An experiment with riding a mutual fund manager

eastbay · #1 07-12-2007, 09:55 PM

The reasons mutual funds are constrained and often put in disappointing performances have been discussed here a few times. One of the bigger reasons is that if they are any good they usually they have too much money to manage, and can't come up with enough good ideas to employ it all, and end up with a lot of so-so holdings which drags down the overall performance.

So I'm playing a little game with a fund manager I respect and believe is a consistent outperformer (who will remain nameless for now). I'm taking five of his top weightings in a successful fund he runs and putting a sum of money just into those five, and removing the 150-200 other holdings in the fund. In other words I'm taking his top weightings (near 2%) and pumping them up to 20% each. I'm choosing the five based on a few criteria: his weightings (higher is better), some semblance of diversification among the five, and a few morsels of my own research.

I started this about a month ago and have had a lucky streak and am up 10% so far. Yes, I know I have taken on significantly more risk than owning the whole fund.

Just a simple little lazy person's idea I thought I'd throw out there. Ask me how it worked in a year or so.

eastbay

Evan · #2 07-12-2007, 10:48 PM

Want to post the 5 stocks?

emon87 · #3 07-13-2007, 12:45 AM

Are you just holding the five you picked or are you going to be trading them if he also trades them or if he makes moves that reweight his fund?

kimchi · #4 07-13-2007, 12:51 AM

[ QUOTE ]
I'm taking five of his top weightings in a successful fund he runs and putting a sum of money just into those five, and removing the 150-200 other holdings in the fund

[/ QUOTE ]

I still don't really see why professional fund managers carry so many stocks (OK - some have liquidity issues). I had a small cap funs that had 600 stocks. I sold it and bought a small-cap index that held about 400 stocks - many in the same weighting as the managed fund.

These guy managing scores of stocks are just charging for high-priced closet indexes.

DcifrThs · #5 07-13-2007, 01:29 AM

do you follow his re-weightings?

if one of those stocks moves to a below top 5 weight, do you sell it and buy the one that mvoed into the top 5?

Barron

Evan · #6 07-13-2007, 02:01 AM

[ QUOTE ]
[ QUOTE ]
I'm taking five of his top weightings in a successful fund he runs and putting a sum of money just into those five, and removing the 150-200 other holdings in the fund

[/ QUOTE ]

I still don't really see why professional fund managers carry so many stocks (OK - some have liquidity issues). I had a small cap funs that had 600 stocks. I sold it and bought a small-cap index that held about 400 stocks - many in the same weighting as the managed fund.

These guy managing scores of stocks are just charging for high-priced closet indexes.

[/ QUOTE ]
You learned so much in those few lines.

pig4bill · #7 07-13-2007, 02:25 AM

Unless he's close personal friends with the fund manager, he probably won't find out until weeks (or months) after the fund manager has sold, that he's done so. Most funds only divulge their holdings every quarter.

eastbay · #8 07-13-2007, 11:43 AM

[ QUOTE ]
do you follow his re-weightings?

if one of those stocks moves to a below top 5 weight, do you sell it and buy the one that mvoed into the top 5?

Barron

[/ QUOTE ]

It's not a simple top 5, but yes, I will move if he significantly moves his weightings.

It's true that I don't know the holdings or weightings real-time, but this fund in particular has very low turnover.

eastbay

Newt_Buggs · #9 07-13-2007, 12:21 PM

[ QUOTE ]
I'm taking five of his top weightings in a successful fund he runs and putting a sum of money just into those five, and removing the 150-