Portfolio Management

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troll's picture
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Joined: 2004-11-29

I'm curious to hear from any FA's doing discetionary Portfolio Management. Meaning SMA's where YOU are the manager. Especially within the wirehouse.
What are your reasons for running money that way? Are you using technology to scale it? Do you run models, and how many models do you run, MF's individual stocks? What about the fixed income piece? What do you charge? How do you make your decisions, and most important how do you sell it, position it, whatever?
I used to focus on SMA's. Over time I've come to the conclusion, that by running the money myself, i can not only be more tactical, but the clients feel its about me, rather than me being a salesman , outsourcing the money. It does take a bit more time, but with the block trading technology that I have available to me at SB, it's still scalable. Plus i enjoy it.
I have to admit that there are still times when I feel maybe I should be doing more MONEY MANAGERS, but I keep going back to ME.
I run Portfolios of all stocks, all ETF's a mix, and MF's with an occassional ETF. Lately I am moving more toward the MF platfrom. I use a combination of firm research, outside research, and Dorsey Wright (which I am not an expert in, but know enough about to integrate it into my process).
 
Curious to hear others thoguhts. Both in regards to running money and marketing the product

troll's picture
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31 views, no replies?
Thought I'd get at least a couple.

skeedaddy2's picture
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Joined: 2005-09-14

3 Models: Preservation, Optimization, & Leverage (same positions only weightings are different).

Macro with momentum/RS overlay. Core (ETF) and satellite (stocks) strategy. 20 positions max.

Sectors: Energy, Materials, Technology, Emerging Markets,
Stocks: AAPL, OXY, GILD, V, GGB, PCLN
ETFs: DBC, ADRE, QQQQ, PXE

Equities:
2.00% first $500k, 25% (sequential) discount for each $500k thereafter

Bonds:
.50% flat

or

1% flat & Performance fee of 10-20% on accounts over $750K.

Householding:Yes
Blended billing: Yes

Back office: Morningstar Advisor Workstation
Reuters Bridge Channel
Front office/CRM: eMoney 360 Pro
Custodian: Fidelity

troll's picture
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Joined: 2004-11-29

Skee - re core satellite -
do you use ETF's as core for any particular asset class - like - are you doing Large Cap Equity with ETF's or for part of that asset class?
 
Any screening strategy?
Lately I've been charging 1.5% flat, up to a million, or 1% flat for accounts $1 million up, for my MF accounts, since I need to factor in expense ratios (we use no loads and load waived A shares, but rebate any 12b-1's back to the client on the A's, so about .7 average ER). If I am using individual equities I'll start at 2, go to 1.5 for $1 million, using breakpoints not flat.

Northfield's picture
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Joined: 2007-04-10

Prat- At ML I've gravitated from seperate account SMA to almost entirely discretionary portfolio management where I run the portfolio. Similar reasons that you stated; lack of conviction in the outside managers, feeling disconected from the investment process, etc. I've been very happy with the outcome. I feel much more engaged in the process, and clients feel (rightly) that they are getting something unique.
 

Process is similar to Skee's. Overall philosophy is macro w/momentum. Sell the losers quickly, and let the winners run. Core is etfs, but generally broad market etfs. Satellites are tactical etfs, closed end funds, and an occassinal stock. Conservative accounts are 80% core - 20% satellite; aggressive accounts are generally the reverse.
 
Intelectually this makes sense to me, and it has not been difficult to perform better than a blended benchmark net of fees.
 
Fees are 2% to $250k, 1.75% to 500K, 1.5% to $1 mill and 1% over. I average about 1.75% with an average account size of about $400k. I also run an income portfolio at about 80bp.
 
I wish I could charge a performance fee of 10-20% like skee, but, of course, in a wire that won't ever fly.

Captain's picture
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Skee -

We also custody with Fidelity.

Is there any other trading platform, other than AdvisorChannel Workstation, that you use to build and transmit orders to Fidelity?

Just curious to know - I don't have any issues with Fidelity's trading platform... just wondering if you are using something else...

Thanks,

C

troll's picture
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Joined: 2004-11-29

Can you guys talk a little more about macro/momentum?
I am assuming that means the tactical or sattelite piece is tops down, sector first, with consideration given to market and peer relative strength?
 
I am struggling with fees, I guess becasue I am using mutual funds, and if I charge 1.5% then add the ER, even after rebating the 12-b1 fee to the client, it ends up costing the client 2.25, which means I need to get 9% to get 6.75 net to the client.
Am I selling myself too cheap? Maybe I need to re-examine the viablity of usuing MF's. Maybe I should go back to ETF's and individual stocks.
Need to hone a process.

troll's picture
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Ice - great stuff - thanks.
I use the SB technology to screen for 1st quintile Lipper MF;s, and for positive Alpha, and where possible, low beta. I am using funds for large cap growth and value for example, like Janus Advisor Forty, and Pioneer Cullen Large Cap Value. I need to re-look at the numbers vs the benchmark, but I think they both outperform for 1, 3 and 5 year. I am using them in combo with Vanguard, and I share large cap ETF's to lower the total ER on the portfolio. And in the case OF Janus Adv Forty, to get more diversification.
 
But you bring up some great ideas, that I'm going to consider.
 
