pesky career thing.  Some years I think I pay the accountant more than the state and feds combined because of all the pieces of virtual paper submitted for the rentals.

Keep those actively managed funds in your retirement accounts.  If they turn over 200 percent, it won't matter.

kyleaaa

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Re: Lower fees but at what price?
« Reply #12 on: April 18, 2014, 02:00:29 PM »
Your analysis implicitly assumes "past performance is indicative of future performance." As we all know, that's not true. The empirical evidence is extraordinarily clear: switch to index funds immediately.

The fact that your particular portfolio has outperformed over the last 10 years has absolutely no bearing on whether it will outperform over the next 10 years (your analysis implicitly assumes past performance is predictive). The math flatly contradicts this. In light of the evidence it is, in fact, illogical to carefully check your portfolio before switching. The rational move is to switch regardless.
« Last Edit: April 18, 2014, 02:03:14 PM by kyleaaa »

Flaneur

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Re: Lower fees but at what price?
« Reply #13 on: April 18, 2014, 02:52:32 PM »
Cherry picking?  This is my own portfolio.  My advice was for people to check carefully what they have before selling. 

Making a decision on the basis of results is hardly careful.

Another Reader

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Re: Lower fees but at what price?
« Reply #14 on: April 18, 2014, 03:36:54 PM »
We don't "all know" that's not true.  The empirical evidence is not clear.  The market and the businesses whose shares are traded in the market do not behave randomly.  The market can behave irrationally, but the behavior is not random.

The historical problem with mutual funds is that many of the fund companies never focused on managing.  They were lazy.  They focused on selling the product because they had an uneducated, captive market for a couple of decades.  It's hard to outperform if it's not your priority.

The most visible funds to the average investor are large cap.  The index funds and the managed funds in this space are buying and selling the same stocks.  The underlying businesses are large, highly visible, and slow to change.  It's tough to beat the large cap indices.  You look pretty foolish if you underperform.  Now that individuals and entities see that indexing performs as well as and is significantly cheaper than large cap funds with loads and high expenses, index funds and etf's are where the money is going. 

Some mutual fund companies are more customer oriented.  They hire and cultivate good managers.  Good fund managers in areas of the market (sector funds, small cap, emerging markets) where distinctions between good and bad businesses are more discernible can add value.   They have more flexibility in what they own.  They can buy and sell as they see fit.  However, lots of weak funds in these areas from inept or lazy companies appear in retirement plans and are sold by "advisors," so the consumer gravitates to the index funds in these spaces as well.

My fund portfolios lean towards managed funds in the small cap and sector areas and index funds in the large cap space.  I can graph the performance of my managed funds against their closest indices over long periods of time and see the benefit of paid management in the results.  YMMV.

kyleaaa

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Re: Lower fees but at what price?
« Reply #15 on: April 18, 2014, 03:46:42 PM »
We don't "all know" that's not true.  The empirical evidence is not clear.  The market and the businesses whose shares are traded in the market do not behave randomly.  The market can behave irrationally, but the behavior is not random.

What, precisely, about the empirical evidence is not clear? Note that markets don't need to actually be random for it to be impossible to beat it by skill.

The empirical evidence is pretty conclusive that investors don't outperform even in micro-caps, emerging markets, etc.

My fund portfolios lean towards managed funds in the small cap and sector areas and index funds in the large cap space.  I can graph the performance of my managed funds against their closest indices over long periods of time and see the benefit of paid management in the results.  YMMV.

Perhaps, but it's astronomically more likely you're just measuring incorrectly.
« Last Edit: April 18, 2014, 03:59:21 PM by kyleaaa »

Clover

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Re: Lower fees but at what price?
« Reply #16 on: April 18, 2014, 08:03:30 PM »
But I am saying that if you already have a portfolio built, do your homework before you sell off your portfolio to move to Vanguard because they have lower fees.
For example, you could study the effects of fund expenses over a period of longer than 10 years.  Because although you may be able to invest enough in 10 years to reach financial independence, you're hopefully going to be living off your portfolio for a heckuva lot longer than that.

I'm also pretty sure that your high-cost active fund managers will earn enough in fees to be able to reach their own financial independence within 10 years...

