Insurance for mutual funds to guarantee index returns?

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frcabot
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Insurance for mutual funds to guarantee index returns?

Post by frcabot » Fri Oct 04, 2019 10:42 am

Active fund managers / salespeople try to hawk actively-managed funds by *hinting* at above-market returns. But if fund-managers are so confident at their abilities to generate above-average returns, do any funds actually have some sort of insurance policy that pays out in the event a fund manager fails to deliver index returns? For example, if the SP500 grew 10% but active large blend fund only came in at 8%, insurance company would step in and make investors whole?

I’m 99% sure something like this doesn’t exist because: the risk of loss on the part of the insurance company is a near guarantee, unless there’s a very, very established fund manager with a long, long track record of outperformance; as a result, the insurance premiums would be exceedingly high; the premiums would themselves be a source of lower returns.

Still, if investors were guaranteed to get a return equal to AT LEAST the index, then it’d be a no-brainer, right? So maybe the big active-management fund companies ought to get behind an idea like this or self-insure :P

A variation in this idea would be that expense fees are retroactively waived/reimbursed if fund fails to deliver, up to the amount necessary to match index. That wouldn’t necessarily make investors whole if the performance gap was larger than the ER, but it would certainly narrow the gap and take the sting out of paying for underperformance.

Thoughts?

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Re: Insurance for mutual funds to guarantee index returns?

Post by alex_686 » Fri Oct 04, 2019 11:00 am

frcabot wrote:
Fri Oct 04, 2019 10:42 am
But if fund-managers are so confident at their abilities to generate above-average returns, do any funds actually have some sort of insurance policy that pays out in the event a fund manager fails to deliver index returns?
Well, no, for 2 reasons.

The first is that such a thing is more or less illegal. You can only guaranty returns if you actually guaranty returns. And the cost of actually guarantying returns would force the manager to into a passive mode, as you suggest. Because there are insurance products out there which let you do this, options.

The other is more subtle, which you hint at in your post. Everybody knows that if you want to get extra returns you have to take extra risk. There are a couple of loopholes in the Efficient Market Hypothesis you can exploit to get that extra return. High levels of skill, taking on liquidity risk, etc. But these are not free nor risk-free.

Lastly, you almost don't want to go down this road. There have been compensation plans where portfolio managers get paid on performance. The problem is when they have a down quarter. What do they do then? They no longer have money to pay their research staff to make superior trades. Many just load up on risk hoping to hit the ball out of the park - A "heads I win, tails you lose" situation. etc.

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frcabot
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Re: Insurance for mutual funds to guarantee index returns?

Post by frcabot » Fri Oct 04, 2019 11:15 am

alex_686 wrote:
Fri Oct 04, 2019 11:00 am
frcabot wrote:
Fri Oct 04, 2019 10:42 am
But if fund-managers are so confident at their abilities to generate above-average returns, do any funds actually have some sort of insurance policy that pays out in the event a fund manager fails to deliver index returns?
Well, no, for 2 reasons.

The first is that such a thing is more or less illegal. You can only guaranty returns if you actually guaranty returns. And the cost of actually guarantying returns would force the manager to into a passive mode, as you suggest. Because there are insurance products out there which let you do this, options.
It wouldn’t be illegal to guarantee a market RR if there were insurance in place that guaranteed a market RR. Options may provide a hedge but they don’t make you whole, and paying for the options also drags down the RR.
The other is more subtle, which you hint at in your post. Everybody knows that if you want to get extra returns you have to take extra risk. There are a couple of loopholes in the Efficient Market Hypothesis you can exploit to get that extra return. High levels of skill, taking on liquidity risk, etc. But these are not free nor risk-free.

Lastly, you almost don't want to go down this road. There have been compensation plans where portfolio managers get paid on performance. The problem is when they have a down quarter. What do they do then? They no longer have money to pay their research staff to make superior trades. Many just load up on risk hoping to hit the ball out of the park - A "heads I win, tails you lose" situation. etc.
I had this same thought, but taking on more risk isn’t a bad thing from the customer perspective if the customer is made whole if/when the bet fails. It’s only a problem if the customer is left holding the bag.

