[quote=AllREIT] [quote=drewski803]

Boast passive management all you want, but I think we all know that there isn't such an animal as a 'passively managed' index. [/quote]

No such thing as a 'passively managed' index? Pray that you explain this?

It is important to remember that the index is not entirely passive: it does change over time. although a great deal of care goes into the selection of the index, it nevertheless represents a specific view of the market. For example, in the effort to be representative, there is an inevitable tendency to include "newer' industries in an index. These industries tend however to be more actively traded and often have higher price-earnings ratios than more established industries. The consequence of modifying the index to include these industries is therefore to exaggerate increases in the value of the index, and distort the picture of the broader market. 

-The Mutual Fund Bible

[QUOTE] Moreover, attaching a 1% wrap fee to an ETF doesn't make you any better than a portfolio manager who consistently laggs his index by 1.2%.[/quote]

Sure it does, because the lag is capped to 1.2% vs an active manager who could lag the index by a much greater amount.

I'm more concerned about keeping my clients in the market because I believe the long-term ownership of stocks is the correct strategy.  To do so, I must limit their downside.  We know that to cover redemptions, mutual funds typically have a cash component, and thus tend to out-perform indexes in down markets.  If I can show my clients that my funds are beating the indexes when they are down, they are more likely to not jump-ship.  Also, as He puts it:

“Two rules:
1. Preserve the principal
2. When in doubt see Rule #1”

Good luck with your SPDR over the next 12 months.

[/quote]

[quote=drewski803]No such thing as a ‘passively managed’ index? Pray that you explain this?

It is important to remember that the index is not entirely passive: it does change over time. although a great deal of care goes into the selection of the index, it nevertheless represents a specific view of the market. For example, in the effort to be representative, there is an inevitable tendency to include "newer' industries in an index. These industries tend however to be more actively traded and often have higher price-earnings ratios than more established industries. The consequence of modifying the index to include these industries is therefore to exaggerate increases in the value of the index, and distort the picture of the broader market. 

-The Mutual Fund Bible

[/quote]
As I see it, the Mutual Fund Bible doesn't have a prayer. But then active management is an act of faith, so it makes sense to have a bible.

Fundamentally an index is a deterministic set of stocks and weightings that are selected based on a set of fixed rules. E.g Russell 1K, Wilshire 5000, Morningstar large cap value, S&P Dividend aristocrats,

Some (although they tend to be the most notable indexes) are set up by committee. E.g The S&P 500 and DJIA.

Newer older etc, all depends on how the index rules are set. Some indexes strive to represent the market (Russell/Wilshire/M*/MSCI) and so include the good/bad and indifferent of the market. Because that is what it is.

Others like the S&P Dividend Aristocrats (50 highest yeilding Companies that have raised dividends for at least 25 years) aren't going to have anything New in them.

[QUOTE][QUOTE] Moreover, attaching a 1% wrap fee to an ETF doesn't make you any better than a portfolio manager who consistently laggs his index by 1.2%.[/quote]

Sure it does, because the lag is capped to 1.2% vs an active manager who could lag the index by a much greater amount.

I'm more concerned about keeping my clients in the market because I believe the long-term ownership of stocks is the correct strategy.  To do so, I must limit their downside.  We know that to cover redemptions, mutual funds typically have a cash component, and thus tend to out-perform indexes in down markets. [/quote]

Which you can do exactly the same thing by keeping 5% of the account in cash and the remainder in the market.

Also maybe the mutual funds's stock picking and expense ratio cause it to lag more than a passive index after adjusting for cash balances, which is typical of most mutual funds.

Thanks to ETF's/Futures most mutual funds (e.g those that have a fully invested mission) don't even carry cash balances w/o market exposure.

[quote]If I can show my clients that my funds are beating the indexes when they are down, they are more likely to not jump-ship.  Also, as He puts it:

“Two rules:
1. Preserve the principal
2. When in doubt see Rule #1”

Good luck with your SPDR over the next 12 months.[/quote]

And mutual funds are related to principal preservation how?

If you want safety of principal hold cash. If you want more return, buy something else.

Why don't you just buy the individual securities if you're so fee-conscious?  Insitutional pricing?  Hmm, probably don't get that on the actual ETF share. 

burn!

Few things:

-Point and Figure Charting by Dorsey is awesome but you have to spend a lot of time studying I never finished but a great system that uses economics which never loses.

-Beating an indice is not always most important, lowering volatiliy should be king.  A simple excercise is to say a stock, index, fund, etc. gains 10% the 1st year 10% the second 10% the third then drops 10% the fourth.  What return has to be made the fifth year to avg 10% a year over the 5 year period.  A mutual fund tries to avoid the 4th year and that is a huge value.

-Studies show (for me it is fact in my mind) that allocation is 92% (something like that) of the success story rather than selection.  This means the appropriate allocation for a risk profile will usually make you look like a genius no matter what you pick.