I have no problem with someone benefiting financially from my business as long as I'm benefiting as well.  That's what I call a win/win.   By the way, John Bogle is worth about 80 million. 

brewer12345

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Re: Lower fees but at what price?
« Reply #17 on: April 18, 2014, 08:07:27 PM »
The good thing about index funds is that I know what I am buying.  With a managed fund, the advisors are limited only by the stuff in the OM/prospectus.  So unless I know the manager really well (as in the case of merger arbitrage funds or Templeton in the case of GIM) I will either do index funds or take my own risks managing my own money.

Another Reader

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Re: Lower fees but at what price?
« Reply #18 on: April 18, 2014, 08:42:24 PM »
Which "empirical evidence" are you citing? 

The graphs are pretty darn clear.  I made more money over 10, 15 or more years with many of my long term managed funds.  Not all of them, as managers and investing styles change.  Some managers don't succeed for more than five or ten years.  You have to watch the portfolio.  Selling criteria need to be applied when things start to deteriorate.  Even the best of the managed funds offered in the 457 plans did not do a great job, with most underperforming the indices.  Index funds were not included in the 457 plan when I had one, so you had to hold your nose and pick the best of what was offered. 

As I said, the majority of fund managers have not been very good, for a variety of reasons.  The "empirical evidence" likely shows the majority of fund managers underperformed.  That does not prove that some can't outperform fairly consistently.  Some are good, and have the track records to prove it.

edited to add:  Brewer12345 knows that historically most of the people running fund companies and other financial product companies were hired because they were someone's nephew or fraternity brother.  My guess is that he's met quite a few of them in his career.  I'm not as knowledgeable as he is, so I have to take my chances.  A combination of index funds and ETF's, managed funds and some individual dividend stocks are the best I can do.  Of course, I'm mostly invested in real estate.  Skill wins out in that asset class.
« Last Edit: April 18, 2014, 08:50:24 PM by Another Reader »

Clover

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Re: Lower fees but at what price?
« Reply #19 on: April 18, 2014, 08:43:23 PM »
Your analysis implicitly assumes "past performance is indicative of future performance." As we all know, that's not true. The empirical evidence is extraordinarily clear: switch to index funds immediately.

The fact that your particular portfolio has outperformed over the last 10 years has absolutely no bearing on whether it will outperform over the next 10 years (your analysis implicitly assumes past performance is predictive). The math flatly contradicts this. In light of the evidence it is, in fact, illogical to carefully check your portfolio before switching. The rational move is to switch regardless.

Speaking of illogical...   You realize that if I had invested $60k 10 years ago in the Vanguard funds I would have over 20k less that I do today?  Yet you think the logical thing is to look no further than management fees when choosing an investment?  That's fine as a strategy, it does work.  But I would never assume that it is the only strategy that works. 
« Last Edit: April 18, 2014, 08:45:31 PM by Clover »

hodedofome

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Re: Lower fees but at what price?
« Reply #20 on: April 19, 2014, 07:03:49 PM »
Many on this forum are convinced that it is impossible to beat the market apart from random chance. You are wasting your time trying to change their beliefs. You can't change someone's belief, even with plenty of evidence, unless they are open to having their beliefs changed. The empirical evidence suggests that the AVERAGE mutual fund doesn't outperform because of fees, and the fact that they all can't outperform.

If you look at the evidence carefully, you'll see that most funds hug the index, and of course after fees there's no way they can outperform. However, those funds that have the highest active share have outperformed by over 1 percent a year since the early '60s. And that's after fees. There are many good strategies that are available as an ETF form for 50 to 60 basis points and that will continue to go down. These strategies have outperformed by 3-6 percent for over 50 years and while there's no guarantee that will continue in the future, that's been enough to justify the fees that are currently charged. I'm talking about well known anomalies like value and momentum and small cap. These have been well known for a long time yet they continue to do well over the long haul.

But like I said, you are wasting your time trying to convince people otherwise.

kyleaaa

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Re: Lower fees but at what price?
« Reply #21 on: April 20, 2014, 09:56:48 AM »
Many on this forum are convinced that it is impossible to beat the market apart from random chance. You are wasting your time trying to change their beliefs. You can't change someone's belief, even with plenty of evidence, unless they are open to having their beliefs changed. The empirical evidence suggests that the AVERAGE mutual fund doesn't outperform because of fees, and the fact that they all can't outperform.