This is a great thread, for me at least, extremely useful. Thanks for all the great ideas.

snaggletooth's picture
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Joined: 2007-07-13

I use that Janus Forty fund too.  It's done really well.  Also Touchstone Large Growth (TEQCX) on the C share managed by Louis Navallier has outperformed on the 1, 3, 5, and 10 year. 
 
Ice- I think there might be a fair amount of gains you're leaving on the table by going the passive route.

snaggletooth's picture
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I must be missing something.  I agree most managers will underperform.  It also depends on the time frame you are looking at.  But looking at the Google Finance interactive chart, from the beginning of March 2001 to now, the S&P has done about 13%.  Navallier has done 45%. 
 
Since the inception of the Janus fund in October 2002, the S&P was up 74%, Janus is up 140%, and Navallier is up 110%.
 
I don't call that luck or style drift.  That is good management. 

newnew's picture
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ice is right. snaggle not making good sense.
 
there is not an active manager in the world that will say they can beat the APPROPRIATE index over time by more than a point or two.
 
Show me a domestic stock fund that consistently "beats the S and P" and I will show you a fund that includes more than domestic stock (usual choices to add are cash and intl stocks, maybe some bonds or hi yld). it is the extra asset classes that add the "alpha", not stock picking! IT IS ALL MARKETING! Easy to sell all that "beat the market" crap.
 
I belive in the Efficient Market Theory and stick to funds/ETFs with avg exp of 20 bps.
 
In the WSJ on sat, article said that in the last 3 years, only 1% of 2300 active funds "beat the S & P" IF YOU COUNT TAXATION. Pitiful. But it's easy to sell.

troll's picture
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newnew wrote:ice is right. snaggle not making good sense.
 
there is not an active manager in the world that will say they can beat the APPROPRIATE index over time by more than a point or two. (Only a point or two?  That adds quite a bit over time)
 
Show me a domestic stock fund that consistently "beats the S and P" and I will show you a fund that includes more than domestic stock (usual choices to add are cash and intl stocks, maybe some bonds or hi yld). it is the extra asset classes that add the "alpha", not stock picking! IT IS ALL MARKETING! Easy to sell all that "beat the market" crap.
 
I belive in the Efficient Market Theory and stick to funds/ETFs (plus what % commission or fee?   Is your allocation static or tactical?  Point is, where do you add alpha, or do you believe that alpha is not achievable?  Indexing by definition eliminates alpha.  To benchmark, you would simply use the indexes matching the ETFs in the same proportion and after fund costs and broker cost you are subtracting alpha.) with avg exp of 20 bps.
 
In the WSJ on sat, article said that in the last 3 years, only 1% of 2300 (what about the other 9000 actively managed equity funds, how many of them beat the S&P?)active funds "beat the S & P" IF YOU COUNT TAXATION. Pitiful. But it's easy to sell.

snaggletooth's picture
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So how are you setting up those accounts?  Are you wrapping the Vanguard and other index funds?

Dark Knight's picture
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Please all of you investment wizards out there listen to Ice.  He knows what he is talking about.
 
 

newnew's picture
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ice- I DO NOT believe that active managers can win by a point or two. I said that THEY would never say that they do MORE than that--I was referring to Snags outrageous comment that one fund beating an index by ALOT (more than one or two points) was the result of "good management". Ridiculous. We are in agreement.-----------                                            If some of you want to insist on active management, fine, but you are ignoring decades of academic studies and the 1990 Nobel prize in Econ--all of which say, basically, "its the asset class, stupid". The rest is for show "I am DOING SOMETHING for my clients (picking winners)"

troll's picture
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Who is picking the allocation?  Is it you or your firm? 

snaggletooth's picture
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iceco1d wrote:
 
 
Snags
 
I like to use Vanguard usually for indexing (and yes, I charge a fee for it).  I am also trying to integrate T. Rowe Price into the low cost mix as well. 
 
For the actively managed pieces of portfolios I primarily use Oppenheimer, Goldman, and Russell (some bond funds, tax managed funds, emerging markets, BRIC, etc.).
 
Keep in mind, I am only talking funds right now - no ETFs, no stocks, no bonds, etc.
 
I would say, generally 60-75% of my (fund) portfolios are index and/or very low cost funds, and the remainder is active. 
 
Fee starts at 1.5% and can go as low as .6% (but generally not lower than 1.0%). 
 
This is what I was looking for.  So at 1%, is it safe to say to your clients that you can pretty much guarantee that they will always underperform the benchmark by at least 1.2% including fees and expenses?
 
It's kind of like in baseball.  If I sit on the bench, I can guarantee I won't strike out.  But I can also guarantee I'll never get a base hit...just some splinters in my ass (fees).

Dark Knight's picture
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No, Id say it's more like you are trying to hit a home run every time while Ice is trying to take what the pitcher gives him.  No he won't hit as many homers as you but overall he'll be a more valuable asset to the team.

snaggletooth's picture
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iceco1d wrote:
 
No Vanguard wholesaler has ever taken me to lunch either...
 
Hmmm...I had a great Kobe beef burger today for lunch from a wholesaler...It was delicious!
 
