Talk:Mutual fund

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[edit] List

Should there be a List of mutual-fund families? There are obviously too many funds (and too much churn in the industry) to list them all, but the distributors and sponsors are few enough in number that it ought to be possible. There are at least half a dozen that are interesting or topical enough to be worth an article on their own. (Off the top of my head, that list would include Fidelity Investments, which I've partially done, MFS Investment Management, which I've stubbed, Vanguard Group, and Franklin Resources. Others?) Each article should hopefully describe the structure of the company; interlocking between sponsors, distributors, and investment advisors; and relationships with other firms in the financial services industry and out. 18.24.0.120 04:22, 23 Jan 2004 (UTC)

Why not. T. Rowe Price would be a good addition as well. Lukobe 22:35 PST 23 Jan 2004

Done, with a round baker's dozen families. 18.24.0.120 03:32, 24 Jan 2004 (UTC)

[edit] Fund Families

What list is complete without American Funds??? Third Largest Fund Family - best Long Term Consistent Performance, etc., etc....

I've added it. --Lukobe 16:52, 17 Jun 2004 (UTC)

[edit] Turnover section

I deleted the following sentence from the turnover section:

In addition, no actively managed fund of any type (including corporations that function like closed end mutual funds like Berkshire Hathaway and Liberty Media) has outperformed the market for more than 40 years, and 99% of them for more than 10 years.

I think it may be valuable information, but I couldn't figure out what the author was meant by it, or its relation to the subject of the paragraph. 18.26.0.18 03:01, 15 Jan 2005 (UTC)

While I am not sure that its exactly true, what it is saying that any type of fund or corporation which acts like a fund, where a guy sits there and tries and pick stocks which he thinks will do well (ie. all non-index funds), have not done as well as if the fund automatically just buys every stock in equal amounts. I do know that in general, this is true for at least 75%. So basically in a way its saying that having guys trying to pick stocks for a mutual fund is stupid.

NOTE: This whole section should be deleted due to the fact that nothing is based on FACT. The average actively managed fund have outperformed index funds every year since 1999. The average actively managed fund has also beat their corresponding index counterparts over the last 10-year period. Index funds got hype because of their returns in the go-go 90s only. in 2005 the average domestic mutual fund nearly DOUBLED the return of the S&P 500.

The above "NOTE:" is simply wrong. See discussion under "Second Question" below.

[edit] Fund type articles

Is there any value in the Open-End Fund, Closed-End Fund, and Exchange-traded fund articles that would not be better served by a full comparison in this article directly? Or, conversely, perhaps all of the "Glossary" section should be moved out of this article and into separate articles for each topic? 18.26.0.18 06:06, 15 Jan 2005 (UTC)

Apparently someone thought it was of value, I personally see it as characteristic that a mutual fund may have. But if thier is lengthy discussion or views then it warrants thier own page, ETF are not mutual fund so it obviously warrant a page. As for a glossy, I made one for the expenses see Mutual Fund Fee and Expenses. As for comparison sake a closed-fund trades more like a stock and need a broker to access, and ETF act like a stock even though it mirrors a portfolio holding usually based on some index. Now a chart showing thier avantages and disavantages would be nice.Paul.Paquette

[edit] Fund ticker template

Hello all. I've just created Template:fund for use when referencing mutual funds inline. An example follows. I hope this is helpful. --ChrisRuvolo (t) 21:27, 2 August 2005 (UTC)

[[The Vanguard Group]] has a [[S&P 500]] [[index fund]] {{fund|VFINX}}.
The Vanguard Group has a S&P 500 index fund (fund: VFINX)

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[edit] Start your own

Anyone know the process if someone wanted to start there own mutual fund? (aka a business) basic information would be useful in this article.

  • Well you need a group of investors, unless you are filthy rich, after that you need to form a LLC, Trust, or corporation, etc. not limited in what business form, then you need to register probably with the reguatory body in question probably SEC. Hopefully you manage or operate a fund that investors would want.~ Paul.Paquette

[edit] Warren Buffet View on Mutual Fund

Warren Buffett, one of the most experienced and successful investors in the United States, strongly discourages mutual fund investment by his stockholders.

Well he not your typical investor, he buy companies not just a share or two from a mutual fund. He also does not buy the hype of wall street and choose his investments in a very elegant but simple approach. It is quoted that if he does not understand how the business operates, he will simply not buy the stock of that company. Actually these comments should probably be commented on Warren Buffet page, and not on here. Paul.Paquette (talk)

Berkshire Hathaway in its own way, is a mutual fund. It is a collection of company stocks (and as Paul points out complete companies) Buffett has bought for his investors. Also I am pretty well versed with Buffett and his thoughts, but can't recall him saying much one way or another regarding mutual funds, do you have reference source?

