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Mutual Funds And Managers To Avoid

Saturday, May 12, 2012 - 11:54 AM
By Barry Ritholtz

I’ve written before about knowing when you should fire your mutual fund manager. Today’s question is even more basic: What are the characteristics of the managers you shouldn’t hire in the first place?
ShorebreakShorebreak2,695 posts since
Apr 6, 2010
Rep Points: 14,611
1. Saturday, May 12, 2012 - 1:00 PM
I must be missing something here.  I thought the main idea of buying mutual funds was that you didn't need to pay a manager to do it for you.  When I decided years ago, to "try out" a mutual fund, I did my own research for a fund that was highly rated and how it performed in up and down markets.  I selected what I felt suited my needs and my risk tolerance and it did well for years.  However, a couple of years ago, it started going south and I was losing more money on it than I felt I could handle so I sold it.  I know I could have held on to it and just waited years to make back the money I lost but at my age, I felt that wasn't a good option for me.   So now I am back to vanilla ice cream (my low rate CDs) and that fits "me" better.  To me mutual fund managers are for those who don't want to do their own research when it comes to mutual funds.  Just my opinion.
paoli2paoli21,406 posts since
Aug 10, 2011
Rep Points: 6,150
2. Saturday, May 12, 2012 - 2:08 PM
Managers of mutual funds are responsible for selecting the investments that make up the funds.   Some funds don't require a lot of manager involvement (example:  funds tracking an index since the components of the index are not subkect to discussion), others require more, but all have a manager in place.
pearlbrownpearlbrown1,485 posts since
Nov 2, 2010
Rep Points: 6,454
3. Saturday, May 12, 2012 - 3:36 PM
Good topic.

Most of us that do not have deep insight for stock market (i.e., small investors without fancy research tools of support team) or interest to follow/research stocks go with mutual fund investing.  One needs thorough research for mutual funds as well.

My pick of any mutual fund takes five steps: (1) literature research (usual stuff like expenses, risk, category, manager), (2) track it for 6 months for up/down market, (3) invest a small amount for test run, (4) monitor the selected fund diligently for portfolio, return, style change, manager change, etc. (5) never fall in love with any fund (i.e., bail out when "necessary").

As a result, not too many fit my criteria over the long term.  In fact, I have only one fund that I have full confidence; and one marginal. 

More importantly, asset allocation and fund diversification are important, especially during the young age with long time horizon.  For example, for age 40, I would do 50% in equity, and 50% in fixed income.  With the 50% equity, I would do 25% in large cap, 15% in mid/small cap, and 10% in international.  For the 50% fixed income, I would do 30% in stable income (CD may belong here), 10% in short-term bond, and 10% in long-term bond.

To get back on topic, there are very few fund managers that have long-term track record; not even Bill Miller.  I am lucky to find one; he is not a super star (in my definition - i.e., low profile); but the fund is a steady Eddy (earns moderately for up market, and loses modestly in down market). 

At my age, I am 23.5% in equity (on the concervative side) with the majority of that (13%) in that fund.  The reason that I have a large allocation for that fund is that I cannot find any other "steady Eddy" fund like this one.  Most funds tend to disappoint either on the up side or down side; or both.

About passive index funds, they are against my hands-on engineering background.:D

Just my two cents without liability/retribution.
51hh51hh1,476 posts since
Jan 16, 2010
Rep Points: 6,427
4. Saturday, May 12, 2012 - 5:19 PM
I'll stick with Vanguard index funds or index ETFs. That's if I were a investor again. Probably the only managed fund I respect over the past three decades has been the Vanguard Wellesley Fund.
ShorebreakShorebreak2,695 posts since
Apr 6, 2010
Rep Points: 14,611
5. Sunday, May 13, 2012 - 5:29 PM
Okay, 51hh, now that you whetted our appetites, how about identifying this mutual fund manager you seem to like so much.
loulou553 posts since
Aug 3, 2010
Rep Points: 3,433