The problem I see it is 2-fold:
1. In scenario 1, there’s an insurance product that guarantees the fund will return at least the market. But now, the fund not only has to beat the market by the ER, it also has to beat the market by the cost of insurance. Any insurance (assuming such insurance would ever be available) is going to be premised on the manager not taking high risk, because the insurance company doesn’t want to pay out at all, and if it does have to pay out, it wants to keep the payout small. So leveraged or high-risk strategies are out, and there’s simply no way for the fund to generate enough returns to pay for the ER and the insurance costs safely (ie in a way acceptable to the insurance company).

2. In scenario 2, the ER is simply waived retroactively if the fund fails to beat the market. This, as you say, encourages the fund manager to take large risks, with the bet that in most years the extra risk will generate extra returns. But in years where this doesn’t work, the losses will be quite substantial and the waiver of the ER by itself isn’t going to come close to making the investor whole (eg., fund will simply invest 100% in UPRO; most years, UPRO will come out well ahead of the SP500, except in years where the market is down and it comes out 3x behind).
There is a solution to this second problem though: tie the fund to the appropriate index. If the fund uses highly risky/leveraged strategies, tie it to a risky/leveraged strategy index. If the fund is tied to a large cap blend index like the SP500, then its holdings should be comprised entirely of large cap blend stocks. If the fund instead invests entirely in growth stocks, then tie the fund to the SP500 growth index.

The extra returns should be generated by the active manager’s supposed prowess in picking stocks—NOT in his prowess at taking on additional risk.

If it’s a bond fund, tie it to an index of similar duration and credit risk.

As long as the appropriate index is picked, this is not an insurmountable problem, because the manager is still going to have to beat an index with a similar risk-profile.

As to your point re not being able to pay staff, etc. True, such a system would force underperforming managers and funds out of the market (a good thing). And yes, because it’s virtually impossible to beat the index every single year, there are some years in which fund companies would have to pay their own costs from accumulated earnings. So the fund companies that would survive are the ones that have a history of delivery risk-adjusted outperformance on a consistent basis. That’s not a bad thing from the investor perspective, or, I’d argue, from the investment company perspective—as they’d be able to perhaps reverse years of outflows to passively-managed funds.

If active managers want my money, they should put THEIR money where their mouths are.

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Re: Insurance for mutual funds to guarantee index returns?

Post by JoeRetire » Fri Oct 04, 2019 12:10 pm

frcabot wrote:
Fri Oct 04, 2019 11:15 am
If active managers want my money, they should put THEIR money where their mouths are.
If you want guarantees, you can purchase an annuity.
But remember, guarantees aren't cheap.
Don't be a lemming.

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Re: Insurance for mutual funds to guarantee index returns?

Post by Kenkat » Fri Oct 04, 2019 12:15 pm

JoeRetire wrote:
Fri Oct 04, 2019 12:10 pm
frcabot wrote:
Fri Oct 04, 2019 11:15 am
If active managers want my money, they should put THEIR money where their mouths are.
If you want guarantees, you can purchase an annuity.
But remember, guarantees aren't cheap.
If they did exceed the return of the index, would you let them keep 80% of the excess return while you get 20%? It’s a two way street after all; otherwise, what’s the incentive for them to offer you insurance?

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Re: Insurance for mutual funds to guarantee index returns?

Post by afan » Fri Oct 04, 2019 12:21 pm

There are variable universal life policies that guarantee no negative years. But they charge so much for this downside protection that they do not come close to matching the index. Plus, they will cap payment at some figure that cuts off the really good years with high market returns.

Since the companies know they cannot beat the index there is no way they could buy insurance to cover failure to meet the benchmark. Since they would be measured on the performance of all the money invested, there would be no cash to pay for insurance to support the returns.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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frcabot
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Re: Insurance for mutual funds to guarantee index returns?

Post by frcabot » Fri Oct 04, 2019 12:42 pm

Kenkat wrote:
Fri Oct 04, 2019 12:15 pm
JoeRetire wrote:
Fri Oct 04, 2019 12:10 pm
frcabot wrote:
Fri Oct 04, 2019 11:15 am
If active managers want my money, they should put THEIR money where their mouths are.
If you want guarantees, you can purchase an annuity.
But remember, guarantees aren't cheap.
If they did exceed the return of the index, would you let them keep 80% of the excess return while you get 20%? It’s a two way street after all; otherwise, what’s the incentive for them to offer you insurance?
Wouldn’t this give me at worst equal to the index and at best the index plus 20% of the outperformance? If so, I still come out ahead, right? What’s the downside risk to me in such a case?

