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Article Archive: Funds

Covered calls: a devil's bargain
09/22/25   Funds
"The idea that covered calls generate income is financial bs. These strategies are mechanically expected to underperform their underlying equity, and increasingly so at higher targeted levels of distributions. For long-term investors, covered calls increase risk by leaving the downside unprotected while the capping upside, eliminating the mean-reverting behavior of stocks - an important feature of stock returns." [video]

There Ain't No Such Thing as a Free Lunch
08/18/25   Funds
"Buffer funds by and large have sold investors the promise of comfort, cloaked in complexity, at the cost of risk-adjusted returns. Our paper shows there are simpler, less expensive, and more effective ways to deal with the risk of equity markets. Once again, Robert Heinlein and his TANSTAAFL, provides investors more value than a (growing) slice of our industry."

The illiquidity premium
08/18/25   Funds
"Advocates of large allocations to private equity often discuss the concept of an illiquidity premium. Investors willing to lock up their capital for long periods of time, the logic goes, should earn a premium return for their patience. But that illiquidity comes at a cost. An investor wishing to exit their illiquid private investments has to sell at an illiquidity discount in the secondary market."

Covered call strategies don't shine
07/05/25   Funds
"Invesco's covered call ETF (PBP) has underperformed State Street's SPY (a simple S&P 500 Index ETF) by a mile over more than seventeen years - by nearly six percentage points per year. During the period closest to the flat market identified in the first set of tables above, Invesco's covered call ETF slightly lagged SPY's pure stock exposure."

The institutional cost mirage
06/16/25   Funds
"Ennis develops a model correlating alts allocation with total expense ratios for public pension funds, demonstrating that portfolios heavily tilted toward alternatives can easily incur annual costs exceeding 3.6%. Compare this to the near-zero fees of public market index strategies, and the scale of value destruction becomes self-evident."

Rebuffed: options-based strategies
03/24/25   Funds
"By and large, options-based strategies have not been effective tools to achieve better risk/return outcomes. And this is unlikely some fluke of the past five years. Economic theory would argue investors should have expected this result, and that they should going forward, too."

Persistent alpha
12/16/24   Funds
"It's possible that their edge lies in dynamic capital allocation to short-term alpha generators, rigorous risk management using advanced risk models, and the strategic use of leverage to amplify returns. If those are indeed the core building blocks in the model, there's no reason it couldn't be reengineered using the thousands of public managers plying their trade in liquid funds."

Frequent fees matter more
11/24/24   Funds
"What happens here is essentially the eighth wonder of the world in reverse. If fees are charged more often, capital cannot compound at the same rate because any recovery in funds is interrupted by the fees being charged. Over time this is the same as consuming dividend income in a stock instead of reinvesting the dividend into the stock. And this small difference grows larger and larger the longer that happens."

Asset managers' profits get thinner
07/21/24   Funds
"In addition to feeble inflows and weaker company brands, the cost of doing business as an asset manager continues to meaningfully rise. Operating expenses grew at a rate between 2020 to 2023 that has cut into profits. The growth rate for data and technology was 13 percent over those three years; operations was 9 percent; business and support functions was 6 percent; investment management was 5 percent; and sales and marketing was 4 percent."

Ray Dalio's famous trade is sputtering
04/28/24   Funds
"The only time risk parity was really successful was at the time of the Great Financial Crisis and that was really its heyday."

Performance of the hedge funds
04/21/24   Funds
"confirmed prior research findings that hedge funds with results available on data vendors have been, in aggregate, poor investments, producing negative alphas and thus subtracting hundreds of billions of value from investor portfolios."

Diseconomies of scale
12/08/23   Funds
"We find that quant strategies are less plagued by diseconomies of scale compared to fundamental strategies."

Performance chasing
11/05/23   Funds
"First, investors are chasing past returns. But on average, funds that have great returns in the last five years tend to have poor returns in the next five years. That means that investors who chase past returns and put their money into the best performing funds of the last five years tend to underperform. How long do investors underperform? The red line in the chart indicates that fund managers have about five years before their investors turn their backs on them. After five years of underperformance, there is no stopping disappointed investors from leaving the fund. My personal experience with investors is that five years is a long time. Most investors will get nervous after six to twelve months of underperformance and leave you after two to three years of underperformance."

Solo vs. teams
04/30/23   Funds
"In other words, while the average single-manager hedge fund has better performance, individual funds can be at the very top or at the very bottom, depending on the decisions of the fund manager. Team-managed funds are in the murky middle, neither particularly good nor particularly bad."

Crispy bacon
01/15/23   Funds
"Being wedded to a benchmark by relative return fears, career risk, and investment mandates, in our opinion, practically guarantees a highly correlated and ordinary outcome. If the objective is to achieve higher returns with less risk, we do not believe looking like everyone else, or serving soggy bacon, is the answer. Bacon, in our opinion, should be served crispy."

Volatility laundering
01/08/23   Funds
"Given the massive popularity of private investing today, it may very well be true that, as a great man once almost said, 'Never have so many paid so much to so few for the privilege of being told so little.'"

Performance benchmarks
12/04/22   Funds
"Just like mutual funds, public pension plans and endowments are allowed to use benchmarks of their own choosing, typically referred to as custom or strategic benchmarks."

The survival game
10/16/22   Funds
"There is a major incentive problem at the heart of the asset management industry, where the interests of clients and the professional investors who run money for them are often poorly aligned."

Active fund selection is difficult
09/11/22   Funds
"For active investors, reducing fees paid is the easiest lever to pull to improve the odds of success."

Does turnover still matter?
06/12/22   Funds
"For professional fund managers, transaction costs have come down significantly as well and risk management tools have become more sophisticated and which may have reduced the relationship between portfolio turnover and fund returns."

Concealing volatility
06/05/22   Funds
"Don't listen to investment sales pitches which tell you to avoid the volatility of the public equity and debt markets, when they are taking the exact same risks in the private market, and they cannot or will not measure the risks for you, no matter how thick or thin the 'disclosure' document is."

The high cost of gender bias
03/08/22   Funds
"A new, global survey from BNY Mellon looked at the barriers faced by women investors. It concluded the industry is losing out on US$3 trillion in assets under management (AUM) by not making investing more accessible. More than 9-out-of-10 asset managers admitted they target their products to men and saw them as their target market."

