All Caps vs. Blend funds

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gregoron's picture
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Joined: 2008-09-18

I've been in the industry four years now and it was nice coming in prior to 2007.  I like the straight asset allocation model with the 11 plus classes, but occasionally I've dabble into blend funds for the smaller accounts.  My blend funds consisted of large cap and small cap blend funds.  Now, has anyone ever tried going vertically (i.e. up and down Morningstar's style box)?  I'm thinking instead of the growth and value blend of large and small caps, why not go with all cap growth and all cap value.  Any inputs will be appreciated.

snaggletooth's picture
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Joined: 2007-07-13

gregoron wrote:I've been in the industry four years now and it was nice coming in prior to 2007.  I like the straight asset allocation model with the 11 plus classes, but occasionally I've dabble into blend funds for the smaller accounts.  My blend funds consisted of large cap and small cap blend funds.  Now, has anyone ever tried going vertically (i.e. up and down Morningstar's style box)?  I'm thinking instead of the growth and value blend of large and small caps, why not go with all cap growth and all cap value.  Any inputs will be appreciated.
 
Huh?!  Is that the extent of your diversification?

gregoron's picture
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No.  Sorry, I didn't elaborate.  Of course I'm only talking about the equity component here.  Fixed income is another story (int/long term, short term, high yield, and foreign bond) for a growth & income model.  My question is for smaller accounts that won't require all 11 asset classes.  Instead of going horizontally on the Morningstar style box with three blend funds (i.e. large, mid-cap, small blend), how would all-cap growth, all-cap value, and all-cap core (if there is any) compare?

snaggletooth's picture
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gregoron wrote:No.  Sorry, I didn't elaborate.  Of course I'm only talking about the equity component here.  Fixed income is another story (int/long term, short term, high yield, and foreign bond) for a growth & income model.  My question is for smaller accounts that won't require all 11 asset classes.  Instead of going horizontally on the Morningstar style box with three blend funds (i.e. large, mid-cap, small blend), how would all-cap growth, all-cap value, and all-cap core (if there is any) compare?
 
Six to one, half-dozen to the other.  Let me see if I have this right.  Instead of using three funds going one way, you want to use three funds going the other way? 
 
If your percentages come out the same in the style boxes, does it really matter?

troll's picture
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Joined: 2004-11-29

11 classes?  What am I missing?

gregoron's picture
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Actually, I just want to use two (all cap growth and all cap value) instead of three (large, mid, & small blend).  There aren't any all-cap core fund available that I know of.  I think that the percentages will not come out the same since you'd allocate 50/50 of your equity component in the all-cap model vs. 60/30/10 in blends.  The returns would all be in proportion to how much of the funds you own right?  I guess what I'm also trying to find out is if fund managers are more flexible in trading for capitalization than style. 

gregoron's picture
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Joined: 2008-09-18

11 asset classes (Large Growth, LV, MG, MV, SG, SV, Lg. Foreign, I/L Bond, SIB, HYB, FB).  I normally use these for larger accounts.  But, as I said, for smaller accounts I would just use five asset classes like  (Large Blend, MBL, SBL, ILB, SIB).  Now instead of these five, I was thinking of narrowing it down to only four (All Growth, All Value, ILB, SIB).  That was the original question and I just wanted to get feedback if this is feasible or if anyone has tried it.  If not, I will and I'll just let you all know later.

gregoron's picture
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I guess I want to see which style is in favor (growth vs. value) and then adjust the allocation to the better one.

troll's picture
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gregoron wrote:11 asset classes (Large Growth, LV, MG, MV, SG, SV, Lg. Foreign, I/L Bond, SIB, HYB, FB).  I normally use these for larger accounts.  But, as I said, for smaller accounts I would just use five asset classes like  (Large Blend, MBL, SBL, ILB, SIB).  Now instead of these five, I was thinking of narrowing it down to only four (All Growth, All Value, ILB, SIB).  That was the original question and I just wanted to get feedback if this is feasible or if anyone has tried it.  If not, I will and I'll just let you all know later.
 