I am currently reading The Warren Buffet Way by Robert G. hagstrom, Jr. As far as I can tell from my reading he does not condone it, but he certaintly do not utilize it. The way he creates his portfolio of investments is based on principals and tenents in regard to buiness, management, market and financial. The more I read about his approach / methadology the more I see how practical and relevant it is wholistically. Paul.Paquette (talk)

Update: The quote / views attributed to Warren Buffet which implicates the following: strongly discourages mutual fund investment by his stockholders. In fact this is the completely false. He has been quoted saying the following however: "..the best way to own common stocks is through an index fund..." Paul.Paquette (talk)

[edit] Opinionated Questions & Answers

[edit] 1st Question

[edit] Part 1

To 167.80.244.204, this is to addressing your answer in the recent edit.

  • Previous Edit No load funds have higher average returns than load funds. No load index funds often experience higher average returns than the average mutual fund.
    167.80.244.204 Edit This is patently untrue and there are no performance numbers than can justify such a claim. Again this is incorrect and actually the opposite is true.

[edit] Part 2

  • Here's how, most of the best load funds have very low annual expenses compared to other load and even no load funds from Fido,TRowe and the rest. For example if you had $100K in Large Growth AGTHX (worlds largest mutual fund) and $100K in Large Growth FCNTX (Fidelity's largest no-load fund) and held it ten years (growing at a hypothetical 9% per year), your cost of ownership would be $13.7K for Large Growth AGTHX and $14.2K for Large Growth FCNTX. (For Load fund Large Value AIVSX cost of ownership would be $12.1K!) Go to NASD Mutual Fund Expense Analyzerand see how much each fund really costs...load or no-load.
  • In regard to following statement "No load funds have higher average returns than load funds. No load index funds often experience higher average returns than the average mutual fund." Yes you gave some shining examples that did prove to be more profitable minus all expenses but as a whole within the mutual fund industry is that statement still true? Also how would you know which mutual fund those are in the future? This is a case where doing your homework pays off; however comparing this to thier equivalent indexed benchmark, thus thier indexed mutual fund counterparts how would they fare? Paul.Paquette (talk)
  • Large Blend VFINX is significantly cheaper...then again one day you might be having breakfast with a SR VP at Vanguard and mention to him that his firm did not give your dad good advice at his retirement...you'll get to hear him joke that "Well when you are paying peanuts, you can only hire monkeys! hahaha, Dad only lost 40% of his retirement money.
  • Paul.Paquette (talk) Your last statement is false and I do not deserve that insult. Using the same NASD Mutual Fund Expense Analyzer and comparing all of those mutual funds that you mention above using a 9% growth rate and a 10 year time horizon with an initial investment of $100,000.00, it cleary shows that VFINX outperform all of those mutal fund, if you need proof click on the following Snapshot AGTHX vs VFINX, FCNTX vs VFINX, AIVSX vs VFINX or run the NASD Mutual Fund Expense Analyzer yourself which you so kindly provided.

Paul: The statement about my dad, the guy from Vanguard and his "peanuts" comment did not refer to you, it was simply an anecdote regarding a chat I had over a very nice breakfast with some "nice" folks from Vanguard. I'm sorry you thought I was referring to you.

  • It sound that the incident that occur with that client loosing all of thier money is a result of investing all of thier portfolio investment holding with in this single mutual fund, which is a newbie mistake from the beginning, and violating the essential rule of diversification period.Paul.Paquette (talk)
  • In this business you run into at least 2-3 people a week who took their advice from the Vanguard call center (or another) and got some sloppy advice. Not saying you don't see problems from brokerages and advisors, but with them it is really more of placing people into inappropriate and expensive investments.
  • I agree with you totally on that point, you should not seek investment advice especially from a fund company, regardless on how good they are. They want you to buy thier product, they make money off of you, thus a conflict of interest. However if you read about this investment advice in various academic journals or from experience investor and then you have something that might be of interest. Paul.Paquette (talk)

[edit] Second Question

  • 167.80.244.204 Edit... when the last five-years performance comes into play that number declines to just 55%. A quick look at the Wall Street Journal's monthly "How the Largest Funds Fared" shows that the most popular managed mutual funds trounce the SP 500 performance numbers.
  • Paul.Paquette (talk) Largest fund have the most money, because they have a proven track record of success, I not saying you can not beat the relevant benchmark index, but it very unlikely that this will occur from year to year and not all mutual fund should be compare to the S&P 500. Thier are so few people that have an history of outperforming thier indexes even if it is by a 1% point difference for example Peter Lynch,and Warren Buffet the list is so few that it probably encompasses about 20 people. Also remember a rolling 10 year average is more accurate than a rolling 5 year average.

FACT (comparing apples and orangutans): Since 1999 the average domestic mutual fund has beat the S&P 500 EVERY YEAR. For the last 10 year period the average domestic mutual fund has beat the S&P 500. Index funds got hype because of their performance in the go-go 90s. *** HOWEVER: The "average" domestic mutual fund does not invest strictly in a blend of large cap stocks.

From Bloomberg Dec 20: "Over the last three years, the average stock fund has gained 18.6 percent a year, according to Bloomberg data, while the S&P 500 returned 13.7 percent a year. In the last five years, the funds averaged a 4.7 percent annual gain while the index edged up 1 percent per annum."

