Are actively managed funds that claim to beat the market actually "scams"?

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Ron Scott
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Are actively managed funds that claim to beat the market actually "scams"?

Post by Ron Scott » Mon Nov 13, 2017 5:17 pm

Perhaps it's because I tend to read things that reinforce my beliefs (modern American that I am...) but it seems to me those who establish such funds know they won't succeed in the long term but hope that intelligent marketing in the media, the web and through a large network of brokerage advisors will generate large profits by taking a percentage of investors' principals. No?

A corollary to this question would be: Does the mainstream business/investment media (Marketwatch, Bloomberg et al) knowingly participate in scamming their viewers?

If "scam" is too strong a word for you but you generally believe in my line of reasoning feel free to pick another word for it.

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Earl Lemongrab
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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by Earl Lemongrab » Mon Nov 13, 2017 5:24 pm

In general, these funds don't guarantee that they will beat anything.
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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by 123 » Mon Nov 13, 2017 5:26 pm

The funds themselves are likely not scams. The advertising and reviews of them may just put them in the most positive light by selectively discussing some aspect of their performance for some time period. Some actively managed funds could beat the market but for how long is anyone's guess. The key to any such comparison is the level of risk present. Typically actively managed funds have fewer positions then many index funds and accordingly have more risk.
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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by Sandtrap » Mon Nov 13, 2017 5:33 pm

Interesting question
FWIW, I would prefer that the beloved Wellesley/Wellington's not be "scams". :D
Last edited by Sandtrap on Mon Nov 13, 2017 7:06 pm, edited 1 time in total.

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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by Nate79 » Mon Nov 13, 2017 6:18 pm

Please list an example and let's dig into the details.

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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by bgf » Mon Nov 13, 2017 6:36 pm

there are plenty of active funds that don't have to claim that they beat the market because they can prove that they've beaten the market over long time periods.

even if active fund returns were totally random, given the huge number of funds (1000s), there are likely to be funds that outperform over even 20+ years, simply based on sample size.

active funds returns technically aren't perfectly random, it is just to make a point.

the issue for you is not whether the fund has beaten the market in the past, but whether YOU can pick a fund that will outperform in the future. playing that game is, as far as I am concerned, a losing game. what value/edge do you bring to picking an active management fund? if you don't have one, then I don't think its worth it.

definitely not a 'scam' though because the media and the funds themselves will always have actual fund performances to point to showing that they 'did it.'

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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by azanon » Mon Nov 13, 2017 6:38 pm

There are plenty of investors, and fund managers that legitimately don't subscribe to the Efficient Market Hypothesis. So to say that everyone knows beforehand that, after active management costs, that it will be a foregone conclusion that they will eventually under-perform, is simply not true, because so many disagree with that. To make matters worse, there are plenty of examples of funds/etfs that have outperformed indexes after costs long-term, though it's admittedly well under 50%. But considering that the average active fund charges in the neighborhood of 130 basis points, perhaps that's more a problem of the costs being too high, than an inability to select winners.

Do you think Warren Buffett thinks he's scamming his investors? I assure you he legitimately believes he can outperform an index. He's never struck me as someone who holds a dark secret that he's actually just getting lucky.

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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by Raybo » Mon Nov 13, 2017 6:40 pm

It all depends on how they define "the market." In my experience, the funds that claim to beat "the market" are using the wrong benchmark. Comparing small cap value to the S&P 500 makes no sense no matter which way the comparison goes.

Then there is the issue of sales loads (usually not factored in). Also, when anything is compared to the S&P 500 Index (US Large Cap Stocks), remember the index doesn't include dividends paid.

That isn't to say that some funds might be able to beat its benchmark, but I'd be more interested if the comparison took pains to take all this into account.

Anytime someone or some company claims a fund beats the market, assume it is marketing and apply the appropriate filters.
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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by Alexa9 » Mon Nov 13, 2017 6:49 pm

Past returns ≠ future returns
Nobody knows nothing
Last year’s winner is often this year’s loser
Most active funds underperform after fees

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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by TomCat96 » Mon Nov 13, 2017 7:29 pm

Ron Scott wrote:
Mon Nov 13, 2017 5:17 pm
Perhaps it's because I tend to read things that reinforce my beliefs (modern American that I am...) but it seems to me those who establish such funds know they won't succeed in the long term but hope that intelligent marketing in the media, the web and through a large network of brokerage advisors will generate large profits by taking a percentage of investors' principals. No?

