"The 5 best fund managers in the business"

[Wagnerjb]

I stumbled upon this old article today. Five years ago, financial author Tim Middleton wrote about "the 5 best fund managers in the business".

http://moneycentral.msn.com/content/P63164.asp

Winners in good times and bad, they're not just lucky -- they're great. If youd bought their flagship funds (and you still can), you'd have one scorching portfolio.

Let's see how they did.

SGENX. Slight outpeformance of 0.5% per year, when compared to a blend of 2/3 Total International and 1/3 US Total Stock Market.

CFIMX. Underperformed Large Blend benchmark by 5.5% annually.

PTTRX. Slight outperformance against Vanguard's Intermediate term bond index, of around 1% annually.

LMVTX. Underperformed Large Blend benchmark by 6.8% annually.

HRTVX. Slight outperformance against Vanguard's Small Value index of around 1% annually.


On the face of it, 3 out of 5 outperformed (although if these were All-Stars you would expect them all to outperform....). But the magnitude of the 2 losers overwhelmed the smaller gains of the 3 winners.

If you put your $1 million nest egg into these All Stars in 2003, you would now have $1,510,000. However, if you had used Vanguard low-cost passive funds with the same asset allocation, you would now have $1,640,000. Gee, you could probably buy a nice Ferrari with the extra money.

Lesson 1: Stay the course with low-cost passive funds.

Lesson 2: Tim Middleton is a bozo.

Best wishes.

[Kenster1]

Speaking of LMVTX -- Legg Mason Value Fund

YTD return as of 6/3/08: -18.5%

[overpar]

PTTRX=5.57;VBIIX=3.64 is more than slight outperformance for a bond fund. You gotta give the "bond king" his credit, including having a low ER.
Re your lessons--agreed

[Taylor Larimore]

Hi Andy:

In making my picks, I put heavy weight on a managers track record over a long period.

This is probably what many inexperienced investors do, but it is an important lesson for all of us:

It looks easy to pick winning funds by using past performance--but past performance does not guarantee future performance.

Best wishes.
Taylor

[gassert]

"PTTRX=5.57;VBIIX=3.64 is more than slight outperformance for a bond fund. You gotta give the "bond king" his credit, including having a low ER.
Re your lessons--agreed "

Andy was kind in comparing these two funds. Reality is that this is completely apples and oranges and anyone other than a fool would not give "credit" to the most over hyped "king" of gurus ever to play the game. This is not comparable to vbiix in any way. And praising Gross is like praising american funds because low cost, passive lives "except". Not if you pull back the curtian.

VBIIX is about as close to PTTRX as SCV is to EM

[overpar]

C'mon, cut Bill Gross some slack. The poor guy has to squeeze by on $40 mil/year

[Random Musings]

Wagnerjb wrote:

Lesson 2: Tim Middleton is a bozo.

That's not very nice. You're giving clowns a bad name.

RM

[trefoil]

If you put your $1 million nest egg into these All Stars in 2003, you would now have $1,510,000. However, if you had used Vanguard low-cost passive funds with the same asset allocation, you would now have $1,640,000. Gee, you could probably buy a nice Ferrari with the extra money.

Maybe a nice *used* Ferrari! Those things are expensive.

[Wagnerjb]

"PTTRX=5.57;VBIIX=3.64 is more than slight outperformance for a bond fund. You gotta give the "bond king" his credit, including having a low ER.
Re your lessons--agreed "

Andy was kind in comparing these two funds. Reality is that this is completely apples and oranges and anyone other than a fool would not give "credit" to the most over hyped "king" of gurus ever to play the game. This is not comparable to vbiix in any way. And praising Gross is like praising american funds because low cost, passive lives "except". Not if you pull back the curtian.

VBIIX is about as close to PTTRX as SCV is to EM

It took me less than 10 minutes to do the comparison of all 5 funds, using the M* category classifications. Sure, I probably could have spent another 2 hours refining the comparisons, but the conclusion was so overwhelming that it just didn't matter. Folks can quibble that a benchmark wasn't appropriate, but they won't change the conclusion on the overall portfolio.

Best wishes.

[ken250]

SGENX...

33 out of 37 years in the black, not bad.

Sharpe Ratios for 3, 5, and 10 years: 132, 207, 105. Again, pretty good.

How many people hold TSM and TIM in a ratio of 1:2?

TSM...

11 out of 15 years in the black.

Sharpe Ratios for 3, 5, and 10 years: 24, 92, 9. :lol: :lol: :lol:

TIM...

7 out of 11 years in the black.

Sharpe Ratios for 3, 5, and 10 years: 94, 156, 29.


My guess is the author picked those years very carefully, and SGENX still beat the unusual combination.

[ken250]

Here are some numbers for another global allocation fund, MDLOX:

12 out of 13 years in the black.

Sharpe Ratios for 3, 5, and 10 years: 145, 188, 66.

[Wagnerjb]

SGENX...

33 out of 37 years in the black, not bad.

Sharpe Ratios for 3, 5, and 10 years: 132, 207, 105. Again, pretty good.

How many people hold TSM and TIM in a ratio of 1:2?

We are talking about a portfolio of 5 funds. The overall portfolio has international, small cap, bonds and domestic stocks.

Cherry-picking one winner out of a portfolio to brag about it may make one feel better, but the reality is the portfolio underperformed.