RELEVANT FACT (Apples to apples): Over the past one, five, and ten years (through 12/31/2005) the S&P 500 has beaten 70-80% (denpending on the time period) of actively managed blended large cap stock funds. For the ten year period, it's 7.3% for the average fund, 9.1% for the S&P 500 and 9.0% for the Vanguard 500 fund. For comparisons:

1 year avg fund 4.8% index 4.9% Vang500Idx 4.8%
5 year avg fund -1.3% index 0.5% Vang500Idx 0.4%
10 yrs avg fund 7.3% index 9.1% Vang500Idx 9.0%

RELEVANT FACT #2 (Apples to apples): Comparing growth funds to a growth index, the funds had a slight lead last year, but the index blew them away over 5 and 10 years:

1 year avg fund 6.20% index 5.25% Vang Gr Idx 5.09%
5 year avg fund -4.49% index -1.01% Vang Gr Idx -1.17%
10 yrs avg fund 6.95% index 8.61% Vang Gr Idx 8.52%

RELEVANT FACT #3 (Apples to apples): Comparing value funds to a value index, the index wins over 1, 5 and 10 years:

1 year avg fund 5.72% index 7.26% Vang Val Idx 7.09%
5 year avg fund 2.55% index 2.75% Vang Val Idx 2.62%
10 yrs avg fund 9.00% index 9.55% Vang Val Idx 9.44%

RELEVANT FACT #4 (Apples to apples): Comparing Multi-cap funds to the broad market, the funds had a slight lead last year, but the index wins over 5 and 10 years:

1 year avg fund 6.59% index 6.08% Vang Tot Idx 5.98%
5 year avg fund 1.40% index 2.07% Vang Tot Idx 1.97%
10 yrs avg fund 8.63% index 9.13% Vang Tot Idx 9.07%

RELEVENT STORY IN A NUTSHELL: The numbers show, over the long haul, on average, index funds outperform the average funds in their classes. (These numbers, of course, understate the advantages due to survivorship bias: not all of the funds available ten years ago still exist today and, by and large, the funds that have died off are the ones that had poor records.)

[edit] Third Question

  • Previous Edit Volatility also tends to be less in highly diversified no load index funds than the less diversified (typically only about 60 stock) managed funds.
167.80.244.204 Edit Again this is completely untrue, volatility is defined by standard deviation....most of the most popular funds not only significantly outperform the indexes they do so without the volatility.
  • Paul.Paquette (talk) How do you come upon that insight. When I think of volatility in regard to mutual funds, I think of the high and lows that the mutual fund in question would have in a given period of time. Also the more risk you take i.e having a mutual fund with deriavitives and high-yield bonds (junk bonds) should command a higher return due to the increase in risk.

Paul, that isn't insight, its a simple tool used to assess mutual fund volatility. Use S&P or Thomson Financial tools. These funds all take significantly less risk than, and enjoy significantly smoother hi/lo perfomance than the SP500.

  • Can you provide a link so I can see what tools you are refering too? Paul.Paquette (talk)
  • Volatility look there for the definitions and equations, you are right it is a simple tool to assess mutual fund volatility. However what I said ealier is not negated either. If you want to avoid volatility you need diversification be it in the mutual fund portfolio itself, and your own personal investment portfolio (which would be comprise of Equities & Fixed Income with all their subgroups that those two main groups entails). If you need help in reducing the volatility of your portfolio please read The Asset Allocation Question by Richard A. Ferri, CFA. Paul.Paquette (talk)

[edit] Fourth Question

[edit] Part 1

  • Previous Edit No load index funds often good choices for investors willing to do perform limited research and make their own investment decisions
  • 167.80.244.204 Edit Doing that research will payoff by keeping you away from the mediocre results of the index funds. Please check the total returns

Mdbrownmsw 18:50, 21 June 2006 (UTC)

(By "total returns", he means "past performance" which is what DID happen, but says next to nothing about what WILL happen.)
for managed funds such as American Funds ICA (AIVSX), Fidelity Contrafund (FCNTX) or Low Price Stock (FLPSX), Lord Abbett Affiliated (LAFFX), Templeton Growth (TEPLX) or Van Kampen Equity Income (ACEIX) to name a few and compare to Vanguard 500 (VFINX).
  • Paul.Paquette (talk) As you can see the only fund you should be comparing it too is MorningStar (LAFFX) and as you can see the that mediocre index fund kills it hands down. This just goes to show "Do not compare Apples to Oranges."