If you look at the evidence carefully, you'll see that most funds hug the index, and of course after fees there's no way they can outperform. However, those funds that have the highest active share have outperformed by over 1 percent a year since the early '60s. And that's after fees. There are many good strategies that are available as an ETF form for 50 to 60 basis points and that will continue to go down. These strategies have outperformed by 3-6 percent for over 50 years and while there's no guarantee that will continue in the future, that's been enough to justify the fees that are currently charged. I'm talking about well known anomalies like value and momentum and small cap. These have been well known for a long time yet they continue to do well over the long haul.

But like I said, you are wasting your time trying to convince people otherwise.

Your characterization of the empirical evidence is factually inaccurate. I also emphatically do NOT believe you can't beat the market except by random chance. There is absolutely no way you could construe my statements to support that.

The fact that you mention "anomalies" like value and momentum and small cap is hard evidence to me that you don't know what you're talking about, as all of those things are already well-accounted for in the standard models.

kyleaaa

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Re: Lower fees but at what price?
« Reply #22 on: April 20, 2014, 10:00:52 AM »
The graphs are pretty darn clear.  I made more money over 10, 15 or more years with many of my long term managed funds. 

Did you? Claims like this are extremely common and in practically all cases, the perceived out-performance is due to miscalculating returns. I'm not saying its impossible you out-performed over the last 15 years but the odds are so low, it's far more rational to just assume you did something wrong rather than you are correct, absent absolute proof. Do you have such proof? No, a graph isn't proof.

As I said, the majority of fund managers have not been very good, for a variety of reasons.  The "empirical evidence" likely shows the majority of fund managers underperformed.  That does not prove that some can't outperform fairly consistently.  Some are good, and have the track records to prove it.

The empirical evidence isn't concerned with what mutual fund managers do at all. That isn't what the argument rests on. The fact that some manager beat the S&P 500 for 15 years in a row doesn't imply skill or that they are "good" at what they do. This is the fundamental fact most people can't understand.


kyleaaa

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Re: Lower fees but at what price?
« Reply #23 on: April 20, 2014, 10:02:28 AM »

Speaking of illogical...   You realize that if I had invested $60k 10 years ago in the Vanguard funds I would have over 20k less that I do today?  Yet you think the logical thing is to look no further than management fees when choosing an investment?  That's fine as a strategy, it does work.  But I would never assume that it is the only strategy that works.

Umm, I invested in Vanguard funds 10 years ago and even on a time-weighted basis I am way up. Did you even check the numbers before posting? You obviously didn't, because you are provably incorrect.

And I never once said the logical thing is to look no further than management fees when choosing an investment. Please stop intentionally misrepresenting my position in order to try to make your own (bad) position look better by comparison.

tomsang

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Re: Lower fees but at what price?
« Reply #24 on: April 20, 2014, 10:27:49 AM »
Chasing yield rarely pays off. Unless you have special predictive powers you are going to lose an apples to apples comparison with high fees vs. low fees.  It is pretty easy to see the logic in that the fund manager can not outperform unless they are taking on more risk.

If you can pick the Warren Buffetts of fund managers then you are set. Unfortunately, there are 10 that did not beat the market for everyone that does and I don't have a crystal ball that tells me the winners. You don't hear about those that don't beat the market as they were the losers in the battle and are probably still retired off of all the fees that they charged.  Even Buffett warns that he will not be able to beat the market as the company gets bigger and bigger. He has instructed his executor to put his wife's money in Vanguard when he dies.

When you risk weight portfolios it become clear that fees are the number one indicator of future performance.

beltim

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Re: Lower fees but at what price?
« Reply #25 on: April 20, 2014, 10:56:47 AM »

Speaking of illogical...   You realize that if I had invested $60k 10 years ago in the Vanguard funds I would have over 20k less that I do today?  Yet you think the logical thing is to look no further than management fees when choosing an investment?  That's fine as a strategy, it does work.  But I would never assume that it is the only strategy that works.

Umm, I invested in Vanguard funds 10 years ago and even on a time-weighted basis I am way up. Did you even check the numbers before posting? You obviously didn't, because you are provably incorrect.

You may want to re-read his statement before saying he's provably incorrect. He's saying that his funds did $20k better than Vanguard funds over that time period. He listed his funds which have SEC-approved prospectuses showing the growth of $10k over various time periods.  Those are provable numbers.

