There's not a lot invested in these three funds which are all pretty decent. FFFEX is a 2030 target fund and so contains a mix of stocks, bonds etc. in a diversified portfolio. The expense ratio is reported as zero - that is the extra expenses on top of the sub-funds that compose the portfolio. So we don't know the actual expense ratio without some research. The fund ranks highly against its peers. It takes more market risk (beta greater than one) than the benchmark portfolio that Yahoo is assessing it against. Results seem OK.
ICENX is an energy fund, with stunning results relative to the S&P 500. But look at how it ranks against its peers - not as hot. Natural resource funds have had tremendous returns. I think that will continue for a while though maybe not to the same degree. You don't have so much in this fund. If you had a lot I might be suggesting to rebalance. Maybe you already sold some?
I probably should have included the Royce fund - RYTRX - with the U.S. small cap funds. I was misled a little by Yahoo's description of it. It's held up nicely in the last year in comparison to some of those, but FSLCX has very similar performance. Both are good funds. While it makes no sense to have multiple index funds except due to having different accounts - retirement and non-retirement, I think it makes sense to have multiple actively managed funds within a given category - and the more actively managed they are the more diversified you want to be - this is why there are hedge funds of funds - to diversify away active management risk. So I'd be holding on to both of these.
Tomorrow, I'll have some further ideas about the kind of funds that I like and summarize some of my suggestions.
One conclusion is that it is pretty much impossible that you are below cost basis on your accounts though a few funds have performed poorly in recent years.
4 comments:
I think it makes sense to have multiple actively managed funds within a given category - and the more actively managed they are the more diversified you want to be - this is why there are hedge funds of funds - to diversify away active management risk.
I don't believe this makes sense. If you're going to diversify away active management risk, then an index fund makes all sorts of sense and a fund of funds doesn't appear to. We know that the average active manager does worse than an index fund, so why would we want to achieve that?
If you pick a few managers that appear to be above average and they really are then their average alpha will be positive. Picking a few gives you more certainty of actually achieving positive alpha. In other words, diversify away the noise and reduce the risk that you pick one manager who happens to blow up. Now if you just pick managers at random, then you should go with an index fund obviously.
If management skill exists, doesn't it seem likely that the good managers will make many of the same picks? I suppose it might rescue you if your skillful manager makes one really disastrous pick which blows up on him. (This clearly isn't impossible. Long Term Capital Management's positions were eventual winners had they been able to stay solvent long enough to cash in the positions.)
The disadvantage to this strategy is you now have to figure out how to pick multiple managers who are more skillful than the market. I have enough difficulty picking one. I suppose you could diversify active management strategy and pick managers with very different strategies.
A less dramatic example is Bill Miller at Legg Mason who did well for a long time until the last two years. I've also commented on this series on Ron Muhlenkamp who seems to be coming back to form. Investment skill is both security selection and timing and there are so many things one could invest in so there may be some overlap but I don't think duplication even among long-only equity managers. I do recommend though diversifying across strategies - that's what most hedge fund of funds do. Not just a bunch of value-oriented long-only equity managers, for example. See my latest post for some funds I like.
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