Why do mutual funds get such a bad rap on here?
 

I know that the majority of mutual funds out there are garbage, but as consumers we get to review all the information about each fund and make our decision based on this.

There are some very very smart people on Wall Street and to utilize their services for part of your portfolio is a wise move for most.

Let's look at the market averages for 2005:

Dow <font color="red">-0.61% </font>
Nasdaq +1.37%
S&amp;P +3.00%

Now let's look at the largest 25 mutual funds in this relatively flat year for 2005 returns.
<ul type="square"> [*] American Funds Gro;A 14.23%[*]Vanguard 500 Index;Inv 4.77%[*]American Funds ICA;A 6.87%[*]Fidelity Cash Reserves 2.93%[*]American Funds Wsh;A 3.55%[*]Fidelity Contrafund 16.23%[*]PIMCO:Tot Rtn;Inst 2.86%[*]Fidelity Magellan Fund 6.42%[*]Dodge &amp; Cox Stock 9.37%[*]Vanguard Prime MM;Inv 2.99%[*]American Funds Inc;A 3.14%[*]American Funds CIB;A 4.46%[*]American Funds EuPc;A 21.12%[*]Schwab:Money Mkt 2.54%[*]American Funds CWGI;A 14.72%[*]Vanguard Instl Indx;Inst 4.91%[*]Vanguard 500 Index;Adm 4.87%[*]Fidelity Lw-Prcd Stk 8.65%[*]American Funds NPer;A 11.28%[*]American Funds Bal;A 3.12%[*]Fidelity Gro &amp; Inc 2.71%[*]Fidelity Dvsd Intl 17.23%[*]JP Morgan:Prime MM;Cap NA[*]Vanguard Tot Stk Idx;Inv 5.98%[*]Vanguard Windsor II;Inv 7.01%[/list]
Eliminating the MM funds and international funds 15 beat the S&amp;P while 4 did not.

The average of these 19 domestic funds was 6.03% gain, handily beating the market.

While there are alot of "bad" fund managers and they get alot of press, i.e. a handful SEC investigations, some analysts tripping over themselves with outrageous claims during the tech boom of the late 90's (i.e. Amazon.com going to $1,000!), there are alot of fund managers to utilize that are brilliant in what they do.

I guess my message is don't be ashamed if you invest some money in mutual funds as there are some great ones out there! It is just another tool to make your money work for you.

Re: Why do mutual funds get such a bad rap on here?
 

WOW!

Trained professionals managed to do twice as well on average as a passive tracker of the S+P 500!

This service is obviously worth us paying out billions of dollars a year in transaction costs and fees!

Im sure i couldnt do better than this with a little bit of dilligence and a service like motley fool, oh no!

Re: Why do mutual funds get such a bad rap on here?
 

[ QUOTE ]
WOW!

Trained professionals managed to do twice as well on average as a passive tracker of the S+P 500!

This service is obviously worth us paying out billions of dollars a year in transaction costs and fees!

Im sure i couldnt do better than this with a little bit of dilligence and a service like motley fool, oh no!

[/ QUOTE ]

I just want to point out that he didn't post the Top 25 funds for the year... he posted the 25 largest funds!

While mutual funds generally get a bad rap as not being able to outperform the indexes, this year a significant number did. That doesn't mean that they will outperform next year, but it does mean that mutual funds shouldn't be completely ruled out as a way to outperform the market!

Individuals with the time to do their own research have many advantages over funds, but, not everyone has the time or desire to do their own research!

Re: Why do mutual funds get such a bad rap on here?
 

Im looking to get into some mutual funds in 2006. Any quick suggestions for markets or sectors that might have a future this year, international, domestic? I'm up for doing the research but I really dont know where to start.

Re: Why do mutual funds get such a bad rap on here?
 

[ QUOTE ]
Im looking to get into some mutual funds in 2006. Any quick suggestions for markets or sectors that might have a future this year, international, domestic? I'm up for doing the research but I really dont know where to start.

[/ QUOTE ]

Best Sector Bets thread

Evaluating Managed Funds

Re: Why do mutual funds get such a bad rap on here?
 

[ QUOTE ]
[ QUOTE ]
Im looking to get into some mutual funds in 2006. Any quick suggestions for markets or sectors that might have a future this year, international, domestic? I'm up for doing the research but I really dont know where to start.

[/ QUOTE ]

Best Sector Bets thread

[/ QUOTE ]

Thanks, I just read through Ed's thread too, also rather helpful if anyone else is looking for similar info.

Re: Why do mutual funds get such a bad rap on here?
 

Can you link the place where you found the data or provide tickers for the Mutual funds? Thanks,

Krishan

Re: Why do mutual funds get such a bad rap on here?
 

Try the morningstar mutual fund screener

http://screen.morningstar.com/FundSe...n=ToolScreener

Also others have mentioned some great funds in the past month if you do a quick search.