The evidence mounts against active share
03/06/22   Funds
"Since the initial publication of research documenting active share, its advocates have clung to the belief that the metric could identify funds that would outperform. But the academic evidence has all but disproven that thesis."

Model portfolios
01/09/22   Funds
"On average, affiliated ETFs charged 6 bps higher expense ratios and generated 67 bps lower net year-to-date returns than unaffiliated funds (significant at the 1 percent confidence level). Their past performance, measured by the performance-rank percentiles over the previous one and three years, was also five and six ranks lower, respectively."

Picking funds and indices
01/09/22   Funds
"Unfortunately, the natural desire to allocate more money to better-performing asset classes turns out to be exactly the wrong instinct. While asset classes exhibit short-term (one-year) momentum, they tend to mean revert over the long term, as shown in the chart below."

Fees are your foe
11/21/21   Funds
"Investors shouldn't let their judgment be swayed by the Veblen effect, and instead should take another look at the question of fees, especially when they're couched as 'only 1%.' They may be surprised at how high active management fees really are - when framed in other ways"

Negative value-add
09/12/21   Funds
"Low-fee funds tend to have positive net value-added while high-fee funds have negative net value-added, suggesting, again, a systematic relation between net value added and percentage fees. However, in aggregate, the total net value added for the 'All funds (Index + Mutual)' sample amounts to a negative $125 billion USD. This number can be interpreted as a measure of the total economic value added or lost by the mutual fund industry for its investors."

Avoid 'breaking the buck'
09/05/21   Funds
"Why penalize those who exit in a crisis? They are causing the crisis. Liquidity is not a free good, and certainly not in a crisis. This will make them think twice about liquidating, because they will absorb a disproportionate amount of the loss."

Deferred sales charges banned
05/09/21   Funds
"The Ontario government is allowing the province's securities regulator to join the rest of Canada in banning early withdrawal fees charged by mutual funds."

Hedge fund performance fees
06/26/20   Funds
"Overall, investors collected 36 cents for every dollar earned on their invested capital (over a risk-free hurdle rate and before adjusting for any risk). In the cross-section of funds, there is a substantial disconnect between lifetime performance and incentive fees earned. These poor outcomes stem from the asymmetry of the performance contract, investors' return-chasing behavior, and underwater fund closures."

Dear fellow investors
04/17/20   Funds
"Let us start by saying that in our entire careers, we have rarely seen an opportunity to add as much long-term value for our investors as we do right now. This isn't to say that we believe that things will start getting better tomorrow, as we have no idea how this situation is going to play out over the next few weeks or months. But we do believe that the long term is what really matters in investing, and our confidence level is much higher for the longer term."

Mind the Gap 2019
08/19/19   Funds
"On the one hand, allocation funds produced a positive gap of 0.22% on annualized returns of 5.54%. A positive gap means a majority of the money going in was well-timed. The reasons are instructive about what works best for investors."

2018 Morningstar fee study
05/01/19   Funds
"Morningstar's annual fee study of U.S. open-end mutual funds and exchange-traded funds found that the asset-weighted average expense ratio was 0.48% in 2018, a 6% decline from 2017."

OSAM Q1 letter
04/13/19   Funds
"One of the best ways to evaluate a manager is to ask them about their research graveyard. Of the research projects we've pursued over the decades, a significant majority end up like the ownership data project - dead. The quantitative research process is default frustrating."

How hedge funds get rich
03/11/19   Funds
"However, what if I told you that in less than 20 years the hedge fund would have more money than you (regardless of the size of your initial investment)."

Mawer on sale
11/12/18   Funds
"Closely held Mawer Investment Management Ltd. has hired Bank of Nova Scotia to explore options such as a sale, following a wave of transactions involving Canadian money managers."

Lessons from Peter Lynch
09/17/18   Funds
"Multiple analyses have been performed with the purpose of deconstructing and explaining Lynch's success, and the conclusion seems to be that higher beta, momentum, and size were among the primary sources of Magellan's amazing performance."

Fake returns
09/06/18   Funds
"IRRs are meaningless and should never be used."

Chasing mutual fund performance
09/06/18   Funds
"So does performance chasing in the mutual fund universe deserve its less-than-stellar reputation? It depends. If the momentum strategy is systematically implemented, frequently rebalanced, and has low transaction costs, it can generate excess returns. But as a rule, performance chasing is best avoided. Our analysis indicates that investors would be better off betting on mean-reversion."

Chasing returns
04/22/18   Funds
"The authors illustrated how the probability that a talented manager's performance will exceed the best in a pool of untalented managers can be surprisingly small, even over long periods. It helps explain why performance-chasing has produced such poor results for individual and institutional investors alike."

The dead man fund
11/12/17   Funds
"William Steadman's four funds regularly appeared on fund-watchers' lists of the worst investments. By extracting from investors such high expenses, he had conned them within the limits of the law."

Institutional investors, just like us
06/18/17   Funds
"But what if you picked the top allocation per decade for the next decade, how would that do? ... It would reduce your return by 1.5% per year"

Index fund contrarian
05/07/17   Funds
"Global value investor David Winters takes on index funds, saying they are more expensive, less diversified and higher risk than commonly believed." [video]

O'Shaughnessy and O'Shaughnessy
03/26/17   Funds
"My guest this week is my father, Jim O'Shaughnessy. He was a pioneer in quantitative equity research, part of an early group of explorers who combed through data to find factors which predicted future stock returns." [audio]

DFA Funds and fees
03/12/17   Funds
"DFA adviser fees in some cases all but erase their advantages"

Risky risk ratings
01/15/17   Funds
"Over the past two years, I tracked risk rating changes for nearly 100 unique mutual funds and ETFs. 77% of those funds saw risk ratings reduced despite the fact that we're nearly 8 years into one of the longest bull markets in history for stocks and bonds."

The three coolest studies of 2016
12/11/16   Funds
"It appears that ETFs dropped portfolio returns by 1.1% annually even when they accounted for only a small portion of an investor.s portfolio."