So no, I don't think anyone who read and understood his post  believes he miscalculated returns.  That, of course, does not mean those funds will be better performing over the next 10 years

hodedofome

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Re: Lower fees but at what price?
« Reply #26 on: April 20, 2014, 07:08:06 PM »
Many on this forum are convinced that it is impossible to beat the market apart from random chance. You are wasting your time trying to change their beliefs. You can't change someone's belief, even with plenty of evidence, unless they are open to having their beliefs changed. The empirical evidence suggests that the AVERAGE mutual fund doesn't outperform because of fees, and the fact that they all can't outperform.

If you look at the evidence carefully, you'll see that most funds hug the index, and of course after fees there's no way they can outperform. However, those funds that have the highest active share have outperformed by over 1 percent a year since the early '60s. And that's after fees. There are many good strategies that are available as an ETF form for 50 to 60 basis points and that will continue to go down. These strategies have outperformed by 3-6 percent for over 50 years and while there's no guarantee that will continue in the future, that's been enough to justify the fees that are currently charged. I'm talking about well known anomalies like value and momentum and small cap. These have been well known for a long time yet they continue to do well over the long haul.

But like I said, you are wasting your time trying to convince people otherwise.

Your characterization of the empirical evidence is factually inaccurate. I also emphatically do NOT believe you can't beat the market except by random chance. There is absolutely no way you could construe my statements to support that.

The fact that you mention "anomalies" like value and momentum and small cap is hard evidence to me that you don't know what you're talking about, as all of those things are already well-accounted for in the standard models.

I wasn't specifically mentioning anyone in particular however you seem to be pretty defensive and argumentative. Therefore, I won't be responding to you directly any longer. Good luck in your investing journey.

For those that care, here's the paper on active share funds vs the rest. This refers to funds that don't hug the indexes and actually do active management. http://faculty.som.yale.edu/anttipetajisto/active50.pdf

foobar

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Re: Lower fees but at what price?
« Reply #27 on: April 20, 2014, 10:05:01 PM »
Again the problem is the comparisons are not remotely right. Wells Fargo Advantage Global Opps A is a small blend global fund. What does the fact that it beat Vanguard Global Equity Inv (large blend global) mean other than that the last 10 years favored small caps versus large caps? Now vanguard doesn't offer a small cap global fund but if you blended small cap index fund with an international inded fund you would get about the same performance.

Now the Vanguard health care fund did get clobbered (something like 11% to 13%).  it would be interesting to know why (i.e. did the manager make one good call. More weighting to biotech,...) but history has shown that bets that lead to overperformance tend to be 50/50 as far as predicting the future.


You may want to re-read his statement before saying he's provably incorrect. He's saying that his funds did $20k better than Vanguard funds over that time period. He listed his funds which have SEC-approved prospectuses showing the growth of $10k over various time periods.  Those are provable numbers.

So no, I don't think anyone who read and understood his post  believes he miscalculated returns.  That, of course, does not mean those funds will be better performing over the next 10 years

kyleaaa

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Re: Lower fees but at what price?
« Reply #28 on: April 21, 2014, 09:35:02 AM »
Many on this forum are convinced that it is impossible to beat the market apart from random chance. You are wasting your time trying to change their beliefs. You can't change someone's belief, even with plenty of evidence, unless they are open to having their beliefs changed. The empirical evidence suggests that the AVERAGE mutual fund doesn't outperform because of fees, and the fact that they all can't outperform.

If you look at the evidence carefully, you'll see that most funds hug the index, and of course after fees there's no way they can outperform. However, those funds that have the highest active share have outperformed by over 1 percent a year since the early '60s. And that's after fees. There are many good strategies that are available as an ETF form for 50 to 60 basis points and that will continue to go down. These strategies have outperformed by 3-6 percent for over 50 years and while there's no guarantee that will continue in the future, that's been enough to justify the fees that are currently charged. I'm talking about well known anomalies like value and momentum and small cap. These have been well known for a long time yet they continue to do well over the long haul.

But like I said, you are wasting your time trying to convince people otherwise.

Your characterization of the empirical evidence is factually inaccurate. I also emphatically do NOT believe you can't beat the market except by random chance. There is absolutely no way you could construe my statements to support that.

The fact that you mention "anomalies" like value and momentum and small cap is hard evidence to me that you don't know what you're talking about, as all of those things are already well-accounted for in the standard models.

I wasn't specifically mentioning anyone in particular however you seem to be pretty defensive and argumentative. Therefore, I won't be responding to you directly any longer. Good luck in your investing journey.