SIB?, HYB?, FB?  Please elaborate, I am not good with abbreviations.

troll's picture
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iceco1d wrote:snaggletooth wrote:gregoron wrote:No.  Sorry, I didn't elaborate.  Of course I'm only talking about the equity component here.  Fixed income is another story (int/long term, short term, high yield, and foreign bond) for a growth & income model.  My question is for smaller accounts that won't require all 11 asset classes.  Instead of going horizontally on the Morningstar style box with three blend funds (i.e. large, mid-cap, small blend), how would all-cap growth, all-cap value, and all-cap core (if there is any) compare?
 
Six to one, half-dozen to the other.  Let me see if I have this right.  Instead of using three funds going one way, you want to use three funds going the other way? 
 
If your percentages come out the same in the style boxes, does it really matter?
 
Snags,
Don't look now...but we are in complete agreement! 
 
However, Primo is still confused...I dunno how long we are going to have to baby him...
 
Really though....3 x 3 = 11 ???
 
Sorry, I rode the little bus.

Indyone's picture
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Joined: 2005-05-30

I haven't done my due diligence yet, but I understand that Zack's has a nice all-cap MF that is a clone of their successful SM all-ap strategy.  Check it out and let me know what you think.  The history is in the SM side, but as I recall, they consistently did a nice job of beating the S&P 500.

Indyone's picture
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Primo wrote:gregoron wrote:11 asset classes (Large Growth, LV, MG, MV, SG, SV, Lg. Foreign, I/L Bond, SIB, HYB, FB).  I normally use these for larger accounts.  But, as I said, for smaller accounts I would just use five asset classes like  (Large Blend, MBL, SBL, ILB, SIB).  Now instead of these five, I was thinking of narrowing it down to only four (All Growth, All Value, ILB, SIB).  That was the original question and I just wanted to get feedback if this is feasible or if anyone has tried it.  If not, I will and I'll just let you all know later.
 
SIB?, HYB?, FB?  Please elaborate, I am not good with abbreviations.
 
Those are bonds.  Short/intermediate, High-yield, and ???

troll's picture
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Joined: 2004-11-29

Ok, I was going to have a little fun, but others ruined it for me.  Ice makes a great point, small clients should get a nice asset allocation fund, something you can set and forget because you may not get to them during the bad times, at least they should be at the end of the list.  As far as asset classes, you have listed two.  Equities and bonds.  You are confusing styles and market cap with asset classes.  Find a nice all cap asset allocation fund and move on.

gregoron's picture
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Joined: 2008-09-18

ILB = intermediate / long-term bondSIB = short / intermediate bondHYB = high yield bondFB = foreign bondIceco1d, good point on your last comment if they were strictly "C" clients.  But, I'm talking about smaller accounts that belong to clients with larger accounts, or "C" clients related to "A" clients.  It's not about forecasting skill.  I leave that up to the fund managers who I can hire and fire anytime.  It's still about asset allocation and diversification, but in the fewest funds possible.   So, if I had an all growth, all value, large foreign, and strategic income fund for example, I've covered the bases right?Besides, I'm only posting this here so I can make more comments to get me off this newbie status.

troll's picture
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Your question scream newbie though, and I'm not talking about your user profile.

gregoron's picture
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Joined: 2008-09-18

May I not burn in hell if I put anyone, even "C" clients, in a target-date fund.  I got burned by those already.  I see your point Primo.  It's just hard to find a good one all cap asset allocation fund.  My two all cap bets are MFS Growth and Lord Abbett All Value.

gregoron's picture
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Ha ha.  Newbie is as newbie posts.  Next time I'll hire a professional to ask questions for me like in those Geico commercials.  Wait till you get my next questions.

gregoron's picture
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Ice, I meant replacing a fund manager who's not doing well on all cap growth - or value.  I don't expect an all cap growth manager to buy value.  He just has discretion over market cap, not style.  I have discretion to replace that fund with a better performing one, or not reinvest more into it by placing the dividends into cash to buy other funds.  What's the confusion in that? 

gregoron's picture
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Yes.  There will always be a growth and value component in there but not necessarily in equal amounts - and I'm talking just about differences in dividend redistributions or additional cash contributions.  Ideally though I should just leave these two alone and let them fight it off.

