Good look at funds

[brownsfan019 17]

While many here are/will be full-time traders and we invest in ourselves and our business, there's always going to be a market for managed money funds, with mutual funds being the most common. I pulled the attached PDF from a post at elitetrader and this is a great presentation about trying to find outperforming managers. Whether you have money in funds or not, I think this is a good read coming from a reputable school with numbers to support the discussion.

 

I always find things like this interesting b/c when I was a broker, we were taught to sell those mutual funds. The commissions and fees that are built-in or hidden in those funds is just amazing. When you factor all the costs, see page 5 of the PDF, you see where your money really goes. And that's assuming the fund makes money...

Finding Outperfoming Money Managers - Harvard Bus School 2007.pdf

[Nick1984 10]

Finding a good fund takes a lot of work. I work myself in the financial services industry and finding a few good funds out the the hundreds on offer is a nightmare thats why so many people go to financial planners.

 

If you're going to do it yourself I would suggest that you first decide what type of fund manager you like: value, growth, ethical etc...

Once you find what type of fund manager you like you need to look at the index the fund is basing itself off and how its returns compare to its benchmark index.

 

Next comes fees. Like brown just said, fees and commissions can eat up a lot of your money. Retail funds charge up to 4% entrance commissions in Australia with trailing commission as well every year on top of standard managent fees, possible administration and member fees as well. Returns on the fund should really be shown inclusive of fees to be as accurate as possible.

 

You also need to make sure that you invest your funds according to your risk preferences. If you're very conservative there is little point in overexposing yourself to a highly volatile sector such as international shares or in geared funds.

 

All that being said, fund managers do provide a relatively hastle free way of investing surplus cash flows which can sit and grow in the long term.

[brownsfan019 17]

Good points Nick. Funds are expensive down under!

 

That's why I tell everyone I meet now that just buy some good ETF's and let it ride. You'll do just as well, if not better, than the professional managed funds and not have to worry about behind-the-scenes stuff going on.

 

The risk/reward is just not there anymore in mutual funds.

[darthtrader 10]

Totally agree. I don't even see the point in funds any more.

You can either index yourself(almost globally index yourself) or play entire sectors if you want more risk, cheaper. Or pay more and have some money manager blow most your profits.

[brownsfan019 17]

Totally agree. I don't even see the point in funds any more.

You can either index yourself(almost globally index yourself) or play entire sectors if you want more risk, cheaper. Or pay more and have some money manager blow most your profits.

 

You got it Darth - there's just too much that works against you with funds and having sold them myself, I've seen the mess they can create:

 

> High fees - fees you see and fees you don't.

> Conflicts of interest - often, the brokerage firm and brokers are given incentives to sell certain funds.

> If you are lucky, the manager will come close to what the underlying index he is competing against did.

 

In other words, you pay more in fees hoping your broker is not selling you a fund b/c it's the fund of the month and then hope your broker found the small handful of funds that will actually beat the market after all the fees.

 

Good luck.

 

 

Signed,

A Repenting Broker :embarassed:

[Nick1984 10]

I don't have the figures on hand but here in Australia over a 7-10 year period you find that the vast majority of actively managed funds don't actually outperform their benchmark index. Returns usually are consistent with the overall return of the index. Only a few funds manage to actually beat their index. This is very important to remember when picking funds. You need to establish what your investment time frame is. Most funds specify that a 7 year investment period is recommended.

 

If you can actively manage your fund portfolio you may be able to acheive above benchmark returns. This however is beyond the time and effort of most people, unless you pay a financial adviser to manage your funds but that costs more on top of what you pay for the funds themselves!

 

ETF's are the best option for those who don't want to fork out money to advisers. You'll be better off just buying into one of these funds and letting it run cause most of the time you can be relatively certain that you will get at least an index return!

 

Funds do have some great financial startegies attached to them however which make them great tools for playing around with your cash flows but I wont get into that now

[Reaver 10]

I like CEF's trading at a discount to NAV....