The 1:2 ratio of any particular fund isn't relevant since it is the entire portfolio that matters. And on the face of it, this portfolio had reasonable diversification.

Best wishes.

[plake15]

PTTRX. Slight outperformance against Vanguard's Intermediate term bond index, of around 1% annually.

slight outperformance? not for a bond fund..with bond funds generally returning about 5% to 6% per year...a 1% annual higher return is around 15% to 20% higher. that is not slight by any means.

[ken250]

I didn't realize TM made the "recommendation" to build a portfolio out of those 5 funds.

Using the M* annualized data and M* benchmarks over the last 5 years the annualized return based on 20% weightings for each fund/benchmark were about 8.35% for TM and 9.71% for M*. Fair enough.

However,...

For my portfolio, the 5-year annualized and the over/under M* benchmark %...

20% MDLOX: 15.60%, +1.70%
16% VWELX: 9.87%, +1.25%
08% VWINX: 5.60%, -1.15%
32% VEIPX: 9.76%, +0.24%
08% VTRIX: 20.92%, +1.84%
08% VGSIX: 16.43%, -0.77%
08% VIPSX: 5.19%, -0.16%

The 5-year annualized returns for my portfolio and the M* benchmark portfolio are 11.67% and 11.09% respectively.

Andy, Lesson 1 need not apply.

[woof755]

What are the M* Investor Returns for those funds over the last 5 years. If you held those funds, great job. The vast majority of others, not so much. The only thing performance leads to (in the majority of cases) is performance chasing.

It's the culture of active fund performance chasing that is the scourge (along with ridiculous fees in many cases). It's really hard to argue that the majority of investors should buy and hold the index in a comfortable allocation, save some money, and pay off your credit cards at the end of every month. If those things happened, the US would be in a better place.

[ken250]

I agree, bad behavior is a major problem.

I haven't held all those funds for 5 years. For instance, I just got into MDLOX this week. Your point is well-taken, but my point was to show there are good active funds available that are worth holding.

P-chasing is a problem for everyone.

[tibbitts]

I agree, bad behavior is a major problem.

I haven't held all those funds for 5 years. For instance, I just got into MDLOX this week. Your point is well-taken, but my point was to show there are good active funds available that are worth holding.

P-chasing is a problem for everyone.

There are good active funds; the problem is that you can identify them only after the fact. All you can say for sure is that they were worth holding in the past.

Paul

[Wagnerjb]

PTTRX. Slight outperformance against Vanguard's Intermediate term bond index, of around 1% annually.

slight outperformance? not for a bond fund..with bond funds generally returning about 5% to 6% per year...a 1% annual higher return is around 15% to 20% higher. that is not slight by any means.

It is "slight" in that it is overwhelmed by the "massive" underperformance of the two stock funds. You may be right that the bond fund manager did an outstanding job, but the overall portfolio of 5 funds did lousy.

Again, let's not cherry pick the winners and ignore the fact that the losers killed the portfolio.

Best wishes.

[pointyhairedboss]

In all fairness, Tim Middleton is one the bigger financial pornographers. Certainly there are far more credible financial writes with equally cringe worthy predictions. Such a find would be a much better example.

[woof755]

Such a find isn't that hard to find...except for those who effectively tune out the sh**.

[jh]

...

[ken250]

Hi jh,

I'd like to recommend taking some time perusing:

http://www.smartmoney.com

For instance, type MDLOX or another symbol into the ticker box. After the fund loads click on the risk tab, a plot of funds in the same category as the fund you brought up will be displayed showing return vs SD...IMO, pretty cool. A few other useful tools there too.

MDLOX is not a balanced fund, it is Global Allocation fund to be precise. It is managed using TAA, it utilizes derivatives and any asset class the management believes is worth holding...from all over the world; therefore, the AA changes periodically. If you exclude subtle differences due to share classes, there are few funds that have such reach. I have a pretty conservative portfolio but want exposure to things I just can't get through VG, and I was tired of waiting. Yes the load is a bummer and the ER is 1.00%, but I suspect the people at BlackRock know a lot more than most investors about building and managing a portfolio so I'm willing to pay. And I ain't big anymore on letting the cost tail wag the dog. There's a similar fund, SGENX, from First Eagle which is highly competitive with MDLOX, but the manager may be retiring soon and MDLOX has a deeper management team. Do an X-Ray on MDLOX for a rough breakdown on its current portfolio, and also check out the BlackRock website.

[ken250]

Hi Paul,

Obviously I can't predict how a fund that has done well in the past will do in the future, just as surely as no one can predict how a particular asset class that has done well in the past will do in the future.

I look at return, risk, management, ER, loads, class exposure, etc. and how those things play into my strategic objectives. Can't do much else.

(One thing I found recently was that the R-squareds for most VG funds are just too high, although I think the new managed payout funds are a quantum leap for VG in terms of diversification.)

[ken250]

jh, also check out PAO and its variants from PowerShares...pretty cheap.

[Gregory]

I agree, bad behavior is a major problem.

I haven't held all those funds for 5 years. For instance, I just got into MDLOX this week. Your point is well-taken, but my point was to show there are good active funds available that are worth holding.

P-chasing is a problem for everyone.

Ken, does the 1.03% ER include the 25 bp 12b-1 fee? http://tinyurl.com/66dnqw