For those that care, here's the paper on active share funds vs the rest. This refers to funds that don't hug the indexes and actually do active management. http://faculty.som.yale.edu/anttipetajisto/active50.pdf

The paper itself that you linked does not support your argument, though. Active share is not a new concept and they are quite clear in the paper that they are intentionally ignoring factor weightings when comparing performance, which is contrary to accepted practice. In essence, they say at the start they are comparing apples to oranges. It's a different way of framing the question but isn't meant as a way to measure out-performance.
« Last Edit: April 21, 2014, 09:52:52 AM by kyleaaa »

kyleaaa

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Re: Lower fees but at what price?
« Reply #29 on: April 21, 2014, 09:39:10 AM »

Speaking of illogical...   You realize that if I had invested $60k 10 years ago in the Vanguard funds I would have over 20k less that I do today?  Yet you think the logical thing is to look no further than management fees when choosing an investment?  That's fine as a strategy, it does work.  But I would never assume that it is the only strategy that works.

Umm, I invested in Vanguard funds 10 years ago and even on a time-weighted basis I am way up. Did you even check the numbers before posting? You obviously didn't, because you are provably incorrect.

You may want to re-read his statement before saying he's provably incorrect. He's saying that his funds did $20k better than Vanguard funds over that time period. He listed his funds which have SEC-approved prospectuses showing the growth of $10k over various time periods.  Those are provable numbers.

So no, I don't think anyone who read and understood his post  believes he miscalculated returns.  That, of course, does not mean those funds will be better performing over the next 10 years

And you may want to re-read my statement before saying I'm wrong about him being provably incorrect, since I was referring to the fact that MY Vanguard portfolio is NOT down $20k over that time period. The fact that a random sampling of Vanguard funds was is irrelevant.

I also didn't imply he miscalculated the returns of those particular funds. Not sure why you are implying I did. The OP made a fundamentally incorrect assertion and I corrected him. The funds quoted as "comparable Vanguard fund" are not, in general, at all comparable, hence my comment. Of course the exact funds quoted show correct results, but then, I never said otherwise.
« Last Edit: April 21, 2014, 09:43:27 AM by kyleaaa »

beltim

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Re: Lower fees but at what price?
« Reply #30 on: April 21, 2014, 10:28:18 AM »

Speaking of illogical...   You realize that if I had invested $60k 10 years ago in the Vanguard funds I would have over 20k less that I do today?  Yet you think the logical thing is to look no further than management fees when choosing an investment?  That's fine as a strategy, it does work.  But I would never assume that it is the only strategy that works.

Umm, I invested in Vanguard funds 10 years ago and even on a time-weighted basis I am way up. Did you even check the numbers before posting? You obviously didn't, because you are provably incorrect.

You may want to re-read his statement before saying he's provably incorrect. He's saying that his funds did $20k better than Vanguard funds over that time period. He listed his funds which have SEC-approved prospectuses showing the growth of $10k over various time periods.  Those are provable numbers.

So no, I don't think anyone who read and understood his post  believes he miscalculated returns.  That, of course, does not mean those funds will be better performing over the next 10 years

And you may want to re-read my statement before saying I'm wrong about him being provably incorrect, since I was referring to the fact that MY Vanguard portfolio is NOT down $20k over that time period. The fact that a random sampling of Vanguard funds was is irrelevant.

I also didn't imply he miscalculated the returns of those particular funds. Not sure why you are implying I did. The OP made a fundamentally incorrect assertion and I corrected him. The funds quoted as "comparable Vanguard fund" are not, in general, at all comparable, hence my comment. Of course the exact funds quoted show correct results, but then, I never said otherwise.

I think you misunderstood his point. He didn't say Vanguard funds were down 20k.  He said those vanguard funds were 20k lower than his portfolio.  So the fact that your vanguard funds weren't down is completely irrelevant 

foobar

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Re: Lower fees but at what price?
« Reply #31 on: April 21, 2014, 11:59:18 AM »
I bought 10k in  VSMAX 10 years ago and turned 10k into 25.7k.  Index investing would have beaten 3 of his funds, lost to 1, and was a push with 2 and I ended up with ~4k more by indexing. That statement is true but meaningless.  Investing in a 100% small caps has a totally different risk profile.   When you select the right funds, the difference go to almost zero.  if you adjust for things like a fund holding 20% in cash things get even closer.

Personally I moved to indexing mainly for tax purposes. Most active funds dish out too much capital gains every year. Obviously in an IRA you wouldn't care about this but in a taxable account having to pay 15-24% in taxes instead of having that money invested was a drag.



