JMF Capstone Wealth ManagementMutual Funds – JMF Capstone Wealth Management

Success or Failure: The Evidence From Style-Rotating Funds

bobby — Mon, 11 Apr 2016 09:00:37 +0000

Actively managed funds tout their ability to successfully rotate across styles (such as large-caps versus small-caps and value versus growth) or sectors (industries) and thus outperform passive strategies (such as index funds). It is certainly true that investment styles do move in and out of favor, presenting actively managed funds with an opportunity for asset managers to outperform passive strategies through the use of portfolio rotation strategies. In addition, the emergence of style- and sector-based ETFs has facilitated the ease and affordability of rapid portfolio rotation across styles and/or sectors, and thus improved the implementation capabilities of style-timing strategies.

The question is: are actively managed funds persistently able to add value? Adam Corbett—author of the February 2016 study, Are Style Rotating Funds Successful at Style Timing? Evidence from the U.S. Equity Mutual Fund Market to the body of literature on what is typically referred to as tactical asset allocation (TAA).

Read the rest of the article on MutualFunds.com.

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Style Drifting: Does It Add Value for Actively Managed Small-Cap Funds?

bobby — Mon, 11 Apr 2016 09:00:19 +0000

Investors choose mutual funds based on their investment objectives. In pursuit of said objectives, they can choose from among the broader asset classes (such as stocks and bonds) with additional, more specialized options available within each class. These decisions are important because they determine the amount of exposure an investor has to specific types of risk (for example, the risks of small versus large stocks and value versus growth stocks).

An issue for investors selecting actively managed mutual funds is that, while such funds specify their investment objectives in their prospectuses, there is no guarantee they follow their self-stated investment strategies. In fact, many active managers believe that their ability to drift across styles provides them with an advantage. However, if managers deviate from their stated style, they expose investors to unanticipated risks.

Read the rest of the article on MutualFunds.com.

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As Investors Flee Active Funds, Will it Become Easier for Active Managers to Outperform?

bobby — Mon, 14 Mar 2016 09:00:14 +0000

One of the more frequently asked questions I receive as the director of research for The BAM ALLIANCE is whether, as investors abandon active mutual funds, it will become easier for active managers to outperform.

The trend toward passive investing has been inexorable, although slow, for the past 20 years, with roughly 1% of active investors abandoning the game of active management annually. Perhaps we have reached what might be called the tipping point, with the trend now accelerating. Consider that in the first 10 months of 2015, the four fund families with the largest growth in assets under management are all either best known for their passive investments or exclusively offer passive funds.

Read the rest of the article on MutualFunds.com.

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News Floating-Rate Note Funds: Too Good to Be True?

bobby — Mon, 29 Feb 2016 09:00:13 +0000

Every time interest rates are low, investors begin to make mistakes. They tend to engage in activities that they otherwise wouldn’t undertake—such as stretching for yield by taking on credit risk—if rates were at more “normal” levels like 4% or 5%.

With Treasury yields having been at extremely low levels for seven years now, and with money market accounts paying virtually nothing, many investors haven’t been able to resist the siren call of higher yields, especially if they can get them without taking term risk (the risk of rising interest rates). Unfortunately, investors frequently seem to forget that yield and return aren’t synonymous.

Read the rest of the article on MutualFunds.com.

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Is It Time to Raise Cash?

bobby — Mon, 08 Feb 2016 09:00:26 +0000

A recent article in The Wall Street Journal contained a headline that very likely frightened many investors — and in my opinion, that’s precisely what it was meant to do. Otherwise, why inform investors that “U.S. public pension plans and mutual funds are sheltering more of their holdings in cash than they have in years, a sign of growing stress in financial markets.”

According to the article, as of September 30, 2015, pension funds held the highest cash levels as a percentage of assets since 2004. And for mutual funds, the percentage of assets held in cash was the highest for the end of any quarter since at least 2007.

Read the rest of the article on MutualFunds.com.

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A Laundry List of Excuses for Active Managers

bobby — Mon, 08 Feb 2016 09:00:12 +0000

As sure as the sun rises in the east, at the start of each year, you’ll hear from “gurus” appearing in the financial media that this year will be a stock picker’s year. And as sure as the sun sets in the west, when the year ends, you will hear various excuses for why it was a difficult one for active managers, and why next year will surely be different.

Phishing for Phools

After the financial crisis, a popular excuse from stock pickers was that correlations had risen. Then correlations fell sharply, so another excuse had to be invented. In 2014, it was that the dispersion of returns was narrow.

Read the rest of the article on MutualFunds.com.

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Does Firing Money Managers Lead to Improved Performance?

bobby — Mon, 25 Jan 2016 09:00:57 +0000

Leonard Kostovetsky and Jerold Warner, the authors of the study You’re Fired! New Evidence on Portfolio Manager Turnover and Performance, which was published in the August 2015 issue of the Journal of Financial and Quantitative Analysis, contribute to the literature on the performance of money managers by examining managerial turnover at both internally managed mutual funds as well as mutual funds managed externally by subadvisors.

The authors’ working hypothesis was that the “turnover of subadvisors provides sharper tests of any underlying board and sponsor monitoring because these data are heavily weighted toward involuntary turnover. Departures by in-house managers are more likely to be voluntary because good performance gives in-house managers better opportunities, such as joining hedge funds.” About 15% of mutual funds employ subadvisors.

Read the rest of the article on MutualFunds.com.

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Outsourcing Management: Does It Improve the Performance of Mutual Funds?

bobby — Mon, 25 Jan 2016 09:00:54 +0000

From 1980 to 2014, the percentage of American households that owned mutual funds rose from 5.7 percent to 43.4 percent. At the beginning of 1980, mutual funds held only around 4 percent of all U.S. equity. However, that figure is now around 30 percent. That increased share is basically explained by the fact that direct individual ownership of stocks dropped over this period from roughly 50 percent to about 20 percent. And while index and other passively managed funds are gaining ground, actively managed funds control the lion’s share of the mutual fund market.

What many investors don’t know is that a significant number of mutual fund companies outsource the management of their funds to subadvisory firms. In a typical outsourcing arrangement, the fund family retains marketing and distribution fees while the external advisor obtains the management fees. The question for investors is: does outsourcing improve performance?

Read the rest of the article on MutualFunds.com.

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