--A-- yes, Limiting your mutual fund decision making to no load funds limits your ability to find great funds. I'm Director of investments at a financial planning company and my "buy list" is made up of BOTH load & no load funds (however, we use no index funds -- better alternatives can always be found with research). 80% of my funds listed as buy at the start of 2005 beat their category average in 2005, 47% of the funds finished in the top 25% (only 2% or 1 fund finished in the bottom 25% -- even the best funds can have 1 bad year) -- in a year when the "average" active fund pounced the S&P 500. It is important to not compare each fund to the S&P 500. This is due to the cyclical nature of the market. In 2002 even the worst small-cap fund probably beat the S&P 500 -- just because it beat the S&P 500 that year doesn't make it good for the long haul when you will be exposed to all parts of the economic cycle. Although the funds listed above aren't 'bad' but there are better alternatives, although I do really like the Van Kampen Equity & Income Fund as a balanced fund. It has a great manager in Gilligan. As a balanced fund I also like Vanguard Wellington. If you are looking for a Large Cap Value fund to replace Investment Company of America I would suggest Van Kampen Growth & Income (although I wouldn't own both VK Equity & Income with Van Kampen Growth & Income because essentially Equity & Income IS the Growth & Income fund except Equity & Income has bonds in it as well (Gilligan runs both). Contrafund is a good choice with Will Danoff at the helm -- We personally use Fidelity Advisor New Insights -- he runs the funds much the same but Danoff really wanted to run a fund with less assets so they opened this fund for him. He runs them much the same but he is able to get in & out of positions quicker in New Insights and positions in small companies are able to make a bigger contribution to returns -- both of those things are possible because of the smaller asset size of New Insights -- although that advantage will go away as New Insights grows. But the advantage of smaller asset size in that fund is evident in when you compare the returns of the 2 funds. However, both funds should be watched closly as asset size grows. I would suggest Davis New York Venture as opposed to Lord Abbett Affiliated for Large Blend or I would also suggest Thornburg Value (is named value but is truly a blend fund as it will take positions in the likes of google & such). The manager of Thornburg Value also runs a great international fund (THornburg international value). International choices I like are Fidelity Advisor Diversified International or American Funds Europacific Growth and the Thornburg International Value. Oppenheimer Global or American Funds capital world growth & Income if you just want to dabble in the international but want some domestic as well. With all this said ALL MUTUAL FUNDS MUST BE WATCHED CLOSELY. Manager changes, research analyst departures, asset size and manager overconfidence truly can turn funds on their back. A fund is only who is running it.

[edit] Part 2

Hi Paul; Any of those funds (with the possible exception of FCNTX) would be a solid core investment. In any case you chose LAFFX which was the weakest link. LAFFX outperformed the SP500 by 1.2% a year over the past ten years. It outperformed the SP500 by over 2% a year over the past five years (its owners also didn't suffer through a 45% drop from 2000-2002). LAFFX has been around since 1934. Over those 72 years it has returned an average of almost 12% a year. The SP500 is from 1957, but for sporting puposes lets say the market has returned 10% a year since 1934 (This is general consensus). That 2% per year compounded over 72 years turns into some serious cash! also note that the LAFFX performance numbers assume that the investor paid a full load. Most investors are buying with breakpoints (discounts)...that means LAFFX real performance numbers for its investors are significantly higher. Also please consider that over any rolling 10-year period since 1972 (VFINX) all of the aforementioned funds outperform VFINX, their numbers are just gaudier than LAFFX...and all of them can stretch that outperfomance back to when your grandparents were dating. And beating the SP over rolling 10 year spans is just not that uncommon...evey single equity fund in the American Fund family can say they do it! If you have access to Thomson or S&P at the WKU b-school run hypos...you'll see that what I'm saying is true. What happens is that best money managers do not run ads or pay for PR and they disregard the press...after all they are in the business of running money for serious, intelligent long-term investors, not marketing.

  • I hate repeating myself, I am not saying those funds are not good funds, all I am saying is compare it to a relevant benchmark. And how can you say LAFFX is better, even though I provided the performance history for those two comparable mutual funds (in fact I provided performance history for all of them) - are you impling that the entire staff and technicians, ect. that work at Morningstar are wrong? Also, if you are comparing these two funds you should only compare it from the inception of the younger fund, and if you even do that it still bias due to the size differential that is incurred in the beginning. You also mention breakpoints can you tell me the breakpoints for those funds, and if so what are the amounts and consider would an average american that works 2 jobs and make maybe at the most 30K a year planning for thier retirment would be able to put the necessary money into the mutual fund in question to take advantage of a breakpoints without violating any diversification rules? Paul.Paquette (talk) 02:05, 3 January 2006 (UTC)
  • On American the first breakpoint is @ $25K; on most of the others the first breakpoint is at $50K. Generically it is about 1% per breakpoint. Invest a million and all loads are waived...it's a rich man's world!!! As far as diversification, you can create excellent portfolios witthin many fund families. The first Barron's of February uses Lipper to analyse how fund families preform across their offerings and over 1-, 5-, and 10-year periods. I'd link but it's a subscription service, don't know that it would do any good. I like to use longer timeframes so that we can see a full market cycle. On a pretty consistent basis(at least the last few years in my memory) American is ranked #1 for the 10-year cycle. Here is the rest of the top ten from last year: 2. Franklin Templeton 3) GE Asset Mngmt; 4) Lord Abbett; 5) TRowe; 6) Van Kampen; 7) Merrill!?! (actually they do have good fnds) 8) Vanguard 9) Sentinel 10) BoA !???!! Fidelity comes in at 13. Don't ask me for complete methodology, but I know it's asset-weighted which is why VK can be #6...pick up the issue next month.

Paul, on all of these funds a ten year, $10K investment would significantly outperform a $10K investment in the SP500 tracking indexes. Run the hypos and you will see by just how much, but it does make a big difference.