I think you misunderstood his point. He didn't say Vanguard funds were down 20k.  He said those vanguard funds were 20k lower than his portfolio.  So the fact that your vanguard funds weren't down is completely irrelevant

kyleaaa

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Re: Lower fees but at what price?
« Reply #32 on: April 21, 2014, 12:51:26 PM »

I think you misunderstood his point. He didn't say Vanguard funds were down 20k.  He said those vanguard funds were 20k lower than his portfolio.  So the fact that your vanguard funds weren't down is completely irrelevant

I did not misunderstand his point, and the fact that my Vanguard funds weren't down is not irrelevant when one takes into account the preceding context of the conversation.

Clover

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Re: Lower fees but at what price?
« Reply #33 on: April 21, 2014, 02:44:37 PM »

But like I said, you are wasting your time trying to convince people otherwise.

You are so, so right.  Looking at this thread it's like I went on christianmingle.com and yelled "Hail Satan!" 

I'll just bow out of the conversation now. 

MDM

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Re: Lower fees but at what price?
« Reply #34 on: April 21, 2014, 03:18:30 PM »
For those that care, here's the paper on active share funds vs the rest. This refers to funds that don't hug the indexes and actually do active management. http://faculty.som.yale.edu/anttipetajisto/active50.pdf
Interesting paper, thanks for sharing.

Has there been an update (or similar analysis) including the past 10 years?  If so...have they publicized fund names in the various categories? 

beltim

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Re: Lower fees but at what price?
« Reply #35 on: April 21, 2014, 03:35:15 PM »

I think you misunderstood his point. He didn't say Vanguard funds were down 20k.  He said those vanguard funds were 20k lower than his portfolio.  So the fact that your vanguard funds weren't down is completely irrelevant

I did not misunderstand his point, and the fact that my Vanguard funds weren't down is not irrelevant when one takes into account the preceding context of the conversation.

Alright, I'll give this one more try.  What do you think Clover's point was?

foobar

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Re: Lower fees but at what price?
« Reply #36 on: April 21, 2014, 04:16:34 PM »
Passive brag on how he made good choices 10 years ago?:) Finding active funds that beat their index isn't hard. About 10-20% (depending on market segment) will do that over any 10 year period. The problem is that those same funds (even if they keep the same manager) rarely outperform during the next 10 years. The funds get bogged down by a flood of new assets and performance suffers.

And you often get odd results. For example one of the best performing large funds of the past 10 years was  Amana Trust Growth.  What was the brilliant manager decision that lead to the out performance of the market? They followed the islamic guidelines and didn't invest in financial stocks. Saved their bacon in 2008:)







I think you misunderstood his point. He didn't say Vanguard funds were down 20k.  He said those vanguard funds were 20k lower than his portfolio.  So the fact that your vanguard funds weren't down is completely irrelevant

I did not misunderstand his point, and the fact that my Vanguard funds weren't down is not irrelevant when one takes into account the preceding context of the conversation.

Alright, I'll give this one more try.  What do you think Clover's point was?

beltim

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Re: Lower fees but at what price?
« Reply #37 on: April 21, 2014, 04:41:52 PM »
Passive brag on how he made good choices 10 years ago?:) Finding active funds that beat their index isn't hard. About 10-20% (depending on market segment) will do that over any 10 year period. The problem is that those same funds (even if they keep the same manager) rarely outperform during the next 10 years. The funds get bogged down by a flood of new assets and performance suffers.

And you often get odd results. For example one of the best performing large funds of the past 10 years was  Amana Trust Growth.  What was the brilliant manager decision that lead to the out performance of the market? They followed the islamic guidelines and didn't invest in financial stocks. Saved their bacon in 2008:)







I think you misunderstood his point. He didn't say Vanguard funds were down 20k.  He said those vanguard funds were 20k lower than his portfolio.  So the fact that your vanguard funds weren't down is completely irrelevant

I did not misunderstand his point, and the fact that my Vanguard funds weren't down is not irrelevant when one takes into account the preceding context of the conversation.

Alright, I'll give this one more try.  What do you think Clover's point was?

Your critique that Clover wasn't making the right comparisons is a good and perfectly valid one.  And your point that past performance doesn't predict future returns is also good and valid.  But neither of those are what I responded to from kyleaaa's post.