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Re: Insurance for mutual funds to guarantee index returns?

Post by alex_686 » Fri Oct 04, 2019 12:46 pm

frcabot wrote:
Fri Oct 04, 2019 11:15 am
It wouldn’t be illegal to guarantee a market RR if there were insurance in place that guaranteed a market RR. Options may provide a hedge but they don’t make you whole, and paying for the options also drags down the RR.
How tight of a guarantee do you want? One can easily use options to guarantee that a funds performance matches the market. One way you can do this is with a options collar. The problem with a option collar is that to get free downside protection you have to give up some upside. So at this point you have hedged yourself back to getting the market returns. The are other strategies, but once again - if you want to guarantee at least the market return, you have to construct the portfolio to get the market return.
frcabot wrote:
Fri Oct 04, 2019 11:15 am
The extra returns should be generated by the active manager’s supposed prowess in picking stocks—NOT in his prowess at taking on additional risk.
So, one of my jobs was in performance reporting. Some of this was straight performance, some was manager compensation, some was hedge fund selection. Your views are both correct and simplistic. There is a fair amount of nuance here. It can really be hard to differentiate between luck and skill. There are so many ways to game performance, and so many ways that good managers underpreform a given index because it is the wrong index.
frcabot wrote:
Fri Oct 04, 2019 11:15 am
True, such a system would force underperforming managers and funds out of the market (a good thing). And yes, because it’s virtually impossible to beat the index every single year, there are some years in which fund companies would have to pay their own costs from accumulated earnings. So the fund companies that would survive are the ones that have a history of delivery risk-adjusted outperformance on a consistent basis. That’s not a bad thing from the investor perspective, or, I’d argue, from the investment company perspective—as they’d be able to perhaps reverse years of outflows to passively-managed funds.
So, let us say you have found a college football coach who you think is superior and you estimate that there is a independent 60% chance that they will win any given football game. They have a losing season the first year. Do you fire that coach? Did you make a mistake in your assessment? Or maybe that a independent 60% chance of winning translates into a losing season 1 out of every 4 years. What if they lose their first 2 seasons?

Oddly, short term bad performance is a pretty poor indicator of future performance - just like past performance is a pretty poor indicator.

To expand a bit, portfolio managers tend to have certain skill sets and the market tends to go through certain phases which rewards different skill sets. i.e., sometimes bottom up research drive does best, other times top down sector rotation does best. You pick a manager who you think has good skills for navigating a portfolio through times of stress and chaos, your market expectations is that we will be going through a time of stress and chaos shortly, and nothing has happens for the past 10 years.

Would you ever pick a bond manager who has had a successful history on market timing interest rate shifts, and therefor their duration bounces around much higher and lower than its index?

Or you pick a bond manager who has beaten their bond index after fees for the past 10 years with a semi-active strategy? This is a real world successful strategy. Bond indexes only cover about 10% of the most liquid market. You can build a better preforming index by matching all of the parameters of a index but invest in the less liquid 10%. You are going to get higher returns expect during times of crisis when the market hits a liquidity crisis.
frcabot wrote:
Fri Oct 04, 2019 11:15 am
If active managers want my money, they should put THEIR money where their mouths are.
So, I knew a woman in the early phase of her career, had young kids, and I am going to assume a fair amount of student loan and mortgage debt. So lets assume she has not been able to fill out her tax advantage space. What should her AA bet? Probably not any muni bonds. However, she was a very successful bottom's up muni bond portfolio manager. How should we structure her compensation schedule?

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Re: Insurance for mutual funds to guarantee index returns?

Post by pkcrafter » Fri Oct 04, 2019 12:49 pm

Still, if investors were guaranteed to get a return equal to AT LEAST the index, then it’d be a no-brainer, right?

Right!

So maybe the big active-management fund companies ought to get behind an idea like this or self-insure
Wait, I've got an idea! How about just investing in the S&P500. :sharebeer

I've never heard a better case for indexing. :happy

Paul
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Re: Insurance for mutual funds to guarantee index returns?