Joel Greenblatt interview
11/06/16   Funds
"How do you prevent investors from buying and selling at the wrong time? Financial innovator and successful value investor, Gotham Funds' Joel Greenblatt explains his new hybrid approach combining indexing and his active long/short strategies." [video]

Sued over retirement plan fees
08/14/16   Funds
"The complaints allege that the universities, as the plan sponsors, failed to monitor excessive fees paid to administer the plans and did not replace more expensive, poor-performing investments with cheaper ones. Had the plans eliminated their long lists of investment options and used their bargaining power to cut costs, the complaints argue, participants could have collectively saved tens of millions of dollars."

Curse of the benchmarks
04/02/16   Funds
"Indeed, benchmark requirements coupled with short-term horizons, ironically, serve as poison for investors who allocate to active funds. The only solution is to marry active strategies with investors who are educated and can internalize the fact that sustainable active investing has to be difficult."

Chasing returns
02/21/16   Funds
"The indexes show strong performance leading up to the ETF launch (or more accurately, until 6 months before launch, when the decision to launch the ETF was probably made). Next the evidence shows that on average, ETF performance subsequent to launch tends to be ... average."

Sequoia sued over Valeant stake
01/16/16   Funds
"The investment firm that runs the Sequoia Fund, long known for its ties to Warren Buffett, was sued by shareholders who claim it recklessly took a huge stake in embattled drug company Valeant Pharmaceuticals International Inc, causing more than $2 billion in losses."

Revealing the closet indexers
11/28/15   Funds
"The problem with closet indexing is that you wind up paying substantial fees for a fund that delivers little in the way of independent investing judgment. The extra charge - compared to what you could pay for a plain-vanilla exchange-traded fund that cheaply and efficiently tracks the same index - typically amounts to somewhere between one and two percentage points a year."

No place for 1.75% trailer fees
11/07/15   Funds
"In fact, some go as high as 1.75%, prompting some within the industry to wonder why regulators don't cap trailers - if not ban them outright."

Alpha wounds
07/30/15   Funds
"Chief among the alpha wounds is that the benchmark tail wags the portfolio management dog. What I mean is that benchmarks were supposed to be the foundation for understanding a portfolio manager's performance after the fact. Instead the investment industry evolved so that benchmarks are now the navigational compass for investment managers before the fact."

Advisors behaving badly
03/20/15   Funds
"Investors should similarly watch out for advisors changing firms or recommending moving portfolios to segregated funds or other DSC mutual funds that may trigger a new set of commissions. (New DSC purchases will also have you pay a fee to exit the funds within the next 6-7 years.)"

Cliff Asness interview
03/01/15   Funds
"In a far-ranging 90 minute conversation, we discuss everything from value to momentum to the small cap effect. We also discuss the Efficient Market Hypothesis, how and why markets can be irrational, and what it was like to be part of the Quant Flash Crash of 2007. If you are interested in what quants actually do, be sure to check out the podcast portion when its posted."

No new bets in 80 years
03/01/15   Funds
"Equity investors pursuing a buy-and-hold strategy might want to check out a fund that hasn't made an original stock market bet in 80 years. The Voya Corporate Leaders Trust Fund, now run by a unit of Voya Financial Inc bought equal amounts of stock in 30 major U.S. corporations in 1935 and hasn't picked a new stock since."

Doubling down
11/23/14   Funds
"With a sample from 1/1990 to 12/2013, the paper finds that a portfolio formed of the positions that fund managers add to after recent stock-level underperformance generates significant annualized risk-adjusted outperformance of between 5% to 15% (Table below shows the monthly performances). Double down portfolios perform best with around a 6 to 9 month holding period."

Index-linked notes: buyer beware
11/08/14   Funds
"I'm reminded of the knowledge gap every time I open the newspaper, or walk by a bank branch, and see an ad for an index-linked GIC. Despite intense industry criticism, these products remain in vogue and are heavily promoted by the banks."

Curiosity killed the copycat
10/26/14   Funds
"The funds that get copied, unsurprisingly, are typically those that have performed well in the past and are highly ranked by Morningstar. In the short term, the strategy appears to work; the copycats manage to improve their performance and the copied funds continue to do well. But over a longer period of four years or so, this effect disappears."

The Peculiar Passivity of Active Management
08/29/14   Funds
"If active stock-pickers are going to prove their worth, they'd better start getting a lot more active - not by trading more, but by looking different from the indexes they are trying to beat."

The lure of hedge funds
04/19/13   Funds
"Investors often buy what they think is exciting, sophisticated, and complex with the embedded assumption that all of these attributes will lead to greater returns. We see this today where we witness the continued explosive growth of hedge funds. But, a careful examination of the data reveals that these fancy lures fail to hook as much in excess, after-fee returns as more time tested strategies."

Why investors lag funds
02/16/13   Funds
"Big surges and big declines spur greed and envy, then fear and anger. The more emotional an investor, the worse his decisions will be. The past two bear markets are perfect examples. Some people bought stock funds heavily prior to the bear markets only to see their investments plunge. Then they bailed close to the bottom only to miss big rebounds. Not everyone did that, of course--many were patient--but flow data tell us too many went in the wrong direction."

He's not a billionaire, he just plays one on TV
09/29/12   Funds
"'[O'Leary's] stated investment philosophy was at odds with what they are doing,' says Hallett. 'My basic conclusion was there was a lot more marketing than real investment steak.' When asked whether he would invest with O'Leary Funds today, Hallett said, 'There are no funds they have that really jump out at me.'"

How Eric Sprott got solar burn
08/31/12   Funds
"The story of Timminco - which concluded early this year with the bankruptcy of the company and the delisting of its stock on the TSX - has, since its beginning, inspired doubters and believers. The company never delivered on its promise to produce cheap solar-grade silicon on a commercial scale. The believers maintain Timminco never got the chance to prove itself because the solar industry collapsed and demand for high-purity silicon dried up almost overnight. The doubters insist the company could never have made the breakthrough."

Third Avenue is buying HK real estate
07/20/12   Funds
"Wolf started buying up Centro's distressed debt at less than 60 cents on the dollar late last year, while it was still in bankruptcy. The debt was converted to equity, and now Third Avenue owns more than 13.8 million shares of the new company."

