Wall Street Banks’ Mutual Funds Can Lag on Returns

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tuckeverlasting
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Wall Street Banks’ Mutual Funds Can Lag on Returns

Post by tuckeverlasting » Mon Apr 13, 2015 10:23 am

From the New York Times. Larry Swedroe is quoted in the article--of course, no surprises here for Bogleheads:

http://www.nytimes.com/2015/04/13/busin ... 98469&_r=0
An investor, for example, who put $10,000 into Goldman’s mutual fund for medium-size companies, with the ticker GCMAX — one of the most popular Goldman funds among ordinary investors — would pay around $1,143 in fees over five years, including a $500 upfront fee. That is about 10 times what it would have cost if the money had been in a comparable fund at Vanguard, even though the Goldman fund would have led to returns that were 6 percent lower than the Vanguard fund over the last five years.
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jebmke
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Re: Wall Street Banks’ Mutual Funds Can Lag on Returns

Post by jebmke » Mon Apr 13, 2015 10:59 am

I read the article this morning in my print edition.

I loved this word salad:
“There are many ways to determine the performance of mutual funds, but we choose to consistently focus on figures that we believe most accurately reflect the investment performance that our clients experience,” said David Wells, a Goldman spokesman.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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nedsaid
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Re: Wall Street Banks’ Mutual Funds Can Lag on Returns

Post by nedsaid » Mon Apr 13, 2015 11:47 am

The so-called house funds of the major brokerage firms have been regarded as mediocre for many years. I would stay away from these.
A fool and his money are good for business.

Buysider
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Re: Wall Street Banks’ Mutual Funds Can Lag on Returns

Post by Buysider » Mon Apr 13, 2015 12:00 pm

More fun from the article:
Studies have shown that investors tend to put money into investments after periods of outperformance and then miss that outperformance.
versus
[JPMorgan] encouraged its brokers to sell the company’s proprietary mutual funds even when they underperformed competitors.
So, which is it? Investors performance chase hot funds that subsequently underperform or brokers sell funds that underperform competing funds and then they continue to underperform? May be both, but it isn't clear to me that brokers should only be selling funds that outperform competing funds, which is what the back half of the article sorta implies.

As a biased insider, if "picking better funds or managers" were possible, a firm like Goldman would do it. They have every incentive to do it and do it well. They can't, so what should that imply for the industry?

lack_ey
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Re: Wall Street Banks’ Mutual Funds Can Lag on Returns

Post by lack_ey » Mon Apr 13, 2015 12:15 pm

It is well known that investor returns as a whole lag the returns of the funds they invest in because they market time poorly, jumping in after missing big gains, and so on.

That's not inconsistent with JPMorgan and others selling their own products. For one, they could be recommending their hot mutual funds that happen to not be as hot as others, never mind recommending other funds as part of a more balanced allocation that haven't been doing as well. They're just saying that they prefer to sell their own funds, which should be obvious, given the monetary incentive. There's not even a claim that the investors listen to them, though that is likely the case too.

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