A corollary to this question would be: Does the mainstream business/investment media (Marketwatch, Bloomberg et al) knowingly participate in scamming their viewers?

If "scam" is too strong a word for you but you generally believe in my line of reasoning feel free to pick another word for it.
Yes they are scams.
It comes down to semantics. Sure sure some of them might be over 100 years old, reputable, impressive, wear nice suits etc,
but to me it comes down to this: That statement promises more than they can deliver.

Do you consider an all you can eat buffet that cuts you off after a certain point a scam?
Do you consider unlimited internet that throttles your internet after 15GBs of bandwidth in a single month a scam?

I do. If they do that, they are liars. They are liars in the sense that you cannot rely on what is promised. No actively managed fund can reliably ensure they can beat the market.

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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by avalpert » Mon Nov 13, 2017 8:16 pm

TomCat96 wrote:
Mon Nov 13, 2017 7:29 pm
Ron Scott wrote:
Mon Nov 13, 2017 5:17 pm
Perhaps it's because I tend to read things that reinforce my beliefs (modern American that I am...) but it seems to me those who establish such funds know they won't succeed in the long term but hope that intelligent marketing in the media, the web and through a large network of brokerage advisors will generate large profits by taking a percentage of investors' principals. No?

A corollary to this question would be: Does the mainstream business/investment media (Marketwatch, Bloomberg et al) knowingly participate in scamming their viewers?

If "scam" is too strong a word for you but you generally believe in my line of reasoning feel free to pick another word for it.
Yes they are scams.
It comes down to semantics. Sure sure some of them might be over 100 years old, reputable, impressive, wear nice suits etc,
but to me it comes down to this: That statement promises more than they can deliver.

Do you consider an all you can eat buffet that cuts you off after a certain point a scam?
Do you consider unlimited internet that throttles your internet after 15GBs of bandwidth in a single month a scam?

I do. If they do that, they are liars. They are liars in the sense that you cannot rely on what is promised. No actively managed fund can reliably ensure they can beat the market.
Show me one active fund that promises more than they can deliver - we can split the whistleblower award.

Saying you have beaten a chosen benchmark is not a promise - that it isn't a promise is likely on every piece of marketing material you've ever seen from them.

They are no more scams than every consumer product ever sold.

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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by wolf359 » Mon Nov 13, 2017 8:26 pm

Peter Lynch of Fidelity Magellan successfully beat the market and retired on top. The only problem is that it was impossible to predict in advance that he was the fund manager that was going to do it. And most people who saw him do it joined him after he had had his biggest gains (that's what attracted their attention) and they didn't get the same returns.

The American Funds I believe successfully beat the market over the long term, as do some of the Vanguard actively managed funds. Part of the secret appears to be low cost.

Even if you find one, make sure you're using a tax sheltered account. Successful actively traded accounts can generate taxable capital gains that will kill your returns in a regular account.

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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by azanon » Mon Nov 13, 2017 8:28 pm

avalpert's exactly right. If we're just going by the subject of this thread, I think it really should be closed. I'm pretty sure it'd be some type of SEC violation for a fund to claim to be able to beat the market. I'm not aware of a single one that makes that claim, or anything close to it. I know the active fund I own certainly doesn't claim that.

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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by wolf359 » Mon Nov 13, 2017 8:37 pm

azanon wrote:
Mon Nov 13, 2017 8:28 pm
avalpert's exactly right. If we're just going by the subject of this thread, I think it really should be closed. I'm pretty sure it'd be some type of SEC violation for a fund to claim to be able to beat the market. I'm not aware of a single one that makes that claim, or anything close to it. I know the active fund I own certainly doesn't claim that.
Link to American Funds site: The subtitle of the article is "The Equity-Focused American Funds Have a Long History of Outpacing the Market " https://www.americanfunds.com/individua ... ntage.html

Edit: Not that I own any or recommend actively managed funds. It's a lot easier to just buy low cost index funds and guarantee that you'll get the market return. But it is POSSIBLE to beat the market. It's just very difficult. And you can't predict in advance who will do it, or how long their streak will last.