You and I could sit here all day long til we're both in a LTC facility and we'll do nothing more than bang our heads against the wall...

newnew's picture
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Again, in Modern Port Theory an Efficient Frontier exists. You, Mr Prospect, need to be on it. What part of the curve you possess is based on your risk tolerance. (this info is out there, I do not make it up!). My job is to keep you on it, without regard to emotion, but with regard to tax efficiency.

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newnew wrote:Again, in Modern Port Theory an Efficient Frontier exists. You, Mr Prospect, need to be on it. What part of the curve you possess is based on your risk tolerance. (this info is out there, I do not make it up!). My job is to keep you on it, without regard to emotion, but with regard to tax efficiency.

 
I think I'll just stand with Warren Buffett in the belief that Modern Portfolio Theory does not work.

troll's picture
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Alpha is not achievable without deviation from the benchmark.  Even a fund like VFINX does not have an alpha of 0, it has a negative alpha due the the 20 bps or whatever they charge.  As far as active managment gauranteeing underperformance, VFINX performance ranks in the 43rd percentile on a 10 year basis in it's Morningstar category (Large Cap Core TR).  That is over half of the category that outperforms the S&P in what Morningstar deems the appropriate category.  The other point you have forgotten is that alpha takes cost into consideration.  Too much cost lowers return which will lead to negative alpha if you let it.  Speaking of the efficient frontier,  I assume you are not properly using alternative asset classes due to the discussion on the importance of low cost.  Add managed futures to a stock/bond portfolio.  The efficient frontier changes completely.  Before you say I will just use a commodity ETF to add alternative asset classes, ETFs cannot mimic managed futures like they can the S&P for example.  The costs in managed futures are outrageous, however they will lower volatility and increase returns over time.  Alpha not only depends on deviation but also non-correlating assets.  ETFs cannot truly achieve alpha.  Asset allocation can achieve alpha, but needs to adapt on a constant basis to be effective.  This is why I use active money managers.   The portfolio that I use as my base allocation has had positive years net 1.5% for over a decade, better than 10% annualized returns, beta of about 60 (S&P) and an alpha above 5 for ten year time frame.  This could not be achieved with ETFs and cost is not an issue as the value provided is well worth the cost.  It can be done if you work hard enough at it.

troll's picture
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iceco1d wrote:Snags

 
MPT doesn't work to a tee because the prerequisites for it don't exist in the real world (namely, rational market participants).  If you do a search for "MPT" and my name, and read the longest post you get back in the search, you'll see the other novel I posted about it. 
 
That being said, you can't talk MPT with the materials supplied by the industry, they aren't accurate.  I'm right with you on that statement, although i'm sure for completely oppostie reasons.
 
Primo
 
Your post just made two things clear to me:
 
1.  You didn't read everything that I wrote carefully, because on certain issues we are in agreement.  I did read your post and yes we do agree on some points.
 
2.  You proved many of my points for me. 
 
a) I don't care what Morningstar deems as an "appropriate category" who determines what the appropriate category is then?- go through the funds and tell me they all fit in that category, exactly, 100% of the time.  Again, you are missing the point.
 
b)  I never said I didn't use alternative asset classes.I used the word "properly".  In fact, I said REPEATEDLY that I do NOT use a low cost approach for those asset classes! 
 
PS - I'm not an ETF fanboy anyway.
 
c)  Alpha was created as a correction parameter, not a marketing term. I do not use alpha as a marketing term.  Next time I bring up alpha to a client will be the first.  Alpha is not a correction parameter, it is a risk/reward calculation.  You are using alpha incorrectly.  I love adament use of "Efficient Frontier" and "Alpha" and "MPT" to argue points on this board...generally by people that never built an efficient frontier, much less truly understand it. The efficient frontier is the point where changing the asset allocation will either increase volatility measured by standard deviation or reduce returns.  Pretty sure I understand it.  My point is that the effecient frontier changes over time, it is not static.  It's pretty clear that your use of Alpha is similarly misguided, nearly throughout your entire post.
 
BTW, I mean misguided in absolute terms - I'd have you manage my money before most people in this business if you had to use individual securities.  Your points are wrong...contrary does not mean wrong, just different. but way "less wrong" than most.  It may not seem like a compliment, but it is.  Thank you.
 
It's equally intriquing to hear people sit and wonder why MPT has failed them in the real world.
 
d) Based on what you told us already, why in gods name are you even calculating beta relative to the S&P 500, much less comparing your returns vs. the S&P 500?  Because you have to measure against something.  Between the 3 indexes people hear the most about, the S&P most closely resembles a diversified portfolio.  I do realize it is not a perfect comparison, but nothing ever will be.  BTW, R2 on my portfolio is 77 against the S&P.  A little short of the accepted 85 to benchmark, but close enough since it would be almost impossible to truly benchmark it.  If R2 was 50, I would agree with you.
 
You are comparing what your portfolio did, that was NOT restricted to the securities in the S &P 500 TO the returns and volatility of the S&P 500 - one of my biggest complaints in the 4 novels I've posted so far!
 
Same reason I said not to assume my clients all get S&P minus 1.5%.  I get exposure to markets where low-cost isn't the most effective...but I know enough to identify the markets where it is right, and I'm capable of explaining to my clients why.