-Basically your fine just study on allocation then you can do ok with not being the best picker.

I haven’t gone through all 7 pages of replies, but I find ETF’s the way to go.  You can do broad diversification with Widsomtree, first trust, powershares, etc… and specific industry allocations as well.  Best of all, if you find you made a mistake and an industry is not doing as well as you projected, your clients can get out relatively easily.

How well did your indices perform in the late 60’s and through the 70’s? Yes, indices and ETF’s are terrific investments - these last several years. But not always, and there are certain asset classes that it makes sense to have active mgmt and always will: Int’l, Emerging Mkts, Real Estate, Small Cap,etc.



Deciding that one way is right is the equivalent of buying all Putnam Funds in 1998 because they were the fund company(or just the right style of mgmt) of the decade and could do no wrong. Even w/o the style drift you got your head chopped off.

Actually as far as the real estate goes, unless you are looking at non-listed reits, active management is not a significant advantage to just purchasing a listed quality diversified Reit.  Either way you are buying management (same can be said for non-listed reits but let's keep them separate) and the whole group of quality reits moves in cunjunction with most of the REIT mfd's I've compared.  As for the other classes you mentioned, you better be pretty confident that the mfd manager of the groups in question isn't just riding a wave. 

The etf's in those classes have performed as well as managed mfd accounts, or better, in every comparison I have ever done.  Now note that I have not done every study possible, so there is always exceptions to the  rule so to speak. 

Finally, as for the 60's and 70's, if you are comparing the S&P to a mutual fund, be sure you are adding back in the dividends.   Some hypo tools that are out there do not acurately account for the dividends paid by the S&P, as indexes in and of themselves, do not pay a dividend since they are simply a scorecard.  A much more accurate comparison for that time frame would be to compare vfinx (which I personally don't use with my clients but have no problem with) with reinvestments at least as far back as '76.  If you need to go back farther than a 30 year cycle, I am not confident in suggesting where you might look.  Even proper diversification cannot prepare someone for every eventuality, and 30 years is a pretty good timeframe. 

Also if you look at most of the dividend leaders index's, (wisdomtree, First trust, vanguard, powershares and I am sure others) and compare their back-tested data with most of the g&i funds out there, in both the domestic and international categories, and in most of the various cap size you are looking for, you may possibly compelled to to revise your opinion....

... Or not since it is really just my opinion

Just noting that I said some hypo's don't account for the S&P dividend rate, but most do.  You just need to make sure what datasource you are using for your final value figures.

[quote=new_indy]

Just noting that I said some hypo’s don’t account
for the S&P dividend rate, but most do.  You just need to make
sure what datasource you are using for your final value figures.

[quote=AllREIT] [quote=new_indy]

Just noting that I said some hypo's don't account for the S&P dividend rate, but most do.  You just need to make sure what datasource you are using for your final value figures.

[/quote]

This is a classic trick for fluffing up the returns of active management.

Compare the total return of Fund XYZ vs the S&P Price Return.

Even then, alot of funds still come up bruised and bloody.
[/quote]

A HELL of a lot of funds come up bloody.

[quote=AllREIT] [quote=new_indy]

Just noting that I said some hypo's don't account for the S&P dividend rate, but most do.  You just need to make sure what datasource you are using for your final value figures.

[/quote]

This is a classic trick for fluffing up the returns of active management.

Compare the total return of Fund XYZ vs the S&P Price Return.

Even then, alot of funds still come up bruised and bloody.
[/quote]

When you say "Price Return" do you mean "Total Return"?  I've never heard of Price Return.

[quote=deekay][quote=AllREIT] [quote=new_indy]

Just noting that I said some hypo's don't account for the S&P dividend rate, but most do.  You just need to make sure what datasource you are using for your final value figures.

[/quote]

This is a classic trick for fluffing up the returns of active management.

Compare the total return of Fund XYZ vs the S&P Price Return.

Even then, alot of funds still come up bruised and bloody.
[/quote]

When you say "Price Return" do you mean "Total Return"?  I've never heard of Price Return.

[/quote]

Price return doesn't capture reinvested dividends.

[quote=Bobby Hull][quote=deekay][quote=AllREIT] [quote=new_indy]

Just noting that I said some hypo's don't account for the S&P dividend rate, but most do.  You just need to make sure what datasource you are using for your final value figures.

[/quote]

This is a classic trick for fluffing up the returns of active management.

Compare the total return of Fund XYZ vs the S&P Price Return.

Even then, alot of funds still come up bruised and bloody.
[/quote]

When you say "Price Return" do you mean "Total Return"?  I've never heard of Price Return.

[/quote]

Price return doesn't capture reinvested dividends.

[/quote]

That's what I figured.  Thanks.