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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by azanon » Tue Nov 14, 2017 9:25 am

wolf359 wrote:
Mon Nov 13, 2017 8:37 pm
azanon wrote:
Mon Nov 13, 2017 8:28 pm
avalpert's exactly right. If we're just going by the subject of this thread, I think it really should be closed. I'm pretty sure it'd be some type of SEC violation for a fund to claim to be able to beat the market. I'm not aware of a single one that makes that claim, or anything close to it. I know the active fund I own certainly doesn't claim that.
Link to American Funds site: The subtitle of the article is "The Equity-Focused American Funds Have a Long History of Outpacing the Market " https://www.americanfunds.com/individua ... ntage.html

Edit: Not that I own any or recommend actively managed funds. It's a lot easier to just buy low cost index funds and guarantee that you'll get the market return. But it is POSSIBLE to beat the market. It's just very difficult. And you can't predict in advance who will do it, or how long their streak will last.
That is true - they do - and there's been a thread or two here where there was considerable discussion as to what's American Fund's secret. That being said, what does that have to do with my comment. Recognition of previous out-performance has nothing to do with a claim to outperform in the future. But if you're just looking in the past, it's either true you beat the market or you didn't. There's numbers to prove that.

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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by Doc » Tue Nov 14, 2017 2:06 pm

Alexa9 wrote:
Mon Nov 13, 2017 6:49 pm
Past returns ≠ future returns
Nobody knows nothing
So if "nobody knows nothing" how do you know that "past returns ≠ future returns" or do you not really know because it's nothing? :D
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by David Jay » Tue Nov 14, 2017 3:08 pm

Doc wrote:
Tue Nov 14, 2017 2:06 pm
Alexa9 wrote:
Mon Nov 13, 2017 6:49 pm
Past returns ≠ future returns
Nobody knows nothing
So if "nobody knows nothing" how do you know that "past returns ≠ future returns" or do you not really know because it's nothing? :D
Maybe they are a somebody...
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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by TomCat96 » Tue Nov 14, 2017 3:31 pm

azanon wrote:
Mon Nov 13, 2017 8:28 pm
avalpert's exactly right. If we're just going by the subject of this thread, I think it really should be closed. I'm pretty sure it'd be some type of SEC violation for a fund to claim to be able to beat the market. I'm not aware of a single one that makes that claim, or anything close to it. I know the active fund I own certainly doesn't claim that.

I don't think that was the right way to interpret the question.
In fact I would say his recharacterization completely nullifies the point of the thread.

If you recast the question as:

if an actively managed fund beat a benchmark in the past and advertised that fact, is such fund scamming people,

the answer is clearly no. First of all, it makes for dull discussion. Secondly, if you recast the question in a form such that all funds have to obey the law, the thread is pointless. "No don't worry, the SEC will simply do it's job and go after any fund that overpromises, therefore no funds are a scam--end of discussion, close thread, non-actionable."

The point, as I read it, is that there are many advertisements for funds that do promise to beat the market. Maybe they might renege in the fine print, but if an actively managed fund does claim to beat the market, it should be avoided. That's the strong central point for newcomers who don't know.

Example. Suppose I am a new investor. I want to invest in a fund, but this new fund claims to beat the market? Can they do it? Is it a scam?


The answer to this new investor is yes. Based on our collective experience and knowledge they are scams for at least these reasons.

1. The vast majority of funds lose to the market in the long run.

2. Even if the fund does outperform the market, the fees incurred from actively management will cause the new investors to underperform in their personal performance.

3. Beating the market is not a small task. For newcomers, they should understand that "beating the market" is not the same thing as "beating 1% growth" or "beating 4%" growth. Beating the market is something that may well be impossible in the long run on a theoretical level. That is to say if the market is efficient, you cannot actually beat the market relative to the risk you would have to assume to achieve the same performance. Newcomers should understand "beating the market" has a special status in investing. The difficulty of doing it is exactly what makes passive investing so alluring.

4. In light of fact three, newcomers should understand that any fund that promises #3 is promising something ridiculous. They should understand that what is being promised is more than some bland argument that "you can never predict the future" or that "your mileage may vary"

The salient point is understanding that beating the market is something very unusual, nigh-impossible, and is the basis for the popularity of passive index funds in the first place. We here have all grown so old and familiar in our knowledge we take it for granted that that piece of knowledge is not obvious to other people.