HymanRoth's picture
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Joined: 2008-08-25

Indyone wrote:I haven't done my due diligence yet, but I understand that Zack's has a nice all-cap MF that is a clone of their successful SM all-ap strategy.  Check it out and let me know what you think.  The history is in the SM side, but as I recall, they consistently did a nice job of beating the S&P 500.You should consider that Zack's also has a retail investment advisory division that competes with you for clients.  Food for thought.http://www.zackswmg.com/index.php

Indyone's picture
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Joined: 2005-05-30

Indy - Benchmarking an all-cap SMA against the S&P 500 doesn't seem particularly fair...
 
I hear ya, Ice.  To be honest, it;s been awhile since I looked, but that's what I recall.  I also recall that the SMA was kicking whatever benchmark they were using by a healthy (400-500bps) margin on a consistent basis.  Again, it's been awhile since I looked and I don't recall where the information is on the web, so don't hold me to that.  What I recall thinking is that it was worth taking a second look at, and someday, when time is more plentiful, I intend to do just that.

Indyone's picture
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HymanRoth wrote: Indyone wrote:
I haven't done my due diligence yet, but I understand that Zack's has a nice all-cap MF that is a clone of their successful SM all-ap strategy.  Check it out and let me know what you think.  The history is in the SM side, but as I recall, they consistently did a nice job of beating the S&P 500.You should consider that Zack's also has a retail investment advisory division that competes with you for clients.  Food for thought.http://www.zackswmg.com/index.php 
 
I vaguely remember that, but I'm a looooooooong way from any of their offices and doubt I'll ever run into that division.

snaggletooth's picture
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B24's picture
B24
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Joined: 2008-07-08

You can find what you are looking for Greg.  The problem is, they may not be the best funds.  I opt for using a series of C-share "World Allocation" funds and total return bond funds for my clients under 100K.  Of course, it depends on the client, but I like First Eagle Global, Capital Income Builder, Ivy Asset Strategy, Franklin Founding Funds, Hartford Checks & Bal, Blackrock Global Allocation, Loomis Strat Inc, etc. 
Of course, I don't use all of these all the time.  It depends on age, risk, etc.  I may also add some funds around them for diversification or weighting in either direction (more bonds, more equity, more int'l, etc.). 
 
I have several clients with well-balanced multiple-fund portfolios, but also are adding to their IRA every month, so I just use one of the balanced funds above (Capital Income Builder, Franklin Founding, Hartford C&B, etc.)
 
I'm not necessarily a fan of "style boxes" for smaller accounts.  I prefer managers that go wherever the best opportunities are, minimize total overall risk, and look for total return.  The problem with style boxes sometimes, is that not all equities fit neatly into a box, so you will get tremendous "style overlap" if you are not careful.  In addition, from an emotional perspective, in a small account with just a few funds, I don't like clients seeing any big losers, so I tend to use multiple allocation funds with different strategies that have low volatility to reduce major swings.
 

