There are a lot of advantages to an Index Fund strategy in terms of
simplicity and good returns.

For my actively managed portfolio, I subscribe to the highest rated
mutual fund newsletter. I follow two models in the newsletter.

Frank


pmb[at]his.com (Paul Michael Brown) wrote in message news:<pmb-3009040954290001[at]max1ka-60.his.com> ...

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Barron's ran an article about this in the past three months or so. (Sorry
I can't be more specific.)

They identified roughly a dozen actively managed equity funds that had
outperformed the S&P 500 over the long term. (Which I seem to recall they
defined as at least five years and preferably ten.) Of course, just
because an actively managed fund has a good track record in the past
doesn't mean it will do well going forward. Funds get too big. Managers
move on. Another thing I found interesting is that if the increased fees
for actively managed funds were subtracted, the number of funds that
outperformed the S&P 500 was reduced to a couple.

Last time I checked, there are 5,000+ funds out there that invest in
equities. I just don't trust myself to identify which two are going to
beat the index over the long term net of expenses. (Likewise, I don't
think I can identify idividual stocks that are going to outperform.) So
like many investors, I worship at the altar of John Bogle and my liquid
assets are 100 percent in index funds.

Sandra Loosemore <sandra[at]frogsonice.com> writes:

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Bingo. And good luck finding them going forward.

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Active managers did not cover themselves with glory relative
to their benchmark indexes the past few years.

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That's completely irrelevant to the indexing vs. active management
argument. Indexing != SP500.

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I don't blame you...but none of that requires active management.
Again, indexing != SP500. I have the same feelings as you re:
asset classes, so I use value and small-cap index funds.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

Sandra Loosemore wrote:

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Of course, that really does beg the question because the theory of
active management is that I hand off certain decisions to someone
who is better able to make them than I would be. Unfortunately, we
seem to end up in a bit of infinite regression here--how am I to
become qualified to select the "good" active manager?

That said, my own position is that the allocation of investments
among classes is likely a far more important issue than the
difference in returns between index funds and a decent actively
managed fund. I happen to think the most valuable advice an
investor can pay for will be in regard to the allocation issues and
not necessarily the issue of picking a specific fund.

--
Ed Zollars, CPA
Phoenix, Arizona

cfipp[at]yahoo.com (Carol) writes:

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The key phrase in that quote is "actively managed funds *taken as a
whole*". That includes the bad ones as well as the good ones. My
point was that there are *individual* actively managed funds that
outperform the market. The problem for the investor is finding them. :-)

Moreover, the 1990s were a great time for the S&P 500, but would the
statistics be the same for a different 10-year period, say 1994-2004,
that include periods when the S&P 500 declined precipitously? Nope.
And is the S&P 500 even really representative of the market as a
whole? Nope.

FWIW, I don't really see anything wrong with investing in index funds,
it's just not the right investment style for me personally. When I
started having money to invest, I was working for Intel, had a lot of
(potential) money tied up in stock options, etc, and didn't want to
bet any more of my future on companies like Intel, Microsoft, IBM,
Cisco, etc which are among the largest holdings of a S&P 500 or total
market index fund. I felt more comfortable hedging my bets by taking
a value tilt to my portfolio and going more for small caps on the
growth end. I'm out of the high-tech industry for now, but I still
don't see any compelling reason to jigger my portfolio back towards
tech behemoths. (In particular, what I saw at Intel convinced me that
it has to be one of the most inefficient and poorly-managed companies
in the world.....)

-Sandra the cynic

Carol wrote:

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My guess is that you are going to get into a definitional argument
here, with people talking by each other.

The key facts out there are this:

1. When considered as a whole and based on raw performance only,
actively managed funds underperform the market averages. That's
probably not surprising given the amount of money involved in such
investments, since clearly their performance impacts the "average"
returns and, by definition, that performance is measured before fees.

2. In the universe of actively managed funds, there will be funds
that outperform the averages over any time period you want to
select. The longer the time period, the smaller that number. That
part would be predicted by a "pure chance" explanation (again, given
pure random chance and the nature of averages, some would end up
"above average" so long as the management isn't an incredible
negative <grin> ). But, just as well, while you might argue
statistics predict it would not be surprising to find some very long
term random "overpeformers", that cannot tell you that a specific
performance was random.

So now back to definitions. I suspect you'll find that Sandra is
going to emphasize "good" in her definition (a good actively managed
equity fund), while you are going to emphasize "average" in your
view. And, by doing so, you'll be talking past each other <grin> .

--
Ed Zollars, CPA
Phoenix, Arizona

Sandra Loosemore <sandra[at]frogsonice.com> wrote in message news:<m3brfuxwdx.fsf[at]dartfrog.localdomain> ...

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That's interesting and contrary to what I thought. My impression was
that over the long term, index funds outperformed almost all managed
funds. Please see the following quote from www.fool.com. Do you
disagree? Please educate me.

http://www.fool.com/mutualfunds/inde...dexfunds01.htm

"In the intervening years Bogle has proven to be even more correct
about indexing than he had predicted he might be. Since then, the gap
between the performance of the market and the performance of actively
managed mutual funds taken as a whole has actually been significantly
wider than the 1.5% theorized by Bogle in 1976. During the 1990s, the
total shortfall between actively managed mutual funds and the market
as measured by the S&P 500 has so far been a whopping 3.4% per year."

Thanks,
Carol

Hi

I am involved in a fund that has consistantly returned 300% net, so who
cares what the fees are?

--

Victor
"BMS" <mcfarland[at]yahoo.com> wrote in message
news:_9e5d.258367$Fg5.194693[at]attbi_s53...
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"BMS" <mcfarland[at]yahoo.com> writes:

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If you are looking at index funds, or actively managed funds that
mimic index funds (think Fidelity Magellan), then expenses are about
the only things that differentiate them. Likewise for things like
intermediate-term bond funds that tend to have very similar performance
otherwise.

I think it's generally accepted that you can do better with a good
actively-managed equity fund than an index fund, in spite of the
generally higher expenses. The problem is finding that good
actively-managed fund, because there are just as many bad ones out
there. :-)

-Sandra the cynic

The Boston Globe did a story this week on mutual funds and how the scandals
have hurt and helped mutual fund families, the local interests in Putnam and
MFS. American Funds were mentioned as big winner both in avoiding the
scandals and returns to investors. In fact the story pointed out that
American Funds, with higher expenses, consistently did better than funds
like, Vanguard, that extolled their lower expenses.

Another item came out about how Vanguard's non index funds weren't that good
of funds.

The question is how important of measure is it for funds, low expenses or
high, net after expenses return?