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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by avalpert » Tue Nov 14, 2017 3:47 pm

TomCat96 wrote:
Tue Nov 14, 2017 3:31 pm
azanon wrote:
Mon Nov 13, 2017 8:28 pm
avalpert's exactly right. If we're just going by the subject of this thread, I think it really should be closed. I'm pretty sure it'd be some type of SEC violation for a fund to claim to be able to beat the market. I'm not aware of a single one that makes that claim, or anything close to it. I know the active fund I own certainly doesn't claim that.

I don't think that was the right way to interpret the question.
In fact I would say his recharacterization completely nullifies the point of the thread.

If you recast the question as:

if an actively managed fund beat a benchmark in the past and advertised that fact, is such fund scamming people,

the answer is clearly no. First of all, it makes for dull discussion. Secondly, if you recast the question in a form such that all funds have to obey the law, the thread is pointless. "No don't worry, the SEC will simply do it's job and go after any fund that overpromises, therefore no funds are a scam--end of discussion, close thread, non-actionable."

The point, as I read it, is that there are many advertisements for funds that do promise to beat the market.
And I will again say show me one - i can introduce you to people in SEC and Justice we can go after them and get a reward.

Really, show me said advertisements that make that promise any more than beer ads promise pretty women will be attracted to me if i drink their product.

I don't think the way to answer a new investor is to suggest that they are being scammed - I would suggest that closes them off to rational investing choices as much as it helps them avoid the bad ones. Rather you start by explaining the mathematics behind beating the market, the challenge of picking apriori who might be able to do it and getting them to probe deeply whether they would think they are any better at picking who can pick outperforming stocks then picking outperforming stocks themselves.


3. Beating the market is not a small task. For newcomers, they should understand that "beating the market" is not the same thing as "beating 1% growth" or "beating 4%" growth. Beating the market is something that may well be impossible in the long run on a theoretical level. That is to say if the market is efficient, you cannot actually beat the market relative to the risk you would have to assume to achieve the same performance. Newcomers should understand "beating the market" has a special status in investing. The difficulty of doing it is exactly what makes passive investing so alluring.
This in particular is a bad argument to provide to newcomers. In fact it is not theoretically impossible to beat the market in the long run - it is almost guaranteed that someone will over any given time frame. By setting it up that way you are actually making those advertisements that show a fund happened to beat the market in the past (even over long periods) plausible.

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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by Alexa9 » Tue Nov 14, 2017 4:01 pm

Doc wrote:
Tue Nov 14, 2017 2:06 pm
Alexa9 wrote:
Mon Nov 13, 2017 6:49 pm
Past returns ≠ future returns
Nobody knows nothing
So if "nobody knows nothing" how do you know that "past returns ≠ future returns" or do you not really know because it's nothing? :D
Haha "nobody knows nothing" was Bogle's quote when asked to predict the future (unless your fund manager is insider trading). The best reason to index and not use active funds is this crystal ball concept that no one can really predict the future and the efficient market hypothesis that everything is priced accurately. If experts can't consistently beat the S&P on average, then what makes an Average Joe think he can? We know that past returns ≠ future returns just by looking at the top active funds from one year to the next. So we do know what has happened in the past and it's helpful in some ways and not helpful in other ways.

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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by hornet96 » Tue Nov 14, 2017 5:32 pm

I don't really have any answers to offer here, but a few observations.

In general I do think it's an interesting question which I will restate in a slightly different way:

If no active fund technically promises to beat the market, then is it a "scam" to advertise the fact that the fund beat the market over some arbitrary time period with the obvious intent of luring in gullible customers to invest in the active fund rather than sticking with a low cost passive fund?

That is how I interpret the question. In other words, if no one can make a promise to beat the market under US securities laws, then why is it ok to use cherry-picked past performance over arbitrary periods of time as a marketing ploy to win over customers? i.e.:

"Just look at that magnificent outperformance from 3/21/XX - 11/28/XX. Although past results are not necessarily indicative of future returns, why would you choose a lower performing investment over our own?"

By pointing to past outperformance as a marketing tool, they are playing on humans' natural tendencies to succumb to framing and availability biases, among others (representativeness, hindsight, and regret aversion biases).