But I don't understand what he's trying to prove.  I found several funds in about two seconds that have beaten the S&P with dividends reinvested.  How can a fund company 'fluff up' returns?  All their hypos have to be NASD approved. 

Frankly, I think the whole 'active vs. passive' argument is done to let blowhards hear themselves talk.  Do right by your clients, give 'em a little of what they want, and our job is done.

[quote=deekay][quote=Bobby Hull][quote=deekay][quote=AllREIT] [quote=new_indy]

Just noting that I said some hypo's don't account for the S&P dividend rate, but most do.  You just need to make sure what datasource you are using for your final value figures.

[/quote]

This is a classic trick for fluffing up the returns of active management.

Compare the total return of Fund XYZ vs the S&P Price Return.

Even then, alot of funds still come up bruised and bloody.
[/quote]

When you say "Price Return" do you mean "Total Return"?  I've never heard of Price Return.

[/quote]

Price return doesn't capture reinvested dividends.

[/quote]

That's what I figured.  Thanks.

But I don't understand what he's trying to prove.  I found several funds in about two seconds that have beaten the S&P with dividends reinvested.  How can a fund company 'fluff up' returns?  All their hypos have to be NASD approved. 

Frankly, I think the whole 'active vs. passive' argument is done to let blowhards hear themselves talk.  Do right by your clients, give 'em a little of what they want, and our job is done.

[/quote]

When you compare some beat-off managed money strategy to the S&P 500 without dividends, it appears to do a much better job than it really does. These managed money guys are a bunch of crooks, except for my buddies that do managed money.

[quote=Bobby Hull][quote=deekay][quote=Bobby Hull][quote=deekay][quote=AllREIT] [quote=new_indy]

Just noting that I said some hypo's don't account for the S&P dividend rate, but most do.  You just need to make sure what datasource you are using for your final value figures.

[/quote]

This is a classic trick for fluffing up the returns of active management.

Compare the total return of Fund XYZ vs the S&P Price Return.

Even then, alot of funds still come up bruised and bloody.
[/quote]

When you say "Price Return" do you mean "Total Return"?  I've never heard of Price Return.

[/quote]

Price return doesn't capture reinvested dividends.

[/quote]

That's what I figured.  Thanks.

But I don't understand what he's trying to prove.  I found several funds in about two seconds that have beaten the S&P with dividends reinvested.  How can a fund company 'fluff up' returns?  All their hypos have to be NASD approved. 

Frankly, I think the whole 'active vs. passive' argument is done to let blowhards hear themselves talk.  Do right by your clients, give 'em a little of what they want, and our job is done.

[/quote]

When you compare some beat-off managed money strategy to the S&P 500 without dividends, it appears to do a much better job than it really does. These managed money guys are a bunch of crooks, except for my buddies that do managed money.

[/quote]

The fact that any advisor compares any investment strategy (divs. reinvested) to the S&P500 (w/o divs. reinvested) is  FOS, regardless if it's an SMA, MF, VA, EIA, whatever. 

At the same time, any advisor that truly believes that indexing is the end-all, be-all of investment management is doing a disservice to his clients.  Period. 

There's a reason why institutions, pensions (i.e. smart money) hire active and passive managers.

hmmmmm.... I don't believe I said indexing is the end-all. be-all of investment management.  I believe I said that the array of index funds compared to comparable mutual fund categories is the method I choose to use.  I also find pure bonds to be a better option than bond funds (high quality stuff mostly), and individual high quality reits over long periods of time (as long as you don't buy one with an inflated price and reduced yield).  As far as the dividend reinvestment issue on the S&P, there are some hypo's even at large firms that only look at the price appreciation without the reinvested dividends.  Simply request the detailed by year screen and look for yourself.  Most provide the dividend in the equation and some don't.  I simply stated that you needed to verify the data to get the complete picture.

Now for that "disservice to your clients.  Period." shot you took:  

Pumping funds at 5.75% plus annual expense ratio's plus 12b-1 fees plus revenue sharing can be a disservice as well, without empirical evidence proving higher returns, unless there is a truly compelling reason.  Such as the need to DCA $100/mo or do a sytematic withdrawal. (certainly other reasons as well) 

Managed funds assuredly have their place, and are very convenient for specific applications.  Just like VA's are appropriate at times.  Every situation is different.  The question posted asked how we pick our funds and fund families.  ETF's no longer only track sp500, djia, and the nasdaq.  Backtesting the indexes that are available show little or no benefit to mfd's (other than as an specific application) on any of the hypo's I have run.  Stating that, you may well find some funds that outperform during any given year or short time frame, I certainly haven't tested them all.  I do frequently have to double check to make sure the etf I am looking at is a category and style match to whatever fund I am trying to compare it to.  If they are different, it isn't that hard to find one that matches up.  (simple example, a large cap value fund cannot be accurately matched up against the S&P, but there are plenty of available large cap value etf's in the world.  Same can be said for emerging markets, commodities, etc...) 