Funds vs. ETFs
07/07/12   Funds
"The question is, would these studies arrive at a different conclusion if mutual funds were compared to ETFs instead of uninvestable indexes? It's hard to say definitely without getting into the data, but a rough assessment based on the Vanguard numbers would suggest that Canadian equity ETFs would still be leading an albeit closer race. If a charge for investment advice was factored in, it would be a dead heat, with some categories going to ETFs and others to mutual funds."

Investors prefer ethical ETF
07/05/12   Funds
"Of course, what those standards actually are is a complex question, which is why it is important investors make sure they understand the parameters used to make such judgments, Mr. Rothery said. 'I'd caution anyone thinking about buying one of these funds to make sure that your morals and ethics correspond with that of the fund,' he said. 'It can be very tricky.'" [Please ignore the 'financial advisor' reference, it was a holdover from my days working for Dan Hallett. I don't take on private clients these days.]

Why Mutual Fund Boards Are Failing
06/21/12   Funds
"But while individual qualifications are rarely an issue, investor advocates say mutual funds allow far too many directors to serve on multiple boards. In the realm of public companies, people can draw criticism for sitting on more than a handful of boards. But YieldPlus's trustees, in 2010, each served on the boards of 72 other Schwab funds -- each with its own lengthy prospectus, regulatory filings and compliance issues to review. And that, it turns out, is nothing compared with Bruce Crockett's responsibilities on behalf of investors in the Invesco family of funds. Crockett, a former CEO of satellite company Comsat, is a shareholder watchdog for 140 stock and bond funds, roles for which he was paid $693,500 in 2011. For many critics, vetting so many funds is hard to fathom and is a prescription for overwhelmed and passive boards. 'Maybe we're just not as smart as they are,' says Steven Melnyk, a former ABC golf commentator-turned-investment banker, who says he has his hands full serving on three fund boards at Longleaf Partners. 'But I can't imagine how, if you're at a large fund complex, you could find the time to really review everything you need to look at.' The required reading alone, says John Bogle, founder of fund giant Vanguard, underscores the challenge. 'Mutual fund directors,' he says, 'are either not being paid nearly enough for what they should be doing -- or far too much for what they actually do.'"

When Julia tried to start a business
05/11/12   Funds
"Last week, the Obama Administration released a campaign piece about the life of Julia, showing how Julia benefited from taxpayer largess and oversight by the state at many points in her life. But the campaign piece was incomplete, and missed the part where Julia attempted to start her own business. Long before she started a web business out of her home, she tried to start a retail business."

Lessons learned in the wealth management
04/14/12   Funds
"The investment industry has the attention span of a 4-year-old. Two of its key drivers - compensation (fees and commissions) and past performance (what's done well recently) - lead to changing strategies and a steady stream of new products. Unfortunately, this hyperactivity kindles clients' psychological need to take action (especially males). It makes a "stay the course" strategy, which is often the best option, difficult to maintain."

Another look at the performance of active funds
02/27/12   Funds
"In this study we evaluate the performance of actively managed equity mutual funds against a set of passively managed index funds. We find that the return spread between the best performing actively managed funds and a factor-mimicking portfolio of passive funds is positive and as large as 3 to 5 percent per annum. Our findings are inconsistent with the view that active funds have little or no incremental economic value over low-cost index funds."

Mutual funds vs ETFs
01/16/12   Funds
"The market share lost by mutual funds is not surprisingly shifting to ETFs. ETF fees tend to be lower, yet they provide better liquidity and the ability to time the market, including intraday trading. That makes ETFs appealing not just to retail investors, but to institutions as well."

Hedge-fund performance and liquidity risk
09/08/11   Funds
"This paper demonstrates that liquidity risk as measured by the covariation of fund returns with unexpected changes in aggregate liquidity is an important predictor of hedge-fund performance. The results show that funds that significantly load on liquidity risk subsequently outperform low-loading funds by about 6.5% annually, on average, over the period 1994-2009, while negative performance is observed during liquidity crises. The returns are independent of share restriction, pointing to a possible imbalance between the liquidity a fund offers its investors and the liquidity of its underlying positions. Liquidity risk seems to account for a substantial part of hedge-fund performance. The results suggest several practical implications for risk management and manager selection."

Who got the margin call?
08/08/11   Funds
"The market is not puking. Some prime broker is puking the stocks held by one or more very large hedge funds. So lets play the game: guess who got the margin call!"

Index-beaters
07/18/11   Funds
"Among the index-beaters, Mawer Canadian Equity, which is run by Jim Hall of Mawer Investment Management Inc., led the way with a 7.1-per-cent gain. Mr. Hall has been cautious on commodity stocks, a stance that helped his fund gain 8.5 per cent for the first six months of this year. A common thread among many of the outperformers was low fees, with most charging well below 2 per cent."

Fund facts risk and suitability get thumbs-down
07/16/11   Funds
"A new regulatory initiative - i.e. Mutual Fund Point of Sale - was launched this year in an attempt to better inform investors about the investment funds in which they invest. The key feature of this Point of Sale initiative was to provide an investor-friendly 2-4 page document called Fund Facts summarizing each fund's most important information. The idea was based on the observation that only a tiny minority of investors ever read a fund's simplified prospectus (i.e. the document that lays out all of a fund's details). There was no shortage of opinions on this Point of Sale initiative - a collaboration of various financial regulators - while it was in the planning stages. (Including one from yours truly.) But now the first stream of Fund Facts documents have been rolled out and a central repository has been set up at www.fundfacts.com to house some documents. Unfortunately, Fund Facts continues to suffer weaknesses in the two most important areas for investors and their financial advisors."

A free checkup for low-cost investors
07/09/11   Funds
"Here's some free advice for you. If you're interested in building a portfolio with low-cost mutual funds, you can sometimes get ongoing investment advice at no extra charge. Wondering how much you should invest in stocks and bonds, or how much global diversification you should have? This is exactly the kind of free advice that is available when you buy funds directly from Leith Wheeler Investment Counsel, Matco Financial, Mawer Investment Management, Phillips, Hager and North and Steadyhand Investment Funds."