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iceco1d wrote:
 
 
I think I've addressed plenty of questions thus far, so I think I'd like to ask a few:
 
1.  What exactly is it, about the active fund managers at Janus, or Goldman, or American, etc. that enables them to beat their peers consistently?  What do they know that allllll the other fund managers, analysts, do it yourselfers, hedge funds, etc. don't know?  What gives them the exceptional ability to sit down and look at the universe of U.S. Large Cap stocks and pick the winners & weed out the losers?
 
Remember I'm talking about efficient asset classes (ex: U.S. LCV).  I already made my case for active management in various other classes.
 
2.  What is the motivation for these guys, with this awesome, and consistent ability to outpick the market, to go to work everyday at Putnam, Franklin, Federated, etc.?  Why on earth, if they really believed in their ability to consistently identify winners & losers would they report to work everyday?  They should be at home shorting losers, buying winners on margin, and making billions (literally).
 
3.  Why exactly does underperforming a benchmark by 1.5% seem so awful?  Please don't use the S&P or the Dow for this answer - they are completely overused and overemphasized.  If I had a fixed mortgage right now for 3.75%, should I be upset that it lags the fed funds or discount window rate by a couple points?
 
That should be good for now I suppose.
 
Per your request:
 
1.  It's not that the fund manager's "know" anything more, it's that they aren't over-diversifying.  I remember reading some study that showed a value portfolio could be fully diversified with like 12 stocks and a growth portfolio could be diversified with 20.  Not sure on the exact numbers, you get the point.  If a manager feels like a certain company is undervalued compared to its intrinsic value, then it is worth the risk to invest.  Managers outperform because of concentrated positions.  They won't always be right, and some have been more right than others.  The managers I follow, which are actual people, not companies, have been right far more often than wrong. 
 
2.  Many of the best managers have their own firm which is contracted out by a fund company.  There are more underperforming managers than managers who outperform, so it's not like all these guys are something special.  It takes a certain passion.  Look at Bill Gross.  The guy is a billionaire.  He plays poker with Bill Gates.  He doesn't have to trade for Pimco, but he's there from dawn til dusk.  Oddly enough, I saw a graph going back 21 years of his Total Return fund compared to the S&P and the bond fund did 7.4% while the S&P did 7.5%.  Sure as shit that bond fund beats most other bond funds out there.
 
3.  I don't understand wanting to underperform by 1.5% in any situation.  The indexer isn't even allowing for the chance to outperform.  While the chance for an actively managed fund to blow up exists, it isn't common, and I believe worth the risk to at least try for higher returns.  Look at 10 year periods where the S&P was literally flat...1972-1982 or somewhere around there (I think it was Oct to Nov).  Sure the S&P has a yield, but I would think a solid manager can take advantage of certain positive runs and outperform.
 
Sorry if this doesn't come out right, I'm watching more TV than typing...

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iceco1d wrote:
I'm just going to address the point I agree with:  You are spot on that many asset classes can [almost] be fully diversified (in terms of non-systemic risk) with 12 - 20 securities.
 
That's it?  That's all you agree with?  Man, I surely thought there were at least a couple other decent points.

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" I don't understand wanting to underperform by 1.5% in any situation.  The indexer isn't even allowing for the chance to outperform.  While the chance for an actively managed fund to blow up exists, it isn't common, and I believe worth the risk to at least try for higher..."
 
SNAGS: here's 2 points: my indexes CANNOT blowup, and you just said your funds could ("risk is worth it"). Also, it is not about underperforming, of course. i get paid a fee to make sure that my clients own the right asset classes and own them in proper balance. Without me, THEY WOULD NOT. therefore, the comprison is this: how much better off are they with me, net the fee? I think plenty better off, because without me they would be in cds,  or only one or two asset classes, or in tax-inefficient funds, or whatever. Bottom line: net taxes, net fees, net advice, I am worth it; they do not "underperform" by the equivalent of my fee.
 
PS Goldman Sachs mutual funds are at least honest about their relative poor performance. They publish "blended indexes" (Ice referred to these indexes just now) with their quarterly fund report to advisors, and it ain't pretty. I wish American Fds could be so honest (ANCFX beat the S & P! Totally inappropriate comparison!)

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newnew wrote:" I don't understand wanting to underperform by 1.5% in any situation.  The indexer isn't even allowing for the chance to outperform.  While the chance for an actively managed fund to blow up exists, it isn't common, and I believe worth the risk to at least try for higher..."
 
SNAGS: here's 2 points: my indexes CANNOT blowup, and you just said your funds could ("risk is worth it"). Also, it is not about underperforming, of course. i get paid a fee to make sure that my clients own the right asset classes and own them in proper balance. Without me, THEY WOULD NOT. therefore, the comprison is this: how much better off are they with me, net the fee? I think plenty better off, because without me they would be in cds,  or only one or two asset classes, or in tax-inefficient funds, or whatever. Bottom line: net taxes, net fees, net advice, I am worth it; they do not "underperform" by the equivalent of my fee.
 
PS Goldman Sachs mutual funds are at least honest about their relative poor performance. They publish "blended indexes" (Ice referred to these indexes just now) with their quarterly fund report to advisors, and it ain't pretty. I wish American Fds could be so honest (ANCFX beat the S & P! Totally inappropriate comparison!)
 