Re: Why do mutual funds get such a bad rap on here?
 

Hi Uglyowl,

Mutual funds get a bad rap due to management fees that you have to pay on them. Plus, performance of a fund for a year is not a good indicator of how that fund will perform in the long run. If you are going to pick a fund, look at a longer history, at least 5 years, and see if it outperforms the S&amp;P 500 index, or if you don't want to do any work, just buy an S&amp;P 500 index fund.

Good Luck

Mark

Re: Why do mutual funds get such a bad rap on here?
 

So why are so many of the index funds that OP mentioned doing so much better than the market averages? Am I misreading something?

Re: Why do mutual funds get such a bad rap on here?
 

Redd,

The index funds don't track the underlying indices on a complete 1:1 basis (that is, they aren't an identical mirror). They'll buy and sell out of individual components where appropriate, and correct to the index at different times.

Re: Why do mutual funds get such a bad rap on here?
 

[ QUOTE ]
So why are so many of the index funds that OP mentioned doing so much better than the market averages? Am I misreading something?

[/ QUOTE ]

The list is of Mutual Funds, not Index Funds!

Re: Why do mutual funds get such a bad rap on here?
 

Owl,

You cannot broadly compare a mutual fund to the S&amp;P or dow. For example, some of the funds you list may many hold mid-caps (which killed S&amp;P), small caps, etc.

Different asset classes performed better or worse than the benchmarks you listed.

It isn't a fair comparison because I can list several asset classes that outperformed the funds you listed.

Re: Why do mutual funds get such a bad rap on here?
 

[ QUOTE ]
[ QUOTE ]
So why are so many of the index funds that OP mentioned doing so much better than the market averages? Am I misreading something?

[/ QUOTE ]

The list is of Mutual Funds, not Index Funds!

[/ QUOTE ]

What about the ones like [ QUOTE ]
Vanguard 500 Index;Inv 4.77%

[/ QUOTE ]?

Re: Why do mutual funds get such a bad rap on here?
 

[ QUOTE ]
So why are so many of the index funds that OP mentioned doing so much better than the market averages? Am I misreading something?

[/ QUOTE ]

This is an important point.

This is something we should all be aware of when comparing to a benchmark index... Total Return vs Index Return.

It is true that the S&amp;P 500 this year is up 3.00%. But, the Total Return of the S&amp;P 500 this year is up 4.91% once you factor in dividend reinvestment.

The Dow is negative this year, but if you factor in the dividends you still would have made money if you were invested identically to the Dow 30.

We should all be comparing performance against the Total Return of an index and not just what the number tells you.

The truth is that the 25 funds listed haven't done as well as the OP said. Also, it is expected that index funds should underperform their indexes due to their fees and costs. Finally, I'm not knocking mutual funds... you just have to be careful in selecting them, and you should also be comparing them against Total Return (okay, I'll stop beating a dead horse).

Hope this helps...

-RMJ

Re: Why do mutual funds get such a bad rap on here?
 

[ QUOTE ]
Redd,

The index funds don't track the underlying indices on a complete 1:1 basis (that is, they aren't an identical mirror). They'll buy and sell out of individual components where appropriate, and correct to the index at different times.

[/ QUOTE ]

While this is true, this difference should not be large enough to cause a nearly 2% difference in return. If it does, then they are doing a very poor job of mimicking the return of their respective index.

The bulk of the differences has to do with dividend reinvestment.

-RMJ

Re: Why do mutual funds get such a bad rap on here?
 

Capital World Growth and Income Fund (CWGIX) report.

Morningstar ranks this fund against MSCI EAFE NDTR_D (whatever that is)

CWGIX beat the index over X years by Y amount

1 - 1.18
3 - 0.29
5 - 6.39
10 - 7.88

The past year overall performance was 14.72 as reported by Uglyowl. Clearly we can't compare this to the S&amp;P but it did beat it's comparable index by a bit as well.

Krishan

Re: Why do mutual funds get such a bad rap on here?
 

[ QUOTE ]

The bulk of the differences has to do with dividend reinvestment.

-RMJ

[/ QUOTE ]

Can you explain futher? Is there a way to compare say AMCPX against the S&amp;P while taking into account dividend reinvestment? It seems like a readily available mechanism for comparing these things should already exist.

http://img387.imageshack.us/img387/1979/example5lh.jpg

This graph compare AMCPX against the S&amp;P. Does this include divident reinvestment bias or does it take that into account for the S&amp;P and AMCPX? Thanks,

Krishan

Re: Why do mutual funds get such a bad rap on here?
 

Don't forget that the fund also declared dividends and capital gain distributions!

Re: Why do mutual funds get such a bad rap on here?
 

[ QUOTE ]
Don't forget that the fund also declared dividends and capital gain distributions!

