How important is “track record” for index funds?

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FestiveKnight
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How important is “track record” for index funds?

Post by FestiveKnight »

First post. I’m glad to have found this great community.

I’m 52, divorced, and working to fill my financial knowledge gaps.

My parents have A Guy who manages their retirement accounts for a 1% fee. He offered to review my accounts. I took him up on that, even though I’m not sure I need A Guy (and I told him so up front).

He said that some of the funds I’m in “don’t have much of a track record.” He offered no details. So I looked up the inception date and the current fund manager’s tenure for each fund. As far as I can tell, there are three funds on my current list that could be said to be lacking a track record, and two of them are index funds:

𝙵𝚄𝙽𝙳 . . . 𝙸𝙽𝙳𝙴𝚇? . 𝙸𝙽𝙲𝙴𝙿𝚃𝙸𝙾𝙽 . 𝙼𝙶𝚁(𝚂) 𝚂𝙸𝙽𝙲𝙴
𝙿𝙰𝚁𝚆𝚇 . . . . 𝙽 . . . . 𝟺/𝟸𝟿/𝟶𝟻 . . . 𝟻/𝟷/𝟷𝟾
𝙵𝚉𝚁𝙾𝚇 . . . . 𝚈 . . . . 𝟾/𝟸/𝟷𝟾 . . . . 𝟾/𝟸/𝟷𝟾
𝙵𝙿𝚄𝚁𝚇 . . . . 𝙽 . . . . 𝟺/𝟷𝟼/𝟷𝟿𝟺𝟽 . . 𝟽/𝟷/𝟸𝟶𝟷𝟾
𝙵𝚉𝙸𝙻𝚇 . . . . 𝚈 . . . . 𝟾/𝟸/𝟷𝟾 . . . . 𝟾/𝟸/𝟷𝟾
𝙼𝙸𝙾𝙿𝚇 . . . . 𝙽 . . . . 𝟹/𝟹𝟷/𝟸𝟶𝟷𝟶 . . 𝟻/𝟹𝟷/𝟸𝟶𝟷𝟶
𝙵𝚇𝙽𝙰𝚇 . . . . 𝚈 . . . . 𝟹/𝟾/𝟿𝟶 . . . . 𝟻/𝟿/𝟷𝟺, 𝟷𝟶/𝟹𝟶/𝟸𝟶
𝙵𝚆𝙾𝙼𝚇 . . . . 𝙽 . . . . 𝟻/𝟷/𝟷𝟿 . . . . 𝟻/𝟷/𝟷𝟿
𝙵𝙸𝚂𝙼𝚇 . . . . 𝙽 . . . . 𝟿/𝟷𝟾/𝟶𝟸 . . . . 𝟹/𝟷/𝟷𝟺

MY QUESTIONS:
• How important is “track record” with an index fund? Should I be concerned about the youth of FZROX and FZILX?
• What other stats, if any, should I consider when evaluating the sufficiency of a fund’s track record (not performance, but whether enough history exists to evaluate performance)?

(The above selection of mutual funds is far from settled; I’ll ask for a portfolio review later, using the correct BH format.)
Last edited by FestiveKnight on Mon Sep 13, 2021 8:19 pm, edited 1 time in total.
52yo divorced freelancer, working to fill my knowledge gaps.
000
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Re: How important is “track record” for index funds?

Post by 000 »

FestiveKnight wrote: Mon Sep 13, 2021 8:03 pm • How important is “track record” with an index fund?
It's not assuming a normal kind of fund.
Should I be concerned about the youth of FZROX and FZILX?
I wouldn't. Of course I wouldn't hold the Fidelity Zero funds in taxable as they are non-transferable.
• What other stats, if any, should I consider when evaluating the sufficiency of a fund’s track record (not performance, but whether enough history exists to evaluate performance)?
For index funds the only real questions are will it have enough AUM (assets under management) to survive or be closed and what is its tracking error. For vanilla funds this is really not an issue but for sector funds and such it could be. But even if an index fund closes, this is generally only a nuisance in taxable accounts, not in retirement accounts.

As far as active funds, that's another story.
Alex Frakt
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Re: How important is “track record” for index funds?

Post by Alex Frakt »

For index funds, manager track record doesn't matter at all. You would look at the fund family instead to see if its index funds have low tracking errors and good performance relative to those indexes. The performance relative to the index is important because it reveals the real costs of investing through that fund family, which isn't always captured fully in the expense ratio.

You also want to take a look at the index itself and generally avoid anything niche and proprietary, difficult to understand, or that covers a small enough slice of the market that tracking error and liquidity could be a problem.

For active funds, manager tenure can tell you if the fund is likely to continue investing in the same style as it has previously. But only if you can assume that nothing else changes. However, since most people looking at active managers are chasing performance, it is likely that the funds' assets under management have ballooned since much of that performance was created. If that's the case with your active choices, then you should understand that the funds investing style will have to change and any relative outperformance is likely to go away.
EHEngineer
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Re: How important is “track record” for index funds?

Post by EHEngineer »

FestiveKnight wrote: Mon Sep 13, 2021 8:03 pm First post. I’m glad to have found this great community.

I’m 52, divorced, and working to fill my financial knowledge gaps.

My parents have A Guy who manages their retirement accounts for a 1% fee. He offered to review my accounts. I took him up on that, even though I’m not sure I need A Guy (and I told him so up front).

He said that some of the funds I’m in “don’t have much of a track record.” He offered no details. So I ...
Welcome to Bogleheads. I defer to Alex Frakt for the answers to your questions. But, I will add a behavioral comment about the "review."

Based on your post, this manager has sown doubt and confusion. If you are looking for "A Guy," keep looking until you find one who doesn't leave you with doubt and confusion.

I wish you good luck on your financial journey.

Here's the "getting started" page in the boglehead wiki: https://www.bogleheads.org/wiki/Getting_started
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius
Ferdinand2014
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Re: How important is “track record” for index funds?

Post by Ferdinand2014 »

Not important at all.

No.

Expense ratio and how closely does it tracks its stated index.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
Topic Author
FestiveKnight
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Joined: Sat May 29, 2021 12:29 pm
Location: Maine, USA

Re: How important is “track record” for index funds?

Post by FestiveKnight »

Thank you, everybody! You’ve given me several pointers and concepts to learn more about.
EHEngineer wrote: Mon Sep 13, 2021 9:14 pm Based on your post, this manager has sown doubt and confusion.
Yes. It wasn’t a good fit. I’ll leave it at that.
52yo divorced freelancer, working to fill my knowledge gaps.
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