Quote:
Originally Posted by mlifxs
sure. it's kind of like 'when you see how sausage is made, you lose some of your taste for it'
there are many (but not all) managers out there that routinely take more risk than their benchmarks and market it as "skill", or "alpha". then, they want to be paid a higher fee for "alpha" when in fact all they're doing is exposing their clients to "beta". the financial crisis exposed some of these managers.
you can think of fees as a very stable form of "negative alpha" and if you're an investor, it comes out of your pocket.
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In that case I completely agree. I thought you were insinuating you believed in a “buy and hold” strategy with your personal portfolio rather than actively managing your investments based on market conditions.
I too am a big believer in ETFs over mutual funds. If nothing else because you’ll save yourself as much as 1.5% a year just in fund expenses. The other added part is that many fund managers are simply trying to match their benchmarks. Most people don’t realize that over half of mutual funds (the exact number escapes me) can’t even beat their benchmarks after accounting for fees/expenses.
I read an abstract called “Active Share and Mutual Fund Performance” by Antti Petajisto. It was a phenomenal research paper on the fact that few fund managers outperform their benchmarks.
A few key highlights from the abstract (most of this information covers the time period from 01/08-12/09:
1.) The average actively managed fund loses to its benchmark by .41%
2.) The only group adding value to investors have been the most active stock pickers. They have beaten their benchmarks by 1.26% after fees/expenses (+2.61% before)
3.) Closet indexers usually just match the benchmark returns before fees. Essentially, in those cases, you’re getting the return of the benchmark, but paying the fees of a mutual fund.
Mutual funds CAN be wise, but pick an active actively managed fund (yes you read that right) if you want the best chance of the extra money you’re spending to actually going somewhere.