The Paulson Sino Forest loss
06/27/11   Funds
"The shortcuts we use as portfolio managers (and these are often sophisticated shortcuts born from some deep understanding of the industry) can make even the best portfolio manager susceptible to fraud."

Income funds' payout sustainability 2
06/03/11   Funds
"Earlier this year, I wrote about how to gauge the sustainability of monthly income funds' fat distributions so that investors and advisors could make better decisions and set realistic expectations. Since then, I've received a steady stream of phone calls and emails, mostly expressing concern over many funds. However, one fund in particular keeps popping up in such inquiries, so I thought it was deserving of its own blog post. Perhaps I shouldn't be surprised by the continued interest in such funds but I am. Individual investors, financial advisors and industry regulators have contacted me to solicit my views on T-series or monthly income funds - both in general and for specific funds. Over the past five months, the one fund that has been most frequently mentioned is the RBC Managed Payout Solution - Enhanced Plus. So, let's take this through our test for distribution sustainability."

Closet indexing, fees, and performance
05/11/11   Funds
"Mutual fund investors face a basic choice between actively-managed funds and index funds with lower expenses. However, the prevalence of indexing is rare in most countries. Rather, actively managed funds in many countries engage in "closet indexing," choosing portfolios that closely match their declared benchmark. The degree of explicit indexing in a country is negatively related to fees, while "closet indexing" is positively associated with fees and negatively with performance. The most actively managed funds charge higher fees but outperform their benchmarks after expenses. The degree of indexing and the ability of active managers to outperform are both associated with competition and fees."

Negative fee fund
02/27/11   Funds
"Those performance fees have led to another distinguishing characteristic for two of Bridgeway's funds: Bridgeway Micro-Cap Limited has an expense ratio of zero, while the recently reopened Bridgeway Aggressive Investors 1 has a negative 0.51 percent expense ratio - it pays investors $5.10 for every $1,000 they have invested in it."

Economic Meltdown Looming
02/20/11   Funds
"Bob Rodriguez says the U.S. has seven months to implement significant budgetary reductions or face tipping point"

Putting monthly distributions to the test
01/14/11   Funds
"I don't make many bold predictions. But nearly a decade ago I did just that. I challenged the most popular monthly income mutual fund of the day, now known as IA Clarington Canadian Income. I stated that this balanced fund's 10% distribution rate at the time could not be sustained and would have to be cut. No recommendation has ever caused me such grief. I received angry phone calls and e-mails. But I turned out to be right. Fast forward to 2011. In today's Global and Mail I take readers through a process for testing whether an investment's monthly cash payout can continue longer-term. It's the same process I used to make my Clarington prediction in 2001. While Clarington and some other firms have adopted more flexible distribution policies, several funds continue to sport unsustainable cash payouts. And I use a popular big bank fund to illustrate our distribution sustainability test in today's article."

Active Share
12/19/10   Funds
"Active share can have a direct influence on returns. Looking at U.S. stock fund performance in the 20 years ending 2009, Prof. Petajisto found that the most active stock pickers beat their benchmarks by 1.26 percentage points annually after fees. On average, funds with lower active share didn't beat their benchmarks."

The megamind of Miami
12/12/10   Funds
"As he nears the end of his morning walk, Berkowitz begins musing on his aversion to losing money. He is not, he insists, interested in taking risks. His contrarian investments may look perilous to outsiders, but to him they are the safest opportunities he can find. He stops and shuffles to the dotted yellow line in the center of the street and points down: 'This is where we can make our shareholders plenty of money.' For Berkowitz, out of the ordinary is middle-of-the-road."

But still expensive
08/22/10   Funds
"A few years ago, a research paper by three academics claimed that Canadian mutual funds levied higher average fees than funds in seventeen other countries. Since average Canadian fund fees are high, the media jumped all over this research - despite being incomplete. Reading through many versions of the paper, it became clear that the core data and underlying assumptions were questionable."

Stewardship common sense
07/16/10   Funds
"In the course of our research we've uncovered a fund company - one that received a good culture grade and had no regulatory deductions - that purchased shares in a related company in one of its funds. Since the firm has followed all of the rules, technically, it's not considered a regulatory issue. Accordingly, the trade was not reviewed by the IRC. But when we discovered all of the facts, we have zero doubt that a conflict of interest existed, whether or not the law defines it as such."

Reward for punishment
03/20/10   Funds
"Short-term redemption fees may prevent investors from frequently trading in and out of mutual funds, which results in an implicit wealth transfer from long- to short-term fund investors. This paper studies the impact of short-term redemption fees of various structures on long-term fund performance. We observe that fund performance is increasing in the magnitude of the fee and the time period during which an investor would be subject to it. Redemption fees are associated with up to a 327 annualized basis point increase in average abnormal returns."

Keys to success
01/12/10   Funds
"Berkshire has really figured out how to behave with large insurance exposures that could potentially pay out billions from catastrophic events. There is a huge benefit to having so many non-insurance operating businesses affiliated with their insurance businesses, especially large utilities and railroads, where you are highly confident that you are not going to take a big hit. You can't have a bunch of operating businesses that could potentially lose much and also face a Katrina or a Wilma. That's where you have brilliance."

Currency-neutral trap
01/04/10   Funds
"Over the past 4 years, XSP has trailed the returns of IVV by an annualized rate of 2.99%. A Canadian investor betting that the C$ would appreciate against the USD and opting XSP over holding IVV directly would have been right on the first count but made no money on the bet. The C$ appreciated at an annualized 2.73% against the USD but the tracking error of XSP wiped out all the gains."

Excess cash and mutual fund performance
12/16/09   Funds
"I document a positive relationship between excess cash holdings of actively managed equity mutual funds and future fund performance. The difference in returns of portfolios of high and of low excess cash funds amounts to over 2% annually, or approximately 3% after standard risk adjustment. I study whether this difference in performance can be explained by the differences in managerial stock selection skills, market-timing abilities, fund liquidity needs, and operating costs. I show that managers of high excess cash funds make more profitable stock purchasing decisions, while low excess cash fund managers make better sell decisions. Neither high nor low excess cash groups exhibit significant market-timing skills; however, funds with volatile excess cash holdings are successful market timers. The difference in returns between high and low excess cash groups is particularly pronounced during periods of low fund flows, suggesting that high excess cash funds are better able to anticipate fund outflows. Finally, I show that high excess cash funds incur significantly lower operating expenses than do their low excess cash peers. I additionally document new important determinants of mutual fund cash balances, showing that funds with riskier or less liquid shareholdings, as well as those with higher return gap measures hold more cash. The determinants I consider jointly explain three times more cross-sectional variation in cash positions than variables studied in prior literature."

