It looks like the fund may be more like 60% stocks / 40% Bonds:FundSource PDF
Well, okay, there are tiny slivers that include commodities, REITS, High Yield and Emerging Markets bonds, but they appear to be reasonable amounts, assuming they stick to the allocations.
I don't like the active portfolio management aspects of it. Also, I found a link where someone discusses an 0.80% expense ratio for one of the portfolios, plus
a 1.5% fee paid quarterly. (See Doubts About My Financial Advisor
So, let's say total expenses are
2.3% per year even though hyper-managing a portfolio can create significant transaction costs, too. It means that pretty much all
investment dividends go straight into FundSource's wallet. She'll never see them. Close to half of the portfolio is bonds (40%). How does she expect to obtain income from bonds when FundSource is pocketing most of the dividends?
She must ask them if they really believe they will outsmart the thousands of other really smart managers (i.e. the market) to the tune of 2.3% every year without fail. (Talk about an unlikely task!) They must outperform by 2.3 percentage points every year in order for her to keep up with market indices
. FundSource stacked the odds against themselves and then thought it was a great idea to sell it to her as a winning strategy.
Standard & Poors publishes the returns of active managers versus the indexes every year. How do they refute S&P's claims to the superiority of index returns over active management? How do they refute the fact that overwhelming balance of academic literature concludes that low cost index funds are the only way to go?
-How do they expect her bonds to make her any money when FundSource is pocketing most of the dividends?
-How do they expect her to make competitive returns on stocks when those dividends are also pocketed?
-Have they shown her past returns of their portfolios?
-Are they actual portfolio returns or theoretical portfolio returns?
-Are they before expenses or after expenses?
-Have they compared those returns to a benchmark of indexes in the same proportions as their portfolios, or did they compare entire portfolios to the S&P 500 alone, which is completely inappropriate? In other words, one should only be comparing the S&P 500 to the 35-50% of the portfolio that is likely to be invested in Large Cap stocks. Regardless, the possibility of a portfolio of active funds beating an equivalent portfolio of index funds is next-to impossible, per Rick Ferri's research for The Power of Passive Investing
. Rick gives us the rundown in these links:Index Fund Portfolios Reign SuperiorMorningstar Video Reports: The Power of Passive InvestingRick's YouTube advert