Some other posters here seem to be implying that this is akin to what is otherwise misleading advertising/marketing related to other consumer products (cars, clothing, jewelry, etc.) - essentially playing on this human emotion/irrationality to make a sale for their product (e.g. cue the "December to remember" campaign, to begin shortly). Perhaps that argument has some merit as that is exactly what all marketing techniques employ, no matter the product.

To summarize the point of this response, many consumers would make a smarter choice in their consumption decisions (investing or otherwise) when presented with a clearer and more fair representation of the facts and circumstances. However, for products that are perceived as "complicated" (i.e. investments) by the average consumers, marketing teams can easily make it seem as if they are presenting clear and convincing evidence to make the consumer believe they are making a rational decision based on the information provided by the marketers. Rather than asking if this practice is a "scam," perhaps we should be asking: is this fair when it comes to "selling" a financial product?

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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by Earl Lemongrab » Tue Nov 14, 2017 5:55 pm

How can it be a scam to state a fact?
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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by hornet96 » Tue Nov 14, 2017 7:55 pm

Earl Lemongrab wrote:
Tue Nov 14, 2017 5:55 pm
How can it be a scam to state a fact?
Maybe “scam” isn’t the right word - but it’s certainly possible to present facts in a materially misleading way, which could improperly influence the investment decision making process. I believe that is the point of the OP’s question.

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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by Earl Lemongrab » Wed Nov 15, 2017 12:42 am

hornet96 wrote:
Tue Nov 14, 2017 7:55 pm
Earl Lemongrab wrote:
Tue Nov 14, 2017 5:55 pm
How can it be a scam to state a fact?
Maybe “scam” isn’t the right word - but it’s certainly possible to present facts in a materially misleading way, which could improperly influence the investment decision making process. I believe that is the point of the OP’s question.
It's not even close to the right word. I mean, people do that here all the time. How many have wax over Wellington and Primecap. Why? Great past performance.
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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by alpine_boglehead » Wed Nov 15, 2017 1:42 am

Earl Lemongrab wrote:
Wed Nov 15, 2017 12:42 am
hornet96 wrote:
Tue Nov 14, 2017 7:55 pm
Earl Lemongrab wrote:
Tue Nov 14, 2017 5:55 pm
How can it be a scam to state a fact?
Maybe “scam” isn’t the right word - but it’s certainly possible to present facts in a materially misleading way, which could improperly influence the investment decision making process. I believe that is the point of the OP’s question.
It's not even close to the right word. I mean, people do that here all the time. How many have wax over Wellington and Primecap. Why? Great past performance.
A little differentiation might help
- the ugly: Bernie Madoff's funds were outright fraud
- the very bad: Hedge funds are a rip-off (ultra-high fees, doubtful average performance), might come close to scam
- the bad: the average mutual fund, (1% to 2% fees), with very low probability to pay off in the long run
- the maybe-ok: Wellington/Wellesley, with very moderate fees, can be considered a conscious bet on active, with realistic chances of actually winning
- the good: VTSAX :)

Emotionally, I also would use the "scam" word for high-priced mutual funds. You are risking your capital, they are making money (and lots of that) no matter what. Heads you win, they win. Tails you lose, they still win. Isn't this a definition of scam? Certainly it's a moral hazard or lack of skin in the game, as Nassim Taleb calls it.

When you put "scam" into google, interestingly this sentences comes up as an example "a guy that scams old pensioners out of their savings". Seems like many investment vehicles are doing exactly that by slowly draining their assets.

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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by wolf359 » Fri Nov 17, 2017 11:44 am

What about index funds that promise to match the market but don't due to high expenses, poor execution, or commissions paid to salespeople?

Rydex S&P 500 Index (RYSOX, 1.57%), and Dreyfus S&P 500 Index (PEOPX, 0.5%), I'm looking at you.

When the financial industry sees a trend (people are buying more index funds), they will create products for them to buy. If someone is actively selling you that product, they'll steer you to the one that pays them.

At least the actively managed funds COULD beat the market. One third of actively traded funds generally beat the market index in any given year. (They COULD underperform as well.) These high-priced index funds will never beat the market.

So which one would be considered the scam?