Investor timing ability
10/20/09   Funds
"We examine the timing ability of mutual fund investors using cash flow data at the individual fund level. Over 1991-2004 equity fund investor timing decisions reduce fund investor average returns by 1.56% annually. Underperformance due to poor timing is greater in load funds and funds with relatively large risk-adjusted returns. In particular, the magnitude of investor underperformance due to poor timing largely offsets the risk-adjusted alpha gains offered by good-performing funds. Investors in both actively managed funds and index funds exhibit poor investment timing. We demonstrate that our empirical results are consistent with investor return-chasing behavior."

Take off the blinders
10/18/09   Funds
"In the mad dash to buy bond funds -- about $200 billion so far this year -- investors are overlooking fees. Most of the new bond money is going not into dirt-cheap index funds, but into far more expensive, actively managed portfolios. The average annual cost of owning a taxable bond fund, according to Morningstar, is 1.03% of invested assets, with a maximum of 2.98%. In a world of 3% to 4% Treasury yields, with the risk of losses if interest rates rise, those fees loom large."

High turnover could be a red flag
08/18/09   Funds
"Perhaps most significantly, funds that trade a lot can be hard on investors' wallets. That's because a fund incurs transaction costs each time its manager buys or sells a stock. Not only do funds pay commissions to buy and sell, but they also incur so-called market-impact costs. Large funds rack up market-impact costs because it might take them a while to buy or sell securities; as they're doing so, they may ultimately obtain a less advantageous price than a smaller, more nimble fund would receive. Shareholders ultimately foot the bill for these costs through lower net returns."

Are funds pawning shares at your expense?
06/01/09   Funds
"Your fund should lend out your securities, but the proceeds should go to you. And fund managers should reinvest the collateral only in absolutely safe securities. The current system, where they keep half the gains and stick you with all the risks, has got to go."

The manager who gave back his fees
04/02/09   Funds
"The mutual fund industry is going to hate this. Investors will be angry that they don't see more of it. Unhappy at the returns he has generated for clients, money manager Francis Chou is refunding almost all the management fees collected by his Chou Europe fund since it opened for business in September, 2003."

Fund industry against Ontario tax proposal
03/16/09   Funds
"Canada's mutual fund industry is concerned a proposal to harmonize the province's sales tax with the federal GST would unfairly punish the industry and investors who use its products."