What about a situation like 2000-2003 when the S&P was at its worst point down -46%?  I think many of the "better" active managers would have beaten that handily. 

troll's picture
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Or how about the Q's down 80%?  That sure looks like a blow up to me.

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I've been doing Private Portfolio Management since 1985. It's the bulk of my business. I currently have 42MM under management. I originally started in the Legg Mason MIP program and currently practice in the WS PIM program. I run four basic models. Long Term Growth, Moderate Growth, Income and Growth, and Social Responsibility. Minimum account size is $50M. Fees are 2.1% for all accounts under $100M. Accounts over $100M  range from 1.85% to 1.25% depending on model.I use 3 bullet points in my sales presentations. 1 - Clients have the ability to actually talk to the manager. this isn't possible with MF or SMA accounts. We can take into consideration personal needs, and tax efficiency.  2- Overall Cost is lower than with any actively managed MF or wrap fee account. 3- Quarterly reports with a benchmark and periodic meetings with me.I use some ETF's in the program. Primarily IShare foreign shares, and more recently to a minor extent commodity and currency shares.

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Primo: QQQs down 80% is not a manager blowup! It is what you get _% of the time for a Standard dev of __(fill in blank for your index of choice). Totally irrelevant to discussion.
 
Snags: You would have to know BEFORE the bear market which are the "good" managers. Good luck. And I do mean luck. I will quote Ice: "what any fund manager did in the past is completely irrelevant to what they will do in the future.  Zero.  Zilch relevance"

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Another point for Snags et al: this idea that fees cause a port to automatically underperform by the amount of the fees is also incorrect for this reason: I get paid to keep clients from emotional trades. Paid to make sure we do nothing, in some cases. Or paid to make sure we do the opposite of what "feels good". Fees give me incentive to pay attention OFTEN to the OLD money, not just the new. When a family member wants to know who to see for planning (I am too close to them they might feel) I never recommend commision models, even if it might seem "cheaper".

