Mutual Funds/ETFs . . . comparison

[Bernard]

I'm new on this board, but not new to the FIRE community. I also have read every single MMM blog, and many others.

I've started investing in individual stocks via a Roth many years ago. Sometimes I got lucky, other times I lost. However, looking at the run since 2009, my winners (Amazon, Berkshire, Mastercard, etc.) have way outperformed my losers (Chipotle, 3D Printing, The Container Store, etc.).

Still, since being exposed to MMM, I have started selling individual stocks once I felt it was a good time, and I have started to buy mutual funds and ETFs.

To pick the right ones, I chose mutual funds and ETFs with a looooong and super positive track record. I have, among others, FSPTX, PRGFX, and TRBCX in my accounts.
I also hold VTI, VOO, and VGT on the Vanguard side.

Now . . . I understand the benefits of low cost index funds. Even Warren Buffet suggested investing in those. Yet I'm still having a problem with returns. If I just compare (and you can do that too) one of my active funds, PRGFX, which has been around since 1950, so 68 years (!!!), and VTI, performance wise, you'll see that PRGFX is eating VTI for breakfast.

1   year: PRGFX 20.73% vs. VTI 16.49%.
3   years PRGFX 14.30% vs. VTI 12.21%.
5   years PRGFX 16.67% vs. VTI 12.81%.
10 years PRGFX 12.68% vs. VTI 10.78%

So even with the higher expense ratio of 0.67% for PRGFX vs. 0.04% for VTI, the actively managed fund wins outright. Hence, Dave Ramsey's statement that going with the funds that have the best returns and the best track records is his strategy, and "he's gladly willing to pay a percentage of that."

So please tell me why going VTSAX (or VTI) is the better move.

[Joe Schmo]

Yes, I'm digging up a really old thread. Just wondering why there was ZERO response to this?? I understand the draw to VTSAX but if not just for diversifications sake...

[EvenSteven]

If I could go back in time 1, 3, 5, or 10 years with the knowledge I have today, I would invest in actively managed funds that beat VTI. I would also invest in funds that beat PRGFX. Or maybe just Amazon. Amazon trounced VTI and PRGFX.

But I can't. I'm sure that there will be several active funds and individual stocks over the next 10 years that beat VTI, but I don't know which ones.

You ask about diversity. Does PRGFX have a significant number of holdings that VTI does not?

[Lucky Penny Acres]

PRGFX is a more heavily concentrated fund - the top ten holdings represent almost 40% of the fund. The top ten holdings for VTSAX are only ~17% of the fund. With the reduced diversification in PRGFX, this generally means you are taking on more risk by investing in PRGFX which should be compensated by additional return as higher risk should result in greater return. It appears to be working for additional return in the return numbers quoted - but PRGFX is more susceptible to a single negative event with any of the large holdings.

Another concern is effective after-tax return. PRGFX appears to have approximately 40% turnover of its portfolio annually which likely churns up a lot of capital gains which flow through to taxable account investors.  VTSAX portfolio turnover is closer to 3% per year. In addition, because of Vanguard's setup with the ETF as a share class of the same fund, Vanguard is able to effectively reduce or erase all or almost all of the annual capital gains from holding VTSAX so investors don't have to pay those capital gains taxes yearly - this boosts effective after-tax return and is also a lot simpler as you don't need to come up with the cash to pay the IRS for the capital gains at tax time each year.

[Joe Schmo]

Thank you for the input.
I was asking more along the lines of: there are funds that beat the S&P or VTSAX over significant periods of time. I have a list of them in my Vanguard watch list.
Load/no load, fees schmees...if they beat the return they beat the return. I understand now the safety/theory in VTSAX and I have seen first hand just in the short time I've owned it compared to less diverse funds that I own.

Just wondering if'n folks are looking for these funds with long term track records to compliment their shitpile of VTSAX??

[MDM]

Just wondering if'n folks are looking for these funds with long term track records to compliment their shitpile of VTSAX??