As for institutions and pensions, they hire money managers for several reasons including the hope of higher returns.  Some of the other reasons could be shared liability, available capital exceeds in-house experience level, the constant need for available short term cash positions, etc..., or just cuz it gives the perception that someone is doing something.  As I've only been a rep for one mid-sized pension, and it was just a short term bond account, I can't really answer the why of their thought process. 

I will tell you that a very good mfd manager who has beaten the S&P for most of his career once noted that when you are dealing with the large sums of money he works with, you only need to be right 10% of the time.  Meaning that institutions and pensions can take some risks, and are presented with some opportunities, that an average investors just aren't able or willing to take. 

I echo that: you are a moron!

[quote=deekay][quote=Bobby Hull][quote=deekay][quote=Bobby Hull][quote=deekay][quote=AllREIT] [quote=new_indy]

Just noting that I said some hypo's don't account for the S&P dividend rate, but most do.  You just need to make sure what datasource you are using for your final value figures.

[/quote]

This is a classic trick for fluffing up the returns of active management.

Compare the total return of Fund XYZ vs the S&P Price Return.

Even then, alot of funds still come up bruised and bloody.
[/quote]

When you say "Price Return" do you mean "Total Return"?  I've never heard of Price Return.

[/quote]

Price return doesn't capture reinvested dividends.

[/quote]

That's what I figured.  Thanks.

But I don't understand what he's trying to prove.  I found several funds in about two seconds that have beaten the S&P with dividends reinvested.  How can a fund company 'fluff up' returns?  All their hypos have to be NASD approved. 

Frankly, I think the whole 'active vs. passive' argument is done to let blowhards hear themselves talk.  Do right by your clients, give 'em a little of what they want, and our job is done.

[/quote]

When you compare some beat-off managed money strategy to the S&P 500 without dividends, it appears to do a much better job than it really does. These managed money guys are a bunch of crooks, except for my buddies that do managed money.

[/quote]

The fact that any advisor compares any investment strategy (divs. reinvested) to the S&P500 (w/o divs. reinvested) is  FOS, regardless if it's an SMA, MF, VA, EIA, whatever. 

At the same time, any advisor that truly believes that indexing is the end-all, be-all of investment management is doing a disservice to his clients.  Period. 

There's a reason why institutions, pensions (i.e. smart money) hire active and passive managers.

[/quote]

Actually, EIA's aren't credited with dividends, so it's fair to compare them to the stripped down S&P.

[quote=Bobby Hull][quote=deekay][quote=Bobby Hull][quote=deekay][quote=Bobby Hull][quote=deekay][quote=AllREIT] [quote=new_indy]

Just noting that I said some hypo's don't account for the S&P dividend rate, but most do.  You just need to make sure what datasource you are using for your final value figures.

[/quote]

This is a classic trick for fluffing up the returns of active management.

Compare the total return of Fund XYZ vs the S&P Price Return.

Even then, alot of funds still come up bruised and bloody.
[/quote]

When you say "Price Return" do you mean "Total Return"?  I've never heard of Price Return.

[/quote]

Price return doesn't capture reinvested dividends.

[/quote]

That's what I figured.  Thanks.

But I don't understand what he's trying to prove.  I found several funds in about two seconds that have beaten the S&P with dividends reinvested.  How can a fund company 'fluff up' returns?  All their hypos have to be NASD approved. 

Frankly, I think the whole 'active vs. passive' argument is done to let blowhards hear themselves talk.  Do right by your clients, give 'em a little of what they want, and our job is done.

[/quote]

When you compare some beat-off managed money strategy to the S&P 500 without dividends, it appears to do a much better job than it really does. These managed money guys are a bunch of crooks, except for my buddies that do managed money.

[/quote]

The fact that any advisor compares any investment strategy (divs. reinvested) to the S&P500 (w/o divs. reinvested) is  FOS, regardless if it's an SMA, MF, VA, EIA, whatever. 

At the same time, any advisor that truly believes that indexing is the end-all, be-all of investment management is doing a disservice to his clients.  Period. 

There's a reason why institutions, pensions (i.e. smart money) hire active and passive managers.

[/quote]

Actually, EIA's aren't credited with dividends, so it's fair to compare them to the stripped down S&P.

[/quote]

Good point.  My mistake.

Actually, EIA's aren't credited with dividends, so it's fair to compare them to the stripped down S&P.

Actually, it's not fair to compare EIA's to the S&P without dividends.  If one invests in the S&P and doesn't reinvest the dividends, the dividends don't disappear.  The investor still gets the dividends.  They are just choosing to reinvest them elsewhere or using them to buy a new pair of shoes.

The S&P pays dividends so the dividends need to be included to have any sort of meaningful comparison.