  • Can you provide me a link for "If you have access to Thomson or S&P at the WKU b-school run hypos..." or else I have no idea what you are talking about.Paul.Paquette (talk)
  • These are expensive tools and calculators that financial svcs firms and money mngrs use. Not available on web, but some B-schools buy the services for their finance students. See if they have it at your school.

[edit] Part 3

Paul, have you ever studied how haphazard SP500 turnover runs? Last week three stocks were added and three removed...look at the list and figure out the philosophy that went into that move....then go back over the past 5 years and look at the +/- list and see if you can discent an investment philosophy (there isn't one). But if you really want to see how capricious the SP panel is take a look at their moves 1998-2001 and you will have a better understanding of the 2000-2002 45% drop!

  • Paul.Paquette (talk) Is that not the idea behind an index fund, in the case of the S&P 500 it hold 500 of leading companies in leading industries of the U.S. economy. Although the S&P 500 focuses on the large-cap segment of the market which represents 80% coverage of U.S. equities. Source. Yes I Agree with you, this is one of the draw back of an index fund, but not all index fund follow that rule thus Passive Asset Class Funds. I admit I not as familiar with the tides and flows of the previous history of the Stock Market, maybe you can elaborate more on what you were talking about. All I know is that the U.S. Economy experience a recession and the Dot.com bubble burst thus a lot of Tech industries lost a lot of money, but before that happen it was experiencing god awesome Rates of Return.

[edit] Part 4

Hey Paul,maybe I'm confused, but I'm using Mstar numbers from your link. (here are expanded #'s: LAFFX) I see LAFFX generating better returns over the 5 and 10 year timeframes. Also, I will give you the LAFFX v VFINX since inception numbers tomorrow when I have access to better tools (off memory, LAFFX I think LAFFX ends up outpacing VFINX by a fistful of dollars). Also, while I subscribe to Mstar and find they provide a good, concise snapshot of fund numbers, no you wouldn't want to use Mstar if your livelihood depended on it. Also, please note the number of ethical issues in Mstar's history...some of it is quite public as it forced them to postpone attempts at IPO's not once, but twice!

  • It is not performance I am trying to emphasize it is net profit, and if you notice it barely outbeat their index for the year in question but minus your expenses and taxes what is your net profit? If you have a better source widely respectable I be more than happy to include it. Talking about ethical issues tell me where it is not in the Securities Industry, in someway it seem rigged, it all about making money and not usually for the small investor. Paul.Paquette (talk)
  • I ran an S&P hypo comparing a $100,000 investment, made in August of 1976 (VFINX inception date) in VFINX and LAFFX. I did not give the LAFFX investor a breakpoint (paid full 5.75) Both did exceptionally well and were neck-and-neck until 1996 when VFINX went on a tear, then came 2000 and the bunny (LAFFX) pulled ahead. Final annualized #'S VFINX 12.138%; LAFFX 12.51%. Both investors were huge winners anyways: VFINX ended with $2.853 million; LAFFX with $3.143 million. Bottom-line: find a good, high-quality investment and enjoy the ride. Time and discipline are the two biggest factors in creating wealth.

Thank you for the changes in the load section...with the exception of one sentence, i think it is right on the money. My only concern earlier was that too much of it was an editorial filled with misinformation that the no-load marketing teams disseminate (which I wonder how they will respond to the new ownership cost calculators). By the way I think any annual fee of less than 1% is okay...I like to see them lower, but I know the regulatory and other costs the fund managers face. No approach is 100% perfect. I have told some investors to forget me and go to Vanguard or TRowe. That being said I know that I put my clients' interest before my own 100% of the time and I hope I do a good job for them. I know dozens of other brokers who share this passion for doing the right thing, and I know the service we provide and the returns we help generate should be compensated.

No problem, I was more than glad to add the Load section and expenses and fees that an investor will encounter. Paul.Paquette (talk)

[edit] biggest issue in our industry

The biggest issue in our industry is not passive v active or load v no-load...the biggest issue is transparency (or lack thereof). Other major issues that hurt investors...get rich quick stories (they happen, but not to me or you, unless we get lucky enough to start work tomorrow at some small company that turns huge over the next 10 years!). Performance-based mutual fund ads (and we'll start seeing a ton of them next year. And finally advisors and the brokerages. Some are exceptionally good, but the process means most investors will come across an advisor who will not always and automatically put the client's interest before their own. I hope you will remember this when you get into the biz. You can't go wrong doing the right thing, but you can go home with a lighter wallet some months!

[edit] Closing Remarks

You can make all the profit in the world, but it is net profit that matters, I am not going to do the math but if you figure out the net return for each of those mutual funds and compare it to thier relevant index benchmark in question, I be willing to bet that the index fund is higher than thier Actively managed mutual fund counterparts and if they do beat the index fund it only by a few % which make you wonder if the cost was justified.

Remember it is easy to pick out the past mutual fund that did well, but the past is not going to make you any money, you have to deal with the future. With all those different kinds of mutual funds out thier good luck in trying to pick out a winner that consistently outperformed thier respective index.