Post by dkturner » Fri Oct 04, 2019 1:01 pm

pkcrafter wrote:
Fri Oct 04, 2019 12:49 pm
Still, if investors were guaranteed to get a return equal to AT LEAST the index, then it’d be a no-brainer, right?

Right!

So maybe the big active-management fund companies ought to get behind an idea like this or self-insure
Wait, I've got an idea! How about just investing in the S&P500. :sharebeer

I've never heard a better case for indexing. :happy

Paul
Not really. With self-insurance there is a possibility that the self-insured investment manager may produce above market performance. That isn’t the case with indexing.

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Re: Insurance for mutual funds to guarantee index returns?

Post by pkcrafter » Fri Oct 04, 2019 1:37 pm

dkturner wrote:
Fri Oct 04, 2019 1:01 pm
pkcrafter wrote:
Fri Oct 04, 2019 12:49 pm
Still, if investors were guaranteed to get a return equal to AT LEAST the index, then it’d be a no-brainer, right?

Right!

So maybe the big active-management fund companies ought to get behind an idea like this or self-insure
Wait, I've got an idea! How about just investing in the S&P500. :sharebeer

I've never heard a better case for indexing. :happy

Paul
Not really. With self-insurance there is a possibility that the self-insured investment manager may produce above market performance. That isn’t the case with indexing.

True, there is a possibility, but if it happens it won't be consistent, and no active manager is going to provide insurance. The S&P500 index fund outperforms ~90% of large cap index funds over 20 years or more. That is far better than "good enough." It's hard to beat long term and we have no idea who might do it. I'm looking for consistently good longer term returns, not flashes of better performance at higher cost.



Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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frcabot
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Re: Insurance for mutual funds to guarantee index returns?

Post by frcabot » Fri Oct 04, 2019 2:17 pm

pkcrafter wrote:
Fri Oct 04, 2019 1:37 pm
dkturner wrote:
Fri Oct 04, 2019 1:01 pm
pkcrafter wrote:
Fri Oct 04, 2019 12:49 pm
Still, if investors were guaranteed to get a return equal to AT LEAST the index, then it’d be a no-brainer, right?

Right!

So maybe the big active-management fund companies ought to get behind an idea like this or self-insure
Wait, I've got an idea! How about just investing in the S&P500. :sharebeer

I've never heard a better case for indexing. :happy

Paul
Not really. With self-insurance there is a possibility that the self-insured investment manager may produce above market performance. That isn’t the case with indexing.

True, there is a possibility, but if it happens it won't be consistent, and no active manager is going to provide insurance. The S&P500 index fund outperforms ~90% of large cap index funds over 20 years or more. That is far better than "good enough." It's hard to beat long term and we have no idea who might do it. I'm looking for consistently good longer term returns, not flashes of better performance at higher cost.



Paul
The point is that the entities best-positioned to know whether they’re going to outperform are the fund managers/companies themselves. So they could self-insure and guarantee at least an index return. If they’re so confident in their own abilities, such a guarantee shouldn’t cost them anything, and if the guarantee were actionable, then it’d be a win for investors and the manager!

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Re: Insurance for mutual funds to guarantee index returns?

Post by PaulF » Fri Oct 04, 2019 3:04 pm

frcabot wrote:
Fri Oct 04, 2019 2:17 pm
The point is that the entities best-positioned to know whether they’re going to outperform are the fund managers/companies themselves. So they could self-insure and guarantee at least an index return. If they’re so confident in their own abilities, such a guarantee shouldn’t cost them anything, and if the guarantee were actionable, then it’d be a win for investors and the manager!
And yet, incredibly, such products do not seem to be offered! Quel dommage! I wonder what we can infer from that?

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Re: Insurance for mutual funds to guarantee index returns?

Post by Northern Flicker » Fri Oct 04, 2019 4:45 pm

There is no implementation of such insurance. Any attempt will almost surely be based on market liquidity assumptions that will not always be valid, and when they fail, the insurance will fail. This was in fact demonstrated on Oct 19, 1987, when “portfolio insurance” products blew up spectacularly.
Index fund investor since 1987.

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Re: Insurance for mutual funds to guarantee index returns?

