Unusually Bad Bets
In 2014, some recurring bad market bets were made by various active managers. Holding too much cash was one.
Yacktman's Subotky said high stock prices made him skeptical of buying new shares, leaving him with 17 percent of the fund's holdings in cash while share prices have continued to rise. He cautioned investors to have patience.
"Our goal is never to capture every last drop of a roaring bull market," Subotky said
Oakmark's Nygren cited his light weighting of hot Apple shares and heavy holdings of underperforming financials, but said his record should be judged over time. "Very short-term performance comparisons, good or bad, may bear little resemblance to long term results," he said.
Shares of Apple, the world's most valuable publicly traded company, are up 48 percent year to date. As of Sept 30, Apple stock made up 1.75 percent of Oakmark's assets, compared with 3.69 percent of the SPDR S&P 500 ETF.
Investors added $3.9 billion to Nygren's fund through Nov. 19, Lipper said.
Still, some managers risk losing their faithful.
"We have been very much believers in active management, but a number of our active managers have let us down this year and we are rethinking our strategy," said Martin Hopkins, president of an investment management firm in Annapolis, Maryland, that has $4 million in the Yacktman Fund.
Derek Holman of EP Wealth Advisors, in Torrance, California, which manages about $1.8 billion, said his firm recently moved $130 million from a pair of active large cap funds into ETFs, saying it would save clients about $650,000 in fees per year.
Holman said his firm still uses active funds for areas like small-cap investing, but it is getting harder for fund managers to gain special insights about large companies.
For those managers, he said, "it's getting harder to stand out."
Worst Returns In Decades Hounding Active Stock Fund Managers
December 3, 2014
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Comments
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I will neither defend index investing or using an active mutual fund manager. Both can be part of a client's portfolio. 2014 was a very good year for indexes like the S&P 500 and the QQQ. Active managers who invested too much in energy or commodities failed to match the indexes. That could be different in 2015. There is a conflict of interest problem, however, if you get a commission for putting clients in mutual funds when an index fund would be better or at least a part of your core or supporting portfolio.
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If indexing is so much better than active management then why does Vanguard end up in the 30's out of the 62 fund families that qualify in the Baron's fund performance. That assessment considers all operating expenses and sales charges so NO LOAD funds with low operating expenses would have that additional advantage. In fact, the number one fund company for 2012 was Putnam and Putnam was number 2 for 2013 and for the last 5 years. Some NO LOAD funds end up high in the ratings but the index funds tend to be in the middle. In the case of ETF's since most are synthetic so do not actually own the stocks in the index they would not receive dividends and historically 40% of the return of the S&P index is a result of dividends. Benchmarks don't actually own any stocks so when individual stocks go up or down in price they simply reallocate. Index funds own the stocks so as indexes rebalance if they do not have sufficient cash flow they actually have to sell stocks that went down in price to buy more stocks that went up in price. That is called sell low and buy high.
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Don't you know yet that only in Lake Wobegon can all mutual funds be above average? Running down mutual fund managers in this manner is an old ploy that the financial press and other busy bodies pull out every few years to promote their own agenda.
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There are two reasons that the majority of active managers have underperformed: 1. The comparisons to indexes are apples to oranges, as you describe in your article. I call this situation “peer group classification bias.†2. There are indeed way too many turkeys in the flock of active investment managers. This flock needs to be thinned out. Both of these problems can & should be fixed, as described in my article published in the November 10 issue of Pensions & Investments.
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There they go cherry picking the data again to reinforce the propaganda campaign to malign active fund management. The facts are that the S&P 500 always outperforms when markets are moving up rapidly (2010-2014). During the downturns, the S&P 500 underperforms. All for very logical reasons. Lumping all actively managed funds together to get a statistic is also highly misleading. There have always been plenty of lousy actively managed funds which can be used to pull down the statistical averages. The claim that it is a crap shoot to find a quality, enduring actively managed fund is patently false. It is, and always has been pretty easy to identify quality active management.