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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by hornet96 » Fri Nov 17, 2017 5:08 pm

wolf359 wrote:
Fri Nov 17, 2017 11:44 am
What about index funds that promise to match the market but don't due to high expenses, poor execution, or commissions paid to salespeople?
In the case of Rydex at least, it claims the purpose of the fund is to match the performance of index before fees and expenses. I doubt they are pulling up Vanguard, or iShares, or whatever other S&P 500 index funds as a comparison in trying to make a sale for the fund, as any such illustration (post-expense) would obviously point out how bad their fund really is in comparison to the rest of the market for index funds.

That notwithstanding, wow - 1.57% for an index fund? I mean, just wow. :shock:
wolf359 wrote:
Fri Nov 17, 2017 11:44 am
So which one would be considered the scam?
Active fund marketers, on the other hand, will gladly pull out cherry-picked past performance data comparing to those low cost index funds as a tool in convincing their customers that investing in their more expensive active fund is worth it. It's the customer's lack of awareness of (or ability to discern) a misleading sales tactic for an investment product that governed by the protections of SEC regulations, that is the subject of this thread.

I am not suggesting that all active funds are "scams;" in contrary, I believe some active funds can play a proper role in certain portfolios as long as expenses are kept in check and proper disclosures are prominently made. I'm also not suggesting that all active funds employ deceptive marketing techniques to the most gullible among us. But I believe there is some merit to the idea posted by the OP that the marketing techniques employed by some active funds could potentially be viewed as intentionally deceptive (hence his use of the word "scam") when the sales person/media outlets/etc. are themselves already aware of concepts such as data mining issues, framing/representativeness biases, and the importance of costs on investment returns realized by the investor - and yet they continue to rake in the fees for their product and/or advertising fees for said product.

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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by wolf359 » Fri Nov 17, 2017 8:50 pm

hornet96 wrote:
Fri Nov 17, 2017 5:08 pm
wolf359 wrote:
Fri Nov 17, 2017 11:44 am
What about index funds that promise to match the market but don't due to high expenses, poor execution, or commissions paid to salespeople?
In the case of Rydex at least, it claims the purpose of the fund is to match the performance of index before fees and expenses. I doubt they are pulling up Vanguard, or iShares, or whatever other S&P 500 index funds as a comparison in trying to make a sale for the fund, as any such illustration (post-expense) would obviously point out how bad their fund really is in comparison to the rest of the market for index funds.

That notwithstanding, wow - 1.57% for an index fund? I mean, just wow. :shock:
The Rydex picture is worse than I described.

While Rydex claims to match the market prior to fees and expenses, they're usually provided by a salesperson who steers you to them because you heard that index funds are the better product. That "financial advisor" might not be telling you the fee difference between a Vanguard index fund and the Rydex fund. You wanted an index; they're giving you an index.

RYSOX is a Class A mutual fund, meaning it has a variable front end load that is dependent on how much money you have invested in it. At the worst case, the consumer is charged 4.75% load up front, before any funds are invested. The 1.57% expense ratio applies annually after that.

If the client complains after seeing terrible performance -- "Yes sir, that is why I was trying to steer you to an active fund manager. Let the experts manage your money."

Linked is the Fidelity sheet, if you buy it through them (usually in a 401-k or something provided by a financial advisor) https://fundresearch.fidelity.com/mutua ... /78356A657 The actual load can vary depending upon the advisor, because some fees may have been waived, paid up front, or be provided through revenue sharing agreements (kickbacks).

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Fudgie
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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by Fudgie » Fri Nov 17, 2017 9:27 pm

Another interesting actively managed fund is Fidelity's Low Priced Stock.

Beats VTSAX, VFIAX and VSMAX pretty handily from Jan. 2001 to present.

The drubbing is even worse if you go back to the early 90s to the present.

I don't own it, but it seems to be very prudently managed.
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Re: Are actively managed funds that claim to beat the market actually "scams"?

Post by Doc » Sat Nov 18, 2017 12:10 pm

Fudgie wrote:
Fri Nov 17, 2017 9:27 pm
Beats VTSAX, VFIAX and VSMAX pretty handily from Jan. 2001 to present.
Be careful of end points when you are using long term growth charts. You should also look at rolling return charts to eliminate end point anomalies.

Three year rolling return chart for Fidelity Low Price stock and Vanguard Total Stock Market:

Image

http://quotes.morningstar.com/chart/fun ... 22%3A36%7D

If you start looking after January 1 2007 the total return difference goes away. The difference in the longer term comparison is all in the "Tech Bubble".
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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