Hopefully you find this helpful Paul.Paquette (talk)

[edit] Personal Note

  • To the person that is replying to my Q & A, I hope you look at my profile and it explains a little about myself and my background. I guess I would be considered a little green when it comes to the investment world since I am not a broker or financial advisor even though I plan to take those series license exams. Due to Academics education and all the investment books I read, I guess I have more of a bias towards passive investing.
  • If you can make a profile and register that would be nice instead of just seeing an IP address, by doing that you can sign your name on Talk and vote pages using three tildes, like this: ~~~. Four tildes (~~~~) produces your name and the current date.
  • I do enjoy this debate, but as for the rest of the stuff involving those figure running that software I do not know the methodology and unable to confirm it or offer a different viewpoint, thus I am going to assume that you are right.

One forum that I recommend that you look at is Vanguard Diehard Website Morningstar counterpart Still reading learning from this website, very intersting. Morningstar Topic Form Cost $5.00 to post a reply though.

[edit] Major criticism

I feel this man's report! report is a little biased and too critical

"My only personal experience with Wikipedia, the free online encyclopedia, was decidedly unfavorable. I was left with the impression that a bunch of nasty, arrogant dimwits are in charge.

Recently, Nature magazine said a study it made found that Wikipedia is about as accurate as the Encyclopedia Britannica; the EB promptly answered that the study was badly flawed, not differentiating between serious and trivial mistakes, among other things.

I tend to agree with the EB. Wikipedia is to the EB what the New York Post is to the New York Times."

amd further perturbed by the following

"It's not just that Wikipedia makes lots of mistakes. The writing is awfully long-winded, clumsy and boring. Obvious questions aren't answered. There are grammatical howlers galore.

Clearly, people who can't write and who can't edit and who can't do research are running things. What next? Barbers will do brain surgery?"--JHJPDJKDKHI! 17:01, 12 April 2006 (UTC)

An excellent point, if I may say so. Take this article for instance - are any of the people doing the writing and editing investment professionals? I doubt it, because I am, and it really doesn't sound to me like they are as well. I think Wikipedia is borderline dangerous - people are taking what they read here as fact, when most of what is on here has been posted by people who are not experts in the relevant field. I STRONGLY disagree with Nature magazine - there is no way Wikipedia can come anywhere near the factual accuracy of EB. Wikipedia is a compendium of dubious "facts" compiled by people who really don't know what they're talking about.

That he is critical of Wiki does not mean that he makes no good points in criticizing this very article. I do think he is quite right in his critical review and that all of his points should be addressed.--Piotr Konieczny aka Prokonsul Piotrus Talk 15:26, 27 April 2006 (UTC)

[edit] Request for edit

Can someone please fix the wording of this section? I know enough to say that this isn't proper English, but I don't know enough about mutual funds to figure out what was trying to be said:


The performance of an actively-managed fund depends to large extent on the stock-picking skills of its manager. As many funds show returns that are below average as above average. Even among those actively managed funds which outperform an index fund before costs, however, many can then underperform the index funds after costs are considered.


Mdbrownmsw 15:04, 16 June 2006 (UTC) Hope my re-write helps.

[edit] What turnover measures

I removed the section stating that sales + purchases / 2 makes turnover look half of what it should. Pure hogwash. If a fund has $1,000,000 in holdings, sells $100,000 and buys $100,000, the calculation is as follows: (sales+purchases)/2/net assets= turnover (($100,000+$100,000)/2)/$1,000,000 = 10% 10% of the funds holdings were "turned over", as can be seen by the fact that 90% did NOT. Mdbrownmsw 17:59, 25 October 2006 (UTC)

I removed the following section for clarification: "The Dalbar Inc. consultancy studied stock mutual fund returns over the period from 1984 to 2000. Dalbar found that the average stock fund returned 14 percent; during that same period, the typical mutual fund investor had a 5.3 percent return.[1] This finding has made both "personal turnover" (buying and selling mutual funds) and "professional turnover" (buying mutual funds with a turnover above perhaps 5%) unattractive to some people." At the moment, I don't have the time to check this myself. As written, it says it is comparing STOCK fund returns to ALL mutual fund shareholders. If that is what it is really doing, it is so missleading as to have no meaning. Additionally, the question of cause is unclear. Is this due to - transaction costs by the fund manager's activity? - the fund's expenses and/or loads? - shareholders attempts (and failure) to time the market? - the impact of taxes on dividends and capital gains realized by the manager and distributed to shareholders? - capital gains realized by the shareholders' transactions? - some combination of these?