[/ QUOTE ]

I'm afraid I can't understand you. [img]/images/graemlins/frown.gif[/img] I guess I should read a basic investing book to understand the terminology.

Okay, so the fund gives dividends. Those dividends are reinvested in the fund. Doe the graph of the fund reflect that?

The S&amp;P companies also give dividends. I can't imagine the graph of the S&amp;P reflects reinvested dividends correct?

So is there a way to compare 1000 $ of CWGIX invested 10 years ago with all gains reinvested against the S&amp;P with all gain reinvested?

Basically trying to come up with an apples to apples comparison between a Mutual fund and the S&amp;P (or corresponding index)

Krishan

Re: Why do mutual funds get such a bad rap on here?
 

The 10-year total return for the S&amp;P500 is 138.3%
The 10-year total return for AMCPX is 184.8%
The 10-year total return for CWGIX is 256.6%%

Re: Why do mutual funds get such a bad rap on here?
 

I think this is going to depend on the charting service, so you should check to see how they are handling these distributions.

Re: Why do mutual funds get such a bad rap on here?
 

[ QUOTE ]
The 10-year total return for the S&amp;P500 is 138.3%
The 10-year total return for AMCPX is 184.8%
The 10-year total return for CWGIX is 256.6%%

[/ QUOTE ]

Can you tell me how you figured this out? What service you used?

Krishan

Re: Why do mutual funds get such a bad rap on here?
 

Bloomberg. It is out of the reach for individual investors, but I couldn't live without it.

I'm trying to think on the easiest way for an individual to do this. I can post the total return % for the S&amp;P going back x number of years so people can use them. Then if you can get the div. info for the mutual funds and year ending price (along with the price on the day after the dividend was paid - that would be your reinvestment price)it should be easy to plug it into excel to get the total returns for the fund. I could do a mock up, if needed.

Re: Why do mutual funds get such a bad rap on here?
 

[ QUOTE ]
Bloomberg. It is out of the reach for individual investors, but I couldn't live without it.

[/ QUOTE ]

Can I use this somehow to get what I need?

link

Krishan

Re: Why do mutual funds get such a bad rap on here?
 

[ QUOTE ]
I can post the total return % for the S&amp;P going back x number of years

[/ QUOTE ]
This could also be calculated (only back to 1990) using this spreadsheet.

Re: Why do mutual funds get such a bad rap on here?
 

[ QUOTE ]
[ QUOTE ]
I can post the total return % for the S&amp;P going back x number of years

[/ QUOTE ]
This could also be calculated (only back to 1990) using this spreadsheet.

[/ QUOTE ]

Can you go over the calculation once?

Never mind... Looks like this works....

=(1+K19)*(1+K18)*(1+K17)*(1+K16)*(1+K15)*(1+K14)*( 1+K13)*(1+K12)*(1+K11)*(1+K10)*(1+K9)*(1+K8)-1

Basically a formula for as many months as you need. It's not in the 2005 12 month total return column but can be found lower down.

Krishan

Re: Why do mutual funds get such a bad rap on here?
 

Comments on the morningstar graph.
[ QUOTE ]

"Total returns calculated on a calendar-year basis. Total return includes both income (in the form of dividends or interest payments) and capital gains or losses (the increase or decrease in the value of a security). Morningstar calculates total return by taking the change in a fund's NAV, assuming the reinvestment of all income and capital gains distributions (on the actual reinvestment date used by the fund) during the period, and then dividing by the initial NAV.

Unless marked as load-adjusted total returns, Morningstar does not adjust total return for sales charges or for redemption fees. Total returns do account for management, administrative, and 12b-1 fees and other costs automatically deducted from fund assets. "

[/ QUOTE ]

So morningstar graphs do give you total returns assuming dividends, capital gains are reinvested. They do not take into account load fees or sales charges. Also,

[ QUOTE ]

" A benchmark index gives the investor a point of reference for evaluating a fund's performance. In all cases where such comparisons are made, Morningstar uses the S&amp;P 500 as the primary benchmark for stock-oriented funds. The +/- (Trailing Time Period) figure indicates the amount by which a fund over or underperformed the S&amp;P 500 during the specified time period.

Note: The total returns for the S&amp;P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere."


[/ QUOTE ]
So it looks like the S&amp;P line that is graphed is the total returns assuming dividends are reinvested also. So this tool actually works to compare apples to apples between funds and the comparable index.

Krishan

Re: Why do mutual funds get such a bad rap on here?
 

[ QUOTE ]

I just want to point out that he didn't post the Top 25 funds for the year... he posted the 25 largest funds!

While mutual funds generally get a bad rap as not being able to outperform the indexes, this year a significant number did. That doesn't mean that they will outperform next year, but it does mean that mutual funds shouldn't be completely ruled out as a way to outperform the market!


[/ QUOTE ]

So how did these funds do in the last 10 years compared to an index fund?