No doubt some are.  Hope springs eternal.

[Radagast]

You can back test this fund a Morningstar. https://www.morningstar.com/funds/xnas/prgfx/quote.html Too bad they don't start their S&P500 series until a couple decades after the fund started, but they do have a house "large growth" index to benchmark against, which was presumably an agglomeration of other large cap growth funds. We'll compare by decade, April 11, 1950 to April 11, 1960, etc. Comparing growth of $10,000.

1950-1960
PRGFX 56,416.96
"Large Growth index" 41,837.31
But don't get too excited. The dude who managed that ain't around no more.

1960-1970
PRGFX 27,296.89
"Large Growth index" 22,463.35
That dude ain't around no more neither.

1970-1980
PRGFX 12,467.02
"Large Growth index" 18,407.04
Lucky, neither is that one.

1980-1990
PRGFX 34,151.65
"Large Growth index" 46,727.33
That guy is possibly still around, but no longer managing, fortunately for shareholders.

1990-2000
PRGFX 54,195.39
"Large Growth index" 59,562.68
I hope that guy is not still calling shots. Probably not. Losers don't stick around.

2000-2010
PRGFX 11,091.16
"Large Growth index" 7,138.30
Oooooh good job manager! Made money in the lost decade! Is this even still a guy? So much for the good ol days of gender determinism.

2010-2019
PRGFX 34,267.56
"Large Growth index" 28,023.27

Looks like PRGFX beat its benchmark in 4 out of 7 ten-year periods. Good job. What are the odds for the next 10 years? Remember that the first 50 years have no bearing on the performance of the current fund. The managers, market, and methods have all surely changed entirely. Also remember that 99% of the funds started back then didn't make it, and a priori you did not think of them. This fund is like the winner of the NCAA basketball tournament: is the winning team really the best, or was the tournament merely structured in a way such that a single team was guaranteed to win? That said, it seems to be a tolerable fund. The cost is high but not outrageous. At least it doesn't suck (yet, by the fact we even looked at it). Just remember: you have a 4/7 chance of beating the market based on history that is water under the bridge, but a 100% chance of the extra 0.6% expense ratio.

[Radagast]

Anyhow, my wife is using a Vanguard rendition of this fund in her 401k, VPMAX, 0.36% less expensive. I am not opposed to the concept of trying to eke out better performance, but I am opposed to expenses. The mean dollar will match the market less expenses, so your odds get better by keeping those low.

[MustacheAndaHalf]

"It’s not uncommon for a fund to have better-than-average performance one year and mediocre or below-average performance the following year. That's why the SEC requires funds to tell investors that a fund's past performance does not necessarily predict future results."
https://www.sec.gov/answers/mperf.htm

I think it's also useful to find less expensive funds with a similar portfolio.  Although PRGFX is listed as a "growth" fund, it's actually more concentrated and closer to "pure growth", as shown in it's portfolio allocation of 72% to large cap growth.  I found another fund with an allocation of 82% large/growth: iShares Morningstar Large-Cap Growth ETF ("JKE").

The two trade off which one wins over time, but JKE has a 0.25% expense ratio.  (PRGFX still has an expense ratio of 0.67%)

time frame == PRGFX === JKE === winner
YTD  ===== +17.76 == +17.22 ==  PRGFX
1 yr ====== +15.04 == +17.67 == JKE
3 yr ====== +18.30 == +16.82 == PRGFX
5 yr ====== +13.63 == +13.92 == JKE
10 yr ===== +17.54 == +16.98 == PRGFX

If you plan on buying an active fund, consider how much of the return is just exposure to something like "growth".  Because for the case above, buying PRGFX means paying 0.42% more in expenses to get the random win/loss pattern shown above, compared to JKE.

[Car Jack]

Going forward, what do you know (about any fund, stock, etf, bond)?

I'll answer that for you.  You know one thing.  Cost.

What doesn't matter? 

Everything else.

[Joe Schmo]

Dude, this is like my favorite forum...ever.