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Fund Name

ShareClass

Expense Ratios

YTD
Cum

-->

Month End Average Annual Total Return (NAV) (%) 05/31/2008

Quarter End Standardized Total Return (%) 03/31/2008

DividendDistnPer Share

Std.30-DayYield

Expense
Ratios

-->

Current

BeforeWaiver

1Yr

5Yrs

10Yrs

SinceInception

1Yr

5Yrs

10Yrs

SinceInception

GS Balanced Fund

Retail A
18.69

-2.24
-->
1.05

1.30

-3.64

6.83

3.18

7.25

-7.80

6.69

2.19

6.64

0.00

n/a
Utils.format(perfs.perfs[j].expenseRatio, new Float(100))-->

GS Balanced Fund

Retail B
18.53

-2.60
-->
1.80

2.05

-4.37

6.03

2.41

5.03

-8.03

6.72

2.02

4.84

0.00

n/a
Utils.format(perfs.perfs[j].expenseRatio, new Float(100))-->

GS Balanced Fund

Retail C
18.49

-2.54
-->
1.80

2.05

-4.34

6.04

2.41

2.94

-4.13

7.10

2.02

2.70

0.00

n/a
Utils.format(perfs.perfs[j].expenseRatio, new Float(100))-->

S&P 500 with Income

n/a

n/a
-3.80-->

n/a

-6.68

9.76

4.20

n/a

-5.06

11.31

3.50

n/a

n/a

n/a
n/a-->

*Lehman US Aggregate

n/a

n/a
1.21-->

n/a

6.87

3.83

5.78

n/a

7.65

4.58

6.03

n/a

n/a

n/a
n/a-->

GS Balanced Strategy Portfolio

Retail A
11.01

-0.02
-->
1.25

1.40

-0.22

8.53

5.04

5.36

-5.77

7.81

4.11

4.56

0.00

n/a
Utils.format(perfs.perfs[j].expenseRatio, new Float(100))-->

GS Balanced Strategy Portfolio

Retail B
10.99

-0.38
-->
2.00

2.15

-0.98

7.73

4.25

4.58

-6.08

7.85

3.91

4.35

0.00

n/a
Utils.format(perfs.perfs[j].expenseRatio, new Float(100))-->

GS Balanced Strategy Portfolio

Retail C
10.99

-0.39
-->
2.00

2.15

-0.95

7.72

4.26

4.59

-2.12

8.22

3.92

4.36

0.00

n/a
Utils.format(perfs.perfs[j].expenseRatio, new Float(100))-->

*S&P 500 w/income

n/a

n/a
-3.80-->

n/a

-6.68

9.76

4.20

n/a

-5.06

11.31

3.50

n/a

n/a

n/a
n/a-->

60% Leh Agg/20% MSCI EAFE/20% S&P 500

n/a

n/a
-0.42-->

n/a

2.49

8.19

6.09

n/a

3.22

9.37

5.96

n/a

n/a

n/a
n/a-->

GS Equity Growth Strategy Portfolio

Retail A
15.25

-2.43
-->
1.35

1.78

-5.84

15.61

5.35

5.99

-12.63

15.53

3.67

4.73

0.00

n/a
Utils.format(perfs.perfs[j].expenseRatio, new Float(100))-->

GS Equity Growth Strategy Portfolio

Retail B
14.69

-2.72
-->
2.10

2.53

-6.58

14.74

4.55

5.20

-12.83

15.72

3.48

4.53

0.00

n/a
Utils.format(perfs.perfs[j].expenseRatio, new Float(100))-->

GS Equity Growth Strategy Portfolio

Retail C
14.62

-2.73
-->
2.10

2.53

-6.57

14.72

4.56

5.22

-9.16

15.98

3.49

4.54

0.00

n/a
Utils.format(perfs.perfs[j].expenseRatio, new Float(100))-->

50% MSCI EAFE/50% S&P 500

n/a

n/a
-3.18-->

n/a

-4.30

14.70

5.80

n/a

-3.60

16.54

5.12

n/a

n/a

n/a
n/a-->

*S&P 500 w/income

n/a

n/a
-3.80-->

n/a

-6.68

9.76

4.20

n/a

-5.06

11.31

3.50

n/a

n/a

n/a
n/a-->

GS Growth Strategy Portfolio

Retail A
14.03

-2.23
-->
1.35

1.70

-5.04

13.60

5.21

5.85

-11.48

13.33

3.73

4.71

0.00

n/a
Utils.format(perfs.perfs[j].expenseRatio, new Float(100))-->

GS Growth Strategy Portfolio

Retail B
13.98

-2.51
-->
2.10

2.45

-5.77

12.74

4.42

5.07

-11.68

13.48

3.54

4.51

0.00

n/a
Utils.format(perfs.perfs[j].expenseRatio, new Float(100))-->

GS Growth Strategy Portfolio

Retail C
13.87

-2.46
-->
2.10

2.45

-5.66

12.76

4.43

5.08

-8.00

13.76

3.54

4.51

0.00

n/a
Utils.format(perfs.perfs[j].expenseRatio, new Float(100))-->

20% Leh Agg/40% MSCI EAFE/40% S&P 500

n/a

n/a
-2.22-->

n/a

-2.01

12.54

6.00

n/a

-1.30

14.15

5.50

n/a

n/a

n/a
n/a-->

*S&P 500 w/income

n/a

n/a
-3.80-->

n/a

-6.68

9.76

4.20

n/a

-5.06

11.31

3.50

n/a

n/a

n/a
n/a-->

GS Growth and Income Strategy Portfolio

Retail A
12.61

-1.59
-->
1.34

1.64

-2.64

11.41

5.45

6.01

-8.81

10.99

4.21

5.01

0.00

n/a
Utils.format(perfs.perfs[j].expenseRatio, new Float(100))-->

GS Growth and Income Strategy Portfolio

Retail B
12.56

-1.94
-->
2.09

2.39

-3.37

10.55

4.66

5.22

-8.97

11.13

4.01

4.81

0.00

n/a
Utils.format(perfs.perfs[j].expenseRatio, new Float(100))-->

GS Growth and Income Strategy Portfolio

Retail C
12.53

-1.87
-->
2.09

2.39

-3.35

10.57

4.66

5.22

-5.21

11.41

4.01

4.80

0.00

n/a
Utils.format(perfs.perfs[j].expenseRatio, new Float(100))-->

40% Leh Agg/30% MSCI EAFE/30% S&P 500

n/a

n/a
-1.30-->

n/a

0.25

8.58

5.44

n/a

0.97

9.61

5.12

n/a

n/a

n/a
n/a-->

*S&P 500 w/income

n/a

n/a
-3.80-->

n/a

-6.68

9.76

4.20

n/a

-5.06

11.31

3.50

newnew's picture
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Joined: 2007-02-23

If all fund families benchmarked with these blended indices, they would be more accurate----- but sales would go way down!!!

troll's picture
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Joined: 2004-11-29

SNAGS: here's 2 points: my indexes CANNOT blowup

 
 
Indexes can and have blown up.  For example the Qs

troll's picture
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Joined: 2004-11-29

newnew wrote:Another point for Snags et al: this idea that fees cause a port to automatically underperform by the amount of the fees is also incorrect for this reason: I get paid to keep clients from emotional trades. Paid to make sure we do nothing, in some cases. Or paid to make sure we do the opposite of what "feels good". Fees give me incentive to pay attention OFTEN to the OLD money, not just the new. When a family member wants to know who to see for planning (I am too close to them they might feel) I never recommend commision models, even if it might seem "cheaper".
 
I would agree with this post IF keeping clients from emotional decisions was our only job.  It is a big part (if not the biggest part) of our job, however I feel not even attempting to add value beyond hand holding (not an insult) is lacking.

newnew's picture
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Joined: 2007-02-23

what is "adding value"? this is our point of contention, with all due respect. Active management is your definition? I never said that preventing emotional trades was the only job-- see posts from preceding pages.

troll's picture
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Joined: 2004-11-29

Good point.  Let me rephrase.  I feel not even attempting to add returns beyond hand holding is lacking.

snaggletooth's picture
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Joined: 2007-07-13

Primo wrote:Good point.  Let me rephrase.  I feel not even attempting to add returns beyond hand holding is lacking.
 
This is exactly what I agree with.

troll's picture
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Joined: 2004-11-29

wow   

newnew's picture
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Joined: 2007-02-23

total agreement with Ice. Snags and Primo are saying the things many brokers say to get sales. It's easy; "look at what these managers have done-they beat the market! Make the check out to Edw......".
 