B24's picture
B24
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snaggletooth wrote:Take a look at IMUAX.  I am adding that to my fund matrix.
 
https://www.transamericaadvisor.com/contentServer/MediaServer?uri=/site/tci_idex/media/PDF/Mutual_Funds_IDEX/Products_Services/Forms_Materials/Asset_Allocation_Materials/PHMMAS.pdf
 
Is this an alternative asset class fund?  I think Goldman has a similar type fund (metals, commodities, real estate, global bond, HY bond,e tc.).

snaggletooth's picture
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B24 wrote:snaggletooth wrote:Take a look at IMUAX.  I am adding that to my fund matrix.
 
https://www.transamericaadvisor.com/contentServer/MediaServer?uri=/site/tci_idex/media/PDF/Mutual_Funds_IDEX/Products_Services/Forms_Materials/Asset_Allocation_Materials/PHMMAS.pdf
 
Is this an alternative asset class fund?  I think Goldman has a similar type fund (metals, commodities, real estate, global bond, HY bond,e tc.).
 
Yes.  It kind of follows the philosophy of an endowment strategy.

B24's picture
B24
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But not for the whole shootin' match, right?  This is just to be used as a satellite fund, correct?  I haven't looked at the componants of this one, but the Goldman fund is purely a satellite play for your alternative asset classes.

B24's picture
B24
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Joined: 2008-07-08

I just checked it out.  Down 3% YTD.  Even alternative/Bear Market strategies aren't working right now.  Unbelievable.

snaggletooth's picture
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Joined: 2007-07-13

Yes, it is a satellite.  It's actually held up really well considering there is exposure to real estate, emerging markets and equities in all of this.
 
Many bond funds are down, which doesn't help.  Also, funds like Blackrock Global Allocation and Ivy Asset Strategy have been hurt by the volatility.
 
Many mutual fund managers got blown out of the water in July when financials and commodities reversed. 
 
I still like this strategy as part of a portfolio.

HymanRoth's picture
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Indyone wrote:HymanRoth wrote: Indyone wrote:
I haven't done my due diligence yet, but I understand that Zack's has a nice all-cap MF that is a clone of their successful SM all-ap strategy.  Check it out and let me know what you think.  The history is in the SM side, but as I recall, they consistently did a nice job of beating the S&P 500.You should consider that Zack's also has a retail investment advisory division that competes with you for clients.  Food for thought.http://www.zackswmg.com/index.php 
 
I vaguely remember that, but I'm a looooooooong way from any of their offices and doubt I'll ever run into that division.Perhaps.  Still...I have generally felt that I can always find another good product/manager who chooses not to compete directly with me for clients.Maybe I'm shooting myself in the foot by standing on principle.  Your thoughts?

gregoron's picture
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Joined: 2008-09-18

B24 wrote:You can find what you are looking for Greg.  The problem is, they may not be the best funds.  I opt for using a series of C-share "World Allocation" funds and total return bond funds for my clients under 100K.  Of course, it depends on the client, but I like First Eagle Global, Capital Income Builder, Ivy Asset Strategy, Franklin Founding Funds, Hartford Checks & Bal, Blackrock Global Allocation, Loomis Strat Inc, etc. 
Of course, I don't use all of these all the time.  It depends on age, risk, etc.  I may also add some funds around them for diversification or weighting in either direction (more bonds, more equity, more int'l, etc.). 
 
I have several clients with well-balanced multiple-fund portfolios, but also are adding to their IRA every month, so I just use one of the balanced funds above (Capital Income Builder, Franklin Founding, Hartford C&B, etc.)
 
I'm not necessarily a fan of "style boxes" for smaller accounts.  I prefer managers that go wherever the best opportunities are, minimize total overall risk, and look for total return.  The problem with style boxes sometimes, is that not all equities fit neatly into a box, so you will get tremendous "style overlap" if you are not careful.  In addition, from an emotional perspective, in a small account with just a few funds, I don't like clients seeing any big losers, so I tend to use multiple allocation funds with different strategies that have low volatility to reduce major swings.
 I use Hartford Checks & Balances and have had good results with it.  It's one of those funds that can stand on its own in a small account.  What do you think of total return funds (MFS' new DVRAX) if you're looking for "managers that go wherever the best opportunities are", and have low correlation with the market?

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