Higher risk, lower returns
03/09/09   Funds
Fund manager reports
03/02/09   Funds
The charges laid against us
01/31/09   Funds
The man who made too much
01/07/09   Funds
Hedge funds ruined by withdrawal limits
01/06/09   Funds
The ponzi scheme in every hedge fund
01/06/09   Funds
The go-go investor
01/02/09   Funds
Time to ditch the style box
11/08/08   Funds
Beware ETNs
09/24/08   Funds
Beware ETNs, Part 2
09/24/08   Funds
Hedge fund returns money
09/22/08   Funds
Money market fund says customers could lose money
09/17/08   Funds
Running a hedge fund is harder than it looks
08/19/08   Funds
Manulife shows Mawer love
08/07/08   Funds
John Templeton dies at 95
07/08/08   Funds
America's hottest investor
06/12/08   Funds
The folly of short term performance
05/29/08   Funds
Catch two-and-twenty
05/22/08   Funds
Why today's hedge fund industry may not survive
04/27/08   Funds
Investing is about stacking the odds in your favour
03/09/08   Funds
Money for old hope
02/28/08   Funds
Dark days for hedge fund king
02/25/08   Funds
The code breaker
12/20/07   Funds
Investor timing and fund distribution channels
12/06/07   Funds
Chasing performance hurts load fund investors
12/06/07   Funds
The blow-up artist
10/11/07   Funds
Scale effects in mutual fund performance
07/10/07   Funds
A legend sizes up the market
06/15/07   Funds
Monte Carlo may be answer to closet indexing
06/08/07   Funds
Cundill's quest for hidden value
04/21/07   Funds
TERs: Another fund cost to consider
04/14/07   Funds
How did investors really do?
12/01/06   Funds
Saxon finds value in oilpatch juniors
09/13/06   Funds
Is seg fund security worth the high cost?
07/11/06   Funds
Protectednotes may leave you exposed
07/11/06   Funds
Who cares about fund categories?
06/22/06   Funds
Even the managers won't buy these funds
06/10/06   Funds
Curse of the cold hand strikes
05/30/06   Funds
Mild-mannered Francis Chou
04/02/06   Funds
RBC announces massive fund overhaul
03/31/06   Funds
TERs tell you the exact cost of owning a fund
03/12/06   Funds
Norshield receiver finds little money
11/19/05   Funds
Volatility, thy name is bonds
11/06/05   Funds
How fund rankings can cause stocks to gyrate
10/09/05   Funds
Trailer fees: a vitamin or toxin?
10/09/05   Funds
Saxon fund keeps it simple
09/30/05   Funds
Allegations aside, Norbourg a plain dumb investment
09/11/05   Funds
Labour funds reel as Ont. axes tax credit
09/04/05   Funds
Turnround hope can be bad for you wealth
08/30/05   Funds
IFIC chairman Michel Fragasso steps down
08/25/05   Funds
Winning the active management game
08/13/05   Funds
Leith Wheeler doesn't buy 'new era'
07/22/05   Funds
Investors turn on hedge funds
07/18/05   Funds
Hedge funds: a wild quarter
07/03/05   Funds
Great shareholder letters
06/29/05   Funds
Protect your funds from an oil spill
06/26/05   Funds
Fund firms plan to give investors a break
06/26/05   Funds
PH&N to launch higher-fee funds for clients seeking advice
05/17/05   Funds
Investors get break on costs of mutual funds
05/09/05   Funds
Mutual fund price war
05/08/05   Funds
The origins of mutual funds
04/17/05   Funds
Here's one good reason to fire yourself
04/10/05   Funds
No need for foreign equities in Canadian funds
03/27/05   Funds
Fund firms moving to kill clones
03/11/05   Funds
The new money men
02/18/05   Funds
Forget the luxury hook; fund makes promises it can't keep
02/11/05   Funds
O'Shaughnessy sticks to the numbers
01/20/05   Funds
A fund for '05
01/20/05   Funds
Suits contend funds fail to collect
01/20/05   Funds
AGF introduces low-load option
01/12/05   Funds
Assante latest fundco to cut fees
01/12/05   Funds
Mutual-fund giants pay price of betrayal
12/17/04   Funds
Bank-sold wrap accounts don't live up to sales pitch
12/05/04   Funds
Who are the low-cost leaders?
11/28/04   Funds
Fund companies tinker with sales charges
11/22/04   Funds
Too patient with your funds?
11/21/04   Funds
OSC can still turn investigation into victory
09/23/04   Funds
OSC strike against fund industry
09/23/04   Funds
Bond fund risks outweigh rewards
09/07/04   Funds
Vanguard shuts out int'l small-cap investors
09/03/04   Funds
How many funds are too many?
08/29/04   Funds
Battling fund myths
08/22/04   Funds
Fund mergers bring tax headaches for unitholders
08/08/04   Funds
Mutual fund taxation
08/08/04   Funds
Let's get fund brokerage fees out in the open
07/22/04   Funds
From alpha to omega
07/16/04   Funds
Can we trust the mutual fund industry yet?
07/14/04   Funds
Bond mutual funds -- here's the best of a bad lot
07/09/04   Funds
When funds have to show their hand
07/04/04   Funds
The search for low-fee investments
06/27/04   Funds
Seg funds
06/25/04   Funds
PHN's entrepreneurial spirit keeps its costs low
06/23/04   Funds
It's not how it performs, it's about commission
06/23/04   Funds
How we probed the churn patterns
06/21/04   Funds
Select few reap unfair gain
06/21/04   Funds
Understanding downside risk
06/13/04   Funds
Dig deeper
05/20/04   Funds
Maverick managers hit on brainwave
05/14/04   Funds
U.S. watchdog calls for end to trailer fees
05/13/04   Funds
Why I like Saxon
05/12/04   Funds
They're called trailing commissions
05/11/04   Funds
Are DSCs finally on their way out?
05/09/04   Funds
The sleaziest show on Earth
05/08/04   Funds
Earn a solid return in the slow lane
05/08/04   Funds
Small names are big winners
04/24/04   Funds
True value stocks different from those in value funds
04/18/04   Funds
Funds' dirty little secrets
04/17/04   Funds
McLean Budden chops MERS again
04/06/04   Funds
Hard line on 'soft dollars'
04/06/04   Funds
The disgrace of soft dollars
03/23/04   Funds
7 funds with high fees, low returns
03/20/04   Funds
Putting water in your wine
03/19/04   Funds
Canadian fund fees not that much higher than U.S.
03/09/04   Funds
Value funds outperform growth
03/08/04   Funds
True costs of mutual funds difficult to determine
03/04/04   Funds
Canadians mutual fund sales soar
03/03/04   Funds
A wake-up call to the fund industry
02/21/04   Funds
RRSP ads once again promoting track record
02/11/04   Funds
IFIC should aim its guns at other fund industry issues
02/04/04   Funds
Mutual-fund industry wants federal ads axed
02/03/04   Funds
Don't get hit by falling rates
01/22/04   Funds
Will scandals spoil the fun?
01/18/04   Funds
Management expense ratio update
01/11/04   Funds
Investing: Profession or Business?
01/10/04   Funds
Watchdog to abolish mutual fund conflict rules
01/10/04   Funds
Investors beware the backside of the bull
01/07/04   Funds
More than pure luck
01/05/04   Funds
Mutual fund portfolio contagion
12/31/03   Funds
Playing in a closed game
12/24/03   Funds
Manulife, John Hancock in fund probe
12/24/03   Funds
Out of sight, out of mind
12/21/03   Funds
The second largest tax investors pay
12/11/03   Funds
SEC action on high-yield funds near
12/11/03   Funds
Mutual funds or hole in the ground?
12/11/03   Funds
SEC to act against MFS
12/08/03   Funds
CIBC unit may face class action
12/01/03   Funds
Putnam: The greed machine
11/25/03   Funds
Mutual fund abuses found in Canada
11/24/03   Funds