Another way to say it, which I also disagree with, but which is implied but your posts, is "we don't really believe in the markets, they are so inefficient that even I can spot IN ADVANCE which manager will do MUCH BETTER-- so much better that it is easily worth not only the fund cost and the funds undisclosed trading costs, but also a 3.50% upfront load-- it's worth it even though it is totally in MY best interest to make that claim!"

troll's picture
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Joined: 2004-11-29

The term appropriate benchmark has been used many times in this discussion.  I have also mentioned my base portfolio and some statistics about it.  Took the time this morning to properly benchmark the portfolio as I feel it makes my point.  First, I said earlier that ETFs cannot be used to properly represent all asset classes.   This is because many indexes do not as of yet have a corresponding ETF.  Also, when you get beyond the S&P for example into more complicated asset classes such as currencies, there is far more slippage in ETFs.
 
Here is the appropriate indexing for the portfolio I mentioned earlier.
18% CSFB/Tremont- Managed Futures
27%  FTSE AW Ex USA
31%  S&P TR
8%  LB 1-3 Year Govt
16%  LB Aggregate Bond
R2 of 96 so I trust you will find the mix appropriate.  Portfolio beta of .82 compared to index.  Alpha of 4.66 compared to index.  $100m invested in 1995, portfolio worth $406m net of 1.5% fee, index $244m net of same 1.5% fee.  Here is the problem with indexing, an ETF to track the CSFB/MFut does not exist.  That is 18% of the portfolio!  Putting in your plain vanilla commodity ETF drops cumulative performance by 12%!!  $49m over 13 years should give you pause for thought.
 
It can be done.  It is far more difficult to do, but it can be done.  VFINX ranks in the 43rd percentile in it's category for the last 10 years.  I will agree that some funds in the category should be in a different category.  Statistically speaking, just as many underperformers as outperformers should be elsewhere.  So the ranking is reasonably accurate in my opinion.  Are there issues with active manager?  YES.  It is not perfect nor does it gaurantee excess returns.  Do I know before hand which managers will outperform?  No.  Just as you do not know if your ETF asset blend will accomplish you clients needs.  Indexes can blow up.  Reference the Qs.  Again, not even making the attempt is lacking in my opinion.
 

troll's picture
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Joined: 2004-11-29

Just got done with my yard work, what a pain.  I have heard what you have said, I am trying to respond to two people at once and that is why it appears I am ignoring some of your points.  I assure you I am not.  This entire discussion comes down to preference.  I do business one way, others do it another way.  Odds are neither is completly right or wrong, just different.  It has taken years for me to put together how I do business.  If I could net more to the client with ETFs, CDs, or anything else I would.  I am not married to using active managers.  I have just not found a way, although I am constantly looking.  I do still look at the S&P being in the 43rd percentile as highly supportive to my case.  From more of a big picture perspective, most (I respect that you don't use ETFs for EVERYTHING) brokers I know that use ETFs simply put together a 40% S&P, 30% EFA,  10% alternative, 20% AGG and off they go.  Most of my criticisms are directed at these brokers whom I consider to be quite lazy.  I have enjoyed discussing the finer points and appreciate the back and forth.   We certainly can agree to disagree on some points. 

josephjones107's picture
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Joined: 2004-12-20

ICE

I like 99% of what you're saying.

But

Transaction costs: these are already built into performance. Are you subtracting this after performance is already calculated?

American Funds: I agree they style drift alot and drift from benchmarks alot, and it's misleading to compare them to certain benchmarks, but don't you think they still do a good job? They've been overweight energy and underweight financials for quite some time..that has been right on the money. Additionally they pile up cash and invest it when it looks like the sky is falling.

now_indy's picture
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Joined: 2006-07-28

Primo,
If you are an independent, check out:
http://www.symmetrypartners.com/SymmetryHomePortlet/home.htm
 
They basically "buy the market" using Dimensional Funds.  In their models, you would own over 10,000 stocks in 40 countries.  They don't try and predict the market. They do overweight small cap value, just because that has done a little better over the past forty years.  And, if you want to take 1%, the client is in at basically 2.1% (1% for you + .5% for Symmetry + .2% for Custodian + .38% for Dimensional Funds).

Lakers's picture
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Joined: 2005-02-05

newnew wrote:total agreement with Ice. Snags and Primo are saying the things many brokers say to get sales. It's easy; "look at what these managers have done-they beat the market! Make the check out to Edw......".
 
Another way to say it, which I also disagree with, but which is implied but your posts, is "we don't really believe in the markets, they are so inefficient that even I can spot IN ADVANCE which manager will do MUCH BETTER-- so much better that it is easily worth not only the fund cost and the funds undisclosed trading costs, but also a 3.50% upfront load-- it's worth it even though it is totally in MY best interest to make that claim!"
 
 
Funny, I thought this forum is for brokers. We make our living  selling, and commissions are how we're compensated. If you cannot influence a client to do the right thing, whether it's with American funds with a proven track record or persuading them just to buy index funds from you and pay you 1% every year, you have done a disservice to both the client and your family.
 
Your discussion belongs on the fp.com website where you guys can sit around all day crunching numbers til they support your argument and avoid the guilt of not being on the phone prospecting for new clients. 
 
