Investing Contest Article

[livesoft]

http://www.nytimes.com/2013/02/02/busin ... e-low.html

James Stewart writes in the NYTimes about an investing contest for when interest rates are low. Readers of this forum will enjoy the results.

I will be able to tell who didn't read the article by their comments in this thread.

[Rick Ferri]

I had to chuckle a few times.

The asset management firm BlackRock was a co-sponsor of the contest. The article quotes Michael Fredericks, lead portfolio manager for the BlackRock Multi-Asset Income Fund. “The traditional 60/40 approach to building a portfolio is on the way out, it is being replaced, he said, by tactical asset allocation, a strategy in which investors change their allocation based on the current pricing of asset classes." The BlackRock Multi-Asset Income Fund "A" shares have a 5.25% front-end commission and 1.30% annual fee (0.98% after waiver), "C" shares have a 2.03% fee (1.73% after waiver), and Institutional shares have a 1.03% fee (0.73 after waiver).

It seems the only thing tactical going on here is that BlackRock is using Duke as a marketing ploy to tactically separate investors from their money!

Rick Ferri

[NYBoglehead]

^But Rick, think of all the "risk management" you get for those fees!!

[retiredjg]

I have a secret wish that everyone would start out at 60/40 and not be allowed to move until 2 years after their first real crash....

[FinancialDave]

There was one true aspect of the report -- THE JURY IS OUT ON THE RESULTS.

The one thing that I did not hear was anything that could beat the 100% stock portfolio long term.

fd

[Fallible]

I had to chuckle a few times.

The asset management firm BlackRock was a co-sponsor of the contest. The article quotes Michael Fredericks, lead portfolio manager for the BlackRock Multi-Asset Income Fund. “The traditional 60/40 approach to building a portfolio is on the way out, it is being replaced, he said, by tactical asset allocation, a strategy in which investors change their allocation based on the current pricing of asset classes." The BlackRock Multi-Asset Income Fund "A" shares have a 5.25% front-end commission and 1.30% annual fee (0.98% after waiver), "C" shares have a 2.03% fee (1.73% after waiver), and Institutional shares have a 1.03% fee (0.73 after waiver)....

Last paragraph of the article: "After all the models and projections, they’ve ended up pretty close to the old 60/40 approach."

[market timer]

From the article: Mr. Kim conceded that his team’s projected return for TIPS (5.66 percent) and bonds (5.91 percent) “may be optimistic, given current market conditions.”

So, basically, they assumed away the problem of low yield. I wonder where their model assumes yields will be in 7 years.

[letsgobobby]

From the article: Mr. Kim conceded that his team’s projected return for TIPS (5.66 percent) and bonds (5.91 percent) “may be optimistic, given current market conditions.”

So, basically, they assumed away the problem of low yield. I wonder where their model assumes yields will be in 7 years.

I agree; since that was the premise of the entire contest, the whole exercise seems absurd.

[baw703916]

So, basically, they assumed away the problem of low yield.

They have a bright future in the financial industry!

[damjam]

The team’s contest entry called for allocating 43 percent to United States stocks — 30.3 percent to a Russell 2000 index fund and 12.7 percent to a Russell 2000 fund that invests in midsize companies. They made no allocation to international stocks. Like more traditional models, they maintained a large allocation to fixed income, but weighted it heavily toward Treasury inflation-protected securities, or TIPS, whose yields rise with inflation. They allocated 32.1 percent to TIPS and 24.9 percent to an aggregate bond fund.


I think 43/57 is not pretty much the same as 60/40. Unless 17% variance on either asset class is pretty much the same.

[baw703916]

But they were pessimistic about Europe and emerging markets, given the euro zone crisis and what they saw as slowing growth in countries like China and Brazil.

The team’s contest entry called for allocating 43 percent to United States stocks — 30.3 percent to a Russell 2000 index fund and 12.7 percent to a Russell 2000 fund that invests in midsize companies. They made no allocation to international stocks.

Um, are they aware that Europe and EM both outperformed the U.S. last year?

Brad

[ladders11]

I read this article and I'm not sure that I understand the contest. They didn't use any actual market results. Why did the winners win?

"The result was a 9.7 percent projected annual return, with less volatility than the model funds they examined."

How did they project a 9.7 percent annual return from a portfolio comprised of 32.1% TIPS, 24.9% AGG, 30.3% Russell 2000 and 12.7% Russell midcaps? Who thinks this is likely?

Oh, and the prize is "an interview and a shot at an internship". What gives, BlackRock? Can't commit? I love a contest that awards the winner "a shot" at a prize, which is in fact free or underpaid labor in an office. Grrrrrrrreat. America 2013.

[paper200]

More than the student or Blackrock - what was the Class Professor thinking? Backing testing can predict future volatility and short term returns. The prof should re-educate himself in this website.

[mm9811]

I had to chuckle a few times.

The asset management firm BlackRock was a co-sponsor of the contest. The article quotes Michael Fredericks, lead portfolio manager for the BlackRock Multi-Asset Income Fund. “The traditional 60/40 approach to building a portfolio is on the way out, it is being replaced, he said, by tactical asset allocation, a strategy in which investors change their allocation based on the current pricing of asset classes." The BlackRock Multi-Asset Income Fund "A" shares have a 5.25% front-end commission and 1.30% annual fee (0.98% after waiver), "C" shares have a 2.03% fee (1.73% after waiver), and Institutional shares have a 1.03% fee (0.73 after waiver).

It seems the only thing tactical going on here is that BlackRock is using Duke as a marketing ploy to tactically separate investors from their money!

Rick Ferri

+1

I love that phrase "tactical asset allocation" and "The traditional 60/40 approach to building a portfolio is on the way out"....along with "the new normal" and "this time things are different"

[jdilla1107]

"43% to US stocks"

A number that precise sure sounds like overfitting to past results.

[baw703916]

Since Boglehead Ed Tower is an econ professor at Duke, I wonder if he has any information on the backstory behind this contest?

[SSSS]

The BlackRock Multi-Asset Income Fund "A" shares have a 5.25% front-end commission and 1.30% annual fee (0.98% after waiver), "C" shares have a 2.03% fee (1.73% after waiver), and Institutional shares have a 1.03% fee (0.73 after waiver).

BlackRock must have bipolar disorder or something. In my 401k I've got a BlackRock total stock index collective trust at 0.08%, a total bond market at 0.07%, and index-based target retirement funds at 0.11%. Seems like they have a weirdly versatile product lineup.

[roymeo]

Wait, I'm supposed to have 60/40, but then I'm supposed to have my age in bonds?

Everything is THE rule of thumb.

[umfundi]

This is a beauty pageant and infomercial, not a contest.

Nothing was measured, the "winners" were chosen by Blackrock.

Companies do this all the time, sponsor bogus (and sometimes real) contests to help them find future employees. I was just surprised there was not a redemption section for essays on save the children or world hunger.

( That was Miss America.)

Keith