The real costs of turnover
11/23/03   Funds
Fund scandals for dummies
11/18/03   Funds
Bigger fund ripoffs exist than illegal trading
11/16/03   Funds
A closer look at investment fees
11/16/03   Funds
Some mutual fund firms just don't get it
11/13/03   Funds
Investor Behavior = Returns
11/04/03   Funds
Perigee changes name to Legg Mason Canada Inc.
10/31/03   Funds
Sceptre rushes to reassure jittery clients over Putnam
10/31/03   Funds
SEC cracks down on Putnam for self-dealing
10/29/03   Funds
Gold gives boost to small-cap sector
10/28/03   Funds
Still waiting for lower fund fees
10/28/03   Funds
Shadow on the funds
10/27/03   Funds
Mutual funds weather scandals
10/26/03   Funds
Mutual recriminations
10/20/03   Funds
SEC unveils plans to combat late trading of funds
10/12/03   Funds
Is your fund firm earning its keep?
10/05/03   Funds
Funds grapple with growing scandal
10/04/03   Funds
Investors should see where cash goes
10/02/03   Funds
Mutual fund tax efficiency
10/01/03   Funds
It's time for mutual funds to stop burying fees in muddy MERs
09/25/03   Funds
The great fund ripoff
09/22/03   Funds
Fund scandal may run deeper
09/22/03   Funds
Parts and labour sold separately
09/19/03   Funds
Domestic stock funds in red again
09/19/03   Funds
Illegal trading appears rampant
09/14/03   Funds
Morningstar rips suspect funds
09/14/03   Funds
Wait! Think before selling
09/12/03   Funds
Second solid month for fund industry
09/11/03   Funds
Mutual funds under investigation
09/03/03   Funds
Retail investors swim against the market tide
09/02/03   Funds
The world's most honest money manager tells all
08/29/03   Funds
For the love of the fund salesman
08/26/03   Funds
MER heretic fires opening salvo
08/09/03   Funds
Slim and trim beats the bear
07/17/03   Funds
Cost matters
07/10/03   Funds
High MERs can be justified
07/10/03   Funds
Mutual fund scandal? Enough of the blame-game
07/10/03   Funds
There are escapes from deferred sales charges
07/06/03   Funds
The blame game
07/04/03   Funds
S&P study shows cheaper funds outperform
06/14/03   Funds
Mutual fund study 'misleading'
06/12/03   Funds
Fund industry isn't reasonable when it comes to fees
06/12/03   Funds
What Canadians pay for fund management
06/12/03   Funds
Fees top $10-billion last year
06/12/03   Funds
Asset base decline erases good old days in fundland
06/10/03   Funds
Shun deferred sales charge funds
06/01/03   Funds
Exchange-traded funds are suddenly looking good again
05/23/03   Funds
Cundill fund successful with unloved firms
05/22/03   Funds
How to avoid fees
05/21/03   Funds
After-tax returns are what matter to fund investors
05/20/03   Funds
A taxing truth
05/18/03   Funds
Funds score dramatic turnaround in April
05/14/03   Funds
Redemption fees will soar at Investors Group
04/15/03   Funds
Glamour gone for fund managers
04/15/03   Funds
AIC calls for after-tax disclosure
04/10/03   Funds
Diversification's fine, but only up to a point
04/09/03   Funds
Clipped
03/28/03   Funds
Fund disclosure proposals flawed
03/28/03   Funds
Fee'd me
03/28/03   Funds
Too much info
03/28/03   Funds
Your mutual fund is telling you to stay put
03/25/03   Funds
Fund firms in survival mode
03/20/03   Funds
Pension funds hedging on hedge funds
03/20/03   Funds
Fund critics applaud Buffett's comments
03/11/03   Funds
Too many funds, says IFIC President
03/06/03   Funds
Striking the right balance
03/02/03   Funds
Mutual fund fees may rise
02/25/03   Funds
Lessons to be learned from shuttered funds
02/24/03   Funds
Lawmakers question mutual fund fees
02/24/03   Funds
What are Hedge Funds hedging?
02/22/03   Funds
Real return bond funds laugh at inflation
02/19/03   Funds
Canadian mutual funds hit
02/18/03   Funds
Investors are main cause of high fund fees
02/12/03   Funds
Labour funds' greatest risks aren't what you think
02/11/03   Funds
Funds in for the really long haul
02/05/03   Funds
America For Less Than 2% a Year
02/01/03   Funds
Small Caps: A size too big?
01/20/03   Funds
Brace yourself for a wave of mutual fund mergers
01/07/03   Funds
New year's resolutions for fund investors
01/06/03   Funds
Templeton Growth fund may be down but ...
12/26/02   Funds
How fear rules the fund flock
12/19/02   Funds
Are enhanced index funds worth the added cost?
12/19/02   Funds
Revealing the secrets of fund turnover
12/10/02   Funds
Lots of consumer help on money matters
12/05/02   Funds
November sees more fund redemptions
12/04/02   Funds
Financial Services Ombudsnetwork running
12/01/02   Funds
Pick good mutual funds, then commit to long term
11/28/02   Funds
Two star managers leave Altamira
11/28/02   Funds
Royal Bond Fund no refuge from stock crises
11/26/02   Funds
Funds still actively trading
11/24/02   Funds
Hedge your fund picks with good information
11/21/02   Funds
Even stodgy bonds can take nasty bite
11/19/02   Funds
October another tough month for fund sales
11/15/02   Funds
Hedge funds: Complex animals that bear special scrutiny
11/14/02   Funds
Dividend funds show long-term strength
11/08/02   Funds
MFDA launch of investor complaint service
11/06/02   Funds
Respect your elders
10/30/02   Funds
Managers get rich while investors lose
10/23/02   Funds
Performance is a thing of the past
10/20/02   Funds
A look inside fund returns
10/20/02   Funds
Now's the time to get active, brokerage says
10/17/02   Funds
CI merges 33 funds
10/16/02   Funds
Five-year losers burn investors
10/16/02   Funds
Learning from the Janus blowup
09/25/02   Funds
Fund flows prove to be a washout
09/23/02   Funds
The King is dead. Long live the King!
09/23/02   Funds
Surprising number of big funds escape bear
09/18/02   Funds
Mutual funds vanishing at record rate
09/11/02   Funds
Buy-and-hold strategy's a keeper
08/26/02   Funds
Closed-End funds
08/25/02   Funds
Dan on hedge funds
08/23/02   Funds
Building planning
08/20/02   Funds
Funds suffer worst 2 months since 1998
08/15/02   Funds
How not to buy high and sell low
08/13/02   Funds
National Bank concludes acquisition of Altamira
08/13/02   Funds
If slacker funds aren't doing their job, fire them
07/19/02   Funds
The tortoise & the hare revisited
07/06/02   Funds
When value isn't really value
06/27/02   Funds
ABC monthly commentary
06/25/02   Funds
National Bank swallows Altamira
06/23/02   Funds
PH&N Canadian Bond Performs
06/21/02   Funds
Investors sell mutual funds
06/18/02   Funds
AGF appoints new managers
06/17/02   Funds
More quality needed in mutual funds
06/14/02   Funds
SEC may probe hedge funds
05/27/02   Funds
The end of mutual fund dominance
05/20/02   Funds
Warning: Fund stats offer little help
04/20/02   Funds
MERs offer best guide to funds' future peformance
03/20/02   Funds
Beating the market, until the expenses pile up
03/12/02   Funds
Active fund trading costs remain high
01/24/02   Funds
Redemption "iceberg" ahead
12/14/01   Funds
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Disclaimers: Consult with a qualified investment adviser before trading. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, financial advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. More...