Post by Kenkat » Fri Oct 04, 2019 6:36 pm

frcabot wrote:
Fri Oct 04, 2019 12:42 pm
Kenkat wrote:
Fri Oct 04, 2019 12:15 pm
JoeRetire wrote:
Fri Oct 04, 2019 12:10 pm
frcabot wrote:
Fri Oct 04, 2019 11:15 am
If active managers want my money, they should put THEIR money where their mouths are.
If you want guarantees, you can purchase an annuity.
But remember, guarantees aren't cheap.
If they did exceed the return of the index, would you let them keep 80% of the excess return while you get 20%? It’s a two way street after all; otherwise, what’s the incentive for them to offer you insurance?
Wouldn’t this give me at worst equal to the index and at best the index plus 20% of the outperformance? If so, I still come out ahead, right? What’s the downside risk to me in such a case?
There isn’t. Which is why I guess no one offers this.

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Re: Insurance for mutual funds to guarantee index returns?

Post by Iridium » Fri Oct 04, 2019 11:53 pm

PaulF wrote:
Fri Oct 04, 2019 3:04 pm
frcabot wrote:
Fri Oct 04, 2019 2:17 pm
The point is that the entities best-positioned to know whether they’re going to outperform are the fund managers/companies themselves. So they could self-insure and guarantee at least an index return. If they’re so confident in their own abilities, such a guarantee shouldn’t cost them anything, and if the guarantee were actionable, then it’d be a win for investors and the manager!
And yet, incredibly, such products do not seem to be offered! Quel dommage! I wonder what we can infer from that?
There is no such thing as a guarantee of out performance, and I do not believe anyone actually believes they can outperform every year. The ideal fee arrangement would reward for long term out performance. The problem there is that open ended mutual funds have constantly varying levels of assets under management and turnover of investors. So if, say, your fee was based on the last five years of performance, then everyone who bought in with the last five years is paying for performance s/he did not enjoy. Conversely, anyone who dumps the fund after it underperforms does not enjoy the full fee refund.

Despite this issue, there are a few companies that actually do have what are caused fulcrum fees, where the ER adjusts by around 1/3 of how much the fund beats the benchmark. Some of these go all the way down to or near a zero ER if they underperform or match the benchmark. So, it is not a guarantee, but the companies are making a bet that they can outperform, in that paying for researchers, overhead, etc. costs quite a bit for an active fund, but they only get paid off they outperform. Unfortunately, because of the rails (the ER cannot go below zero or above a certain amount) this fee structure seems to encourage choppy performance as much as holds funds accountable.

Open ended mutual funds are not a good vehicle for such fee arrangements because of their open ended nature. Hedge funds, private equity, and other vehicles that control the flow of investment and force long term thinking do feature performance based fees for the managers.

As far as what the OP is suggesting...I do not ever see a market for it. If a fund is totally confident that it can outperform, it should borrow as much as it can, short its benchmark and come out way ahead of offering you 20% of the upside and none of the downside.

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Re: Insurance for mutual funds to guarantee index returns?

Post by rascott » Sat Oct 05, 2019 12:04 am

From the investor perspective.... you need a manager to not just beat the market...but beat the market by 1%+ for year after year.... just to break even. So for the risk I'm taking off investing with an active manager.... I really want to exceed market returns by 1%+... which now means the manager needs to best the market by 2%+.... per year, every year (on average) for many, many years/ decades.

The chances of this occurring are so slim it's not worth calculating.

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Re: Insurance for mutual funds to guarantee index returns?

Post by JoMoney » Sat Oct 05, 2019 12:38 am

I believe the saying is, "You can't have your cake and eat it too..."

I'm sure a similar situation could be modeled with options contracts on the 'active portfolio' and the S&P, the cost would be such that you got the returns of neither portfolio.
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Re: Insurance for mutual funds to guarantee index returns?

Post by JoeRetire » Sat Oct 05, 2019 7:10 am

frcabot wrote:
Fri Oct 04, 2019 12:42 pm
Wouldn’t this give me at worst equal to the index
No.
and at best the index plus 20% of the outperformance?
Again, no.
Don't be a lemming.

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Re: Insurance for mutual funds to guarantee index returns?

Post by Nate79 » Sat Oct 05, 2019 7:43 am

I almost thought this thread was going to be some sales pitch for indexed insurance products when reading the title..... Those products are a good example of why this would never work - the cost is too high and the slimy insurance industry has a great way of hiding costs and actual performance to sell to ignorant consumers their horrible cash value insurance products.