If you think expenses are the only guage of suitability, you should go to work for Vanguard.
 

troll's picture
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Joined: 2004-11-29

now_indy wrote:Primo,
If you are an independent, check out:
http://www.symmetrypartners.com/SymmetryHomePortlet/home.htm
 
They basically "buy the market" using Dimensional Funds.  In their models, you would own over 10,000 stocks in 40 countries.  They don't try and predict the market. They do overweight small cap value, just because that has done a little better over the past forty years.  And, if you want to take 1%, the client is in at basically 2.1% (1% for you + .5% for Symmetry + .2% for Custodian + .38% for Dimensional Funds).
 
I appreciate the offer, but that is almost exactly the opposite of what I do.

newnew's picture
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Joined: 2007-02-23

Lakers-I hear ya, but RIAs are allowed on this site. My posts sound serious, but it's all a game. C'mon, it's an internet forum not a sales seminar. MANY folks on this site forego commissions. It's mostly academic but also it's niche marketing. I defend my style, you yours, it's fun and nothing personal. BTW, I coldcall plenty-- it's still sales because I can't crunch numbers without clients! Niche marketing is a lot like sales as well.

newnew's picture
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Joined: 2007-02-23

Now_indy: thanks for the tip. I like DFA, but it's a long road to getting approval (incl trip to So Cal from midwest). Their "almost passive" style, based on academic research (there goes the # cruncher again!) fits my style well. I'll check it out, although over 2% gets into mutual fund cost territory.

now_indy's picture
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Joined: 2006-07-28

newnew wrote:Now_indy: thanks for the tip. I like DFA, but it's a long road to getting approval (incl trip to So Cal from midwest). Their "almost passive" style, based on academic research (there goes the # cruncher again!) fits my style well. I'll check it out, although over 2% gets into mutual fund cost territory.
 
That's one of the nice things about using Symmetry, you don't have to be approved by DFA.  Once Symmetry approves you (which is usually done over the phone), just start opening accounts, and sending them checks. 
 
I agree that the 2% seems  a little steep, but I can't think of anywhere else the client can go to get that kind of diversified investment.  If you really don't like it, you can lower your fee below 1%  .

BullBroker's picture
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Joined: 2006-12-26

Sorry to jump in this "exciting debate" so late in the game, just looking for an opportunity to learn.  I am still a rookie and trying to find the best place for my clients in the midst of; firms recommendations, wholesalers, Senior Advisors can't fail picks, and my own personal thoughts. 
 
I have some questions for Iceco1d and I wanted to be upfront from the standpoint I am asking and trying to learn, not judging or questioning what it is you do. 
 
You state that indexing is the only way to go with the more efficient Large Cap and don't believe there is room for an active manager to add alpha or returns over a long period of time.  On a long-term 10+ year time horizon I agree that 99.9% of active managers can not out perform the S&P 500.  The way you defend this is that if you stuck with one active manager over the 10+ time frame, after transaction + management fees that your indexing strategy would beat all active managers.  To this I agree, but what if you didn't stick with one active manager throughout the entire 10+ time frame. 
 
What if using efficiency and technology you could tell that in XX market environment YY sector within the S&P will out perform the overall S&P 500 and you invest in a manager that has overweighted YY sector.  For example if you invested in an actively managed fund that only invest in stocks held in the S&P 500 that has overweighted energy you would have obviously beat any S&P index fund.  
 
In obvious down cycles in the market I believe your strategy will beat anything else out there.  In down markets the chance that an active manager will beat the S&P narrows and by indexing you are giving your portfolio they greatest chance of beating the active managers due to the narrowing in the amount of stocks that can beat the index.
 
While in an up market the % of equities that can beat an individual index widens, and the chance of an active manager selecting an equity that can beat the market it greater.  In an up market the likley hood of an index beating an active manager decreases.
 
 
 
If the goal is to keep cost down by indexing why go the Mutual Fund (Vanaguard) route?  Why not go the ETF indexing route, is it not cheaper for the client to use ETF's and therefore cut cost even more?  I know you said you don't like or use ETF's just wondering why if your goal is to get the client in the lowest cost in an efficient market.
 
 
 
I noticed you bring up BRIC quite a bit, do you still believe BRIC is the place to be as a satellite?  With Russia and India having extremely high inflation I have been taken my gains in BRIC and reallocating away from Russia and India and into more of a pure Latin America.  I am also looking into Africa and Middle East as the next BRIC to take advantage of the untapped growth potential in these markets.  I like TRAMX in the Africa and Middle East play.
 
Thanks for your post, it is definitely educational.   
 
 

BullBroker's picture
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Joined: 2006-12-26

iceco1d wrote:
Thanks for the compliments Bull.  I'll do my best to respond to your questions, but I'm afraid my posts of 1,000+ words are done for a week or so (getting married on Saturday).  However, feel free to PM me anytime with questions (although, from what I've read from your 500 day war post (very informative btw), I think the BEST thing you can do for your clients, is make it to year 5...all the strategizing in the world won't matter if you aren't here still in 2015). 
 
 
 
Good luck with the Wedding, I'm sure you'll be out of touch for a week or so we can pick up then.  Enjoy the Wedding and Honeymoon it flies by quickly. 

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