I have now checked the source in question (http://www.hussmanfunds.com/rsi/aimr1fim.htm) and confirmed that the gap in returns was believed to mostly result from investors "chasing returns" (i.e. buying the fund that has had the best performance in the recent past), ending up buying high and selling low. While this phenomina is important, it is not relevent to a mutual fund's turnover ratio, and is not specific to mutual funds (buying a "hot stock" will have similar results). Mdbrownmsw 18:33, 25 October 2006 (UTC)

Hi everybody I was the author of the original (and much shorter) version, back when submissions were still anonymous. I haven't looked at it very often since then. Can I make a couple of suggestions? 1. Could we please leave the managed/unmanaged return discussion out of this article? It should probably be its own topic, or maybe a sub-section of Modern portfolio theory, Efficient market hypothesis, or something related. I see it has been addressed in Index fund, too. Besides, like most discussions of this type, many of the comments ignore the risk issues (risk-adjusted RoR, risk premium, risk tolerance, and so forth). This question will never be settled to everyone's satisfaction. 2. It looks like some information has been duplicated. I see 12b-1 fees discussed in a couple of places, maybe three. The article could probably use a brisk scrubbing. 3. The original nine (I couldn't think of a tenth) bits of advice on choosing a fund seem a little out of place now. I see that this section is flagged for a style fix. I will probably take it and re-write it to be a straight discussion of investor suitability instead of a list of tips. 4. Related to points #1 and 3, does anyone want to see a discussion of the metrics used in evaluating a fund's performance? It could include things like alpha, beta, and duration from a portfolio management point of view, with maybe some fund-specific things like minimum investments, expense ratios, manager history, etc., and some of the research tools available.

Comments or thoughts? MitchT 22:54, 21 December 2006 (UTC)

[edit] Removed section

I took out the following because it looks like opinion and investment advice. It may be very good investment advice, but it needs to be sourced if included. Also it looks a bit long to me 82.141.187.170 19:41, 13 May 2007 (UTC)

==Selecting a mutual fund==

Picking a mutual fund from among the thousands offered is not easy. Following are some guidelines:

  1. Prior to investing in a tax-exempt or tax-managed fund, it is best to determine if the tax savings will offset the possibly lower returns. Additionally, these funds are inappropriate for IRAs and other tax-sheltered types of account.
  2. Investors should match the term of the investment to the time period they expect to keep the investment. Money that may be needed in the short term (for example, for car repairs) should generally be in a less volatile fund, such as a money market fund. Money not needed until a retirement date decades into the future (or for a newborn's college education) can reasonably be invested in longer-term, higher-risk investments, such as stock or bond funds. Investing short-term money in volatile investments puts the investor at risk of having to sell when the market is low, thereby incurring a loss. Investing over the long term in very stable investments, on the other hand, significantly reduces potential returns.
  3. Fund expenses degrade investment performance, especially over the long term. Accordingly, all other things being equal, the lower the expenses, the better. A mutual fund's expense ratio is required to be disclosed in the prospectus. Expense ratios are critical in index funds, which seek to match the performance of bond or stock index. Actively managed funds must pay the manager for the active management of the portfolio, so they usually have a higher expense ratio than (passively managed) index funds.
  4. Several sector funds often make the "best fund" lists each year. However, the "best" sector varies from year to year. Most sectors are vulnerable to industry-wide events that can have a significant negative effect on performance. It is generally best to avoid making these a large part of one's portfolio.
  5. Closed-end funds often sell at a discount to the value of their holdings. An investor can sometimes obtain extra return by buying such funds, but only if they are willing to hold the fund until the discount rebounds. Some hedge fund managers use this gambit. However, this also implies that buying at the original issue may be a bad idea, since the price often drops immediately because of liquidity concerns.
  6. Mutual funds often make taxable distributions near the end of the year (semi-annual and quarterly distributions are also fairly common). If an investor plans to invest in a taxable fund, he or she should check the fund company's website to see when the fund plans to distribute dividends and capital gains. Investing just prior to the distribution results in part of one's investment being returned as taxable income without increasing the value of the account.
  7. Prospective investors in mutual funds should read the prospectus. The prospectus is required by law to disclose the risks will be taken with investors' money, among other vital topics. Potential investors should also compare the return and risk profile of a fund against its peers with similar investment objectives and against the index most closely associated with it, paying particular attention to performance over both the long term and the short term. A fund that gained 50% over a 1-year period (an impressive result) but only 10% over a 5-year period should create some suspicion, as that would imply that the returns in four out of those five years were actually very low (possibly even negative (i.e., losses)), as 10% compounded over 5 years is only 61%.
  8. Diversification can reduce risk. Depending on an investor's risk tolerance and his or her investment horizon, it may be advisable to hold some stocks, some bonds, and some cash. For longer-term investments, it is advisable to invest in some foreign stocks. If all of an investor's mutual funds belong to the same family of funds, the investor's total portfolio might not be as diversified as it might seem. This is so because funds within the same family may share research and recommendations. The same is true for investors who own multiple funds with the same profile or investment strategy; their returns will likely be similar. Holding too large a number of funds, on the other hand, will tend to produce the same effect as holding an index fund, but with higher expenses. Buying individual stocks exposes investors to company-specific and industry-specific risks, and if investors buy a large number of stocks, the commissions may cost more than a fund would.

[edit] Unitized funds

Hi, I have a question regarding unitized funds, what is the opposite to unitizd fund? what's the differece? thks a lot!

192.193.160.8 06:15, 2 August 2007 (UTC) Skywalker.Lin

Unitized funds are not technically open-ended mutual funds. They are similar in most respects, but generally are restricted to investors in one pension plan.
Rather than offering individual purchase of their own company's stock in their Keough, XYZ company might establish a unitized fund comprized of XYZ stock and a small cash position (for liquidity and as the result of recent inflows). An employee would then own "units" of the XYZ Common Stock unitized fund, rather than shares of XYZ common stock.
The performance of the unitized fund should, in general, closely follow the performance of XYZ common stock, because most of the unitized fund is XYZ stock. Because of the cash position, though, there will be some disparity.

Mdbrownmsw 15:29, 5 September 2007 (UTC)

[edit] Open end company

When it says

Legally known as an "open-end company" under the Investment Company Act of 1940

Is that in the US that it's called that? Presumably the Investment company Act of 1940 is a US thing.

... I've just re-read the section, and i think i get it, but it's not dead clear. Maybe it shoudl say right upfront that this is a US thing, equivalent to unit trusts etc. --82.68.202.222 13:59, 20 September 2007 (UTC)

I've restored the first line removed 20 Jan 2007 without discussion that made this distinction. simonthebold 08:02, 21 September 2007 (UTC)

[edit] 12b-1 Fees do not reflect a worldwide viewpoint

12b-1 fees are U.S.-specific, yet they receive prominence in the article without mentioning that they are specific to a single country. Even had it mentioned "12b-1 fees are specific to U.S. only" that doesn't seem enough for me.


I propose adding a "geographical differences" section to this page and adding 12b-1 fees to that area. Any agreement/better ideas? Dross82 —Preceding comment was added at 01:35, 24 October 2007 (UTC)

The lead section now emphasizes that the article is about the United States. Collective investment scheme is a signpost article to equivalents in other countries. I hope that satisfies your concern. --Hroðulf (or Hrothulf) (Talk) 09:14, 23 April 2008 (UTC)

[edit] Plagiarism

The first sentence is copied almost word for word from the SEC's website, under the heading "How Mutual Funds Work." (http://www.sec.gov/investor/pubs/inwsmf.htm). I don't know anything about MFs, so if someone could change this, it'd probably be a good thing. —Preceding unsigned comment added by 165.134.180.151 (talk) 04:58, 28 March 2008 (UTC)

Not a copyright concern, as the SEC is a goverment agency. We should at least cite it, though. - Mdsummermsw (talk) 14:27, 28 March 2008 (UTC)
Oops. It is cited. Not a problem. - Mdsummermsw (talk) 14:28, 28 March 2008 (UTC)

[edit] Outperforming vs. Underperforming

In "Index funds versus active management", there is the following (unsourced) statement:

"Statistically, for every investor who outperforms the market, there is one who underperforms."

I'm no statistician, but I'm pretty sure that this is incorrect. A single extremely outperforming investor (think Buffett) could very well be balancing out the relatively small underperformances of multiple investors.

I'd like to drop this comment. I think that the rest of the section is fine without it though:

"Among those who outperform their index before expenses, though, many end up underperforming after expenses. Before expenses, a well-run index fund should have average performance. By minimizing the impact of expenses, index funds should be able to perform better than average."

If anyone objects, please explain why. Kanook (talk) 16:17, 19 April 2008 (UTC)

I deleted the whole paragraph. It is vague, and seems to be someone's original research. It may be returned, with reliable sources, per wp:verifiability.
--JKeene (talk) 01:50, 20 April 2008 (UTC)

[edit] Mutual fund

Mutual funds are a safe and less risky way to enter the market. I think this should be included in the Intro. Dwilso 12:03, 23 April 2008 (UTC)

I disagree. I deleted this from the lead but you reverted it:
They have become increasingly popular because of their high returns with low risk.
While I intuitively see some truth in high returns with low risk, I don't think we should make it as a blanket statement. If we had a sourced paragraph in the body of the article explaining how collective investment reduces risk (volatility?) while only modestly reducing returns, then I would be comfortable with a sentence in the lead along these lines. Also we need a paragraph on the reasons for the popularity of mutual funds. Until then, I am unhappy with it. --Hroðulf (or Hrothulf) (Talk) 12:10, 23 April 2008 (UTC)
Thanks for removing it. --Hroðulf (or Hrothulf) (Talk) 17:29, 23 April 2008 (UTC)
A price equilibrium chart was proposed by 67.99.103.78 (talk · contribs)
A price equilibrium chart was proposed by 67.99.103.78 (talk · contribs)

[edit] Images

Please don't edit war over the lead image. There is plenty of room in the article for several relevant images. To be honest, I didn't fully understand the price equilibrium chart. It needs some explanation, not just a caption. --Hroðulf (or Hrothulf) (Talk) 08:57, 28 April 2008 (UTC)

But what does this image mean? All it is is a map of the world, not even showing which emerging markets are meant by the picture description —Preceding unsigned comment added by 64.185.154.51 (talk) 04:25, 30 April 2008 (UTC)
However bad it is, that is no excuse for an edit war. I think someone is trying to imply that mutual funds are global even though the article is about the US and Canada. Certainly they invest globally, and sometimes the term mutual fund is used in other countries as a shorthand for other open-ended collective investment schemes. I have some ideas for better images from Commmons, but I will leave it for a while. --Hroðulf (or Hrothulf) (Talk) 09:10, 30 April 2008 (UTC)