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Re: Insurance for mutual funds to guarantee index returns?

Post by nisiprius » Sat Oct 05, 2019 8:17 am

This is reminiscent of my reason for believing that stocks are riskier than bonds, even over thirty year holding periods.

If the market honestly believed stocks were less risky than bonds, the risk premium would go away. For example, if it were virtually certain that stocks would return at least 6% over the next thirty years, financial engineers would create 30-year "stock-based bonds" that simply invested in stocks and paid, let's say, 5% interest, with the issuers pocketing most of the 1% difference. If the chances of stocks not doing this were negligible, then an issuer with deep pockets might just assume the risk themselves. If not, it should be possible to buy insurance against it, and if the chances were negligible the premium for that insurance would be negligible. With the emergence of safe stock-based bonds, all other bonds would have to match them in order to compete.

This is, in fact, it is very close to what Glassman and Hassett said in "Dow 36000," which famously predicted "a sensible target date for Dow 36,000 is early 2005, but it could be reached much earlier." They did not lay out the stock-based-bonds-and-insurance scenario, but their whole point, their justification for the rise was--they insisted--math, not optimism. It was, specifically that the supposed discovery by Siegel & al., that bonds are riskier than stocks, would lead to the end of the equity risk premium once the news was fully absorbed by the investment community.
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Re: Insurance for mutual funds to guarantee index returns?

Post by usagi » Sat Oct 05, 2019 9:17 pm

Sort of a nit, but what you guys are talking about is not really insurance. So as not to derail the thread, I shall attempt to be brief: insurance is about spreading the risk of an event that all the insureds have exposure to, among the insured, for the cost of a premium per insured that approximates the expected total loss among all insureds.

Lastly, the reason I am being anal on this is, insurance is a very, very important aspect of entrepreneurial capitalism that much of our economy is predicated upon. Insurance often gets a bad rap and often is not appreciated.

Okay, off soapbox. Cheers.

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Re: Insurance for mutual funds to guarantee index returns?

Post by alex_686 » Sun Oct 06, 2019 7:40 am

usagi wrote:
Sat Oct 05, 2019 9:17 pm
insurance is about spreading the risk of an event that all the insureds have exposure to, among the insured, for the cost of a premium per insured that approximates the expected total loss among all insureds.
A nit to your nit. Why do you define insurance as the spreading of the risk? Why not the simpler definition of transfer of risk? I can point to many insurance policies where the pool of insured is 1. These tend to be more bespoke situations but they are very common.

On a more general note, I will point out that put options does fit your bill. When you buy them you pay a premium (the actual word used) which only pays out under certain circumstances - for all practical purposes a loss. There is a pool of option writers (instead of policy writers) on the other side of the clearing house - just like how Lloyds of London works.

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Re: Insurance for mutual funds to guarantee index returns?

Post by Stinky » Sun Oct 06, 2019 8:22 am

frcabot wrote:
Fri Oct 04, 2019 10:42 am

Still, if investors were guaranteed to get a return equal to AT LEAST the index, then it’d be a no-brainer, right?
I can make you a guarantee that you will get a return AT LEAST equal to the index. In fact, I can make you a guarantee that you will make a return of EXACTLY the index.

Just buy the index.
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Re: Insurance for mutual funds to guarantee index returns?

Post by JoMoney » Sun Oct 06, 2019 10:54 am

Benjamin Graham in The Intelligent Investor wrote:It is when the investor demands more than an average return on his money, or when his adviser undertakes to do better for him, that the question arises whether more is being asked or promised than is likely to be delivered.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Insurance for mutual funds to guarantee index returns?

Post by usagi » Sun Oct 06, 2019 7:23 pm

alex_686 wrote:
Sun Oct 06, 2019 7:40 am
A nit to your nit. Why do you define insurance as the spreading of the risk?
Don't read any tone in this, as there is none, It is simply a reply.

The reason I wrote that is this was how it was defined, explained, and taught and defined back when I got my CPCU.

I guess in the end, my nit, is over the difference between insurance and a contractual arrangement that an insurance company or other 3rd party may offer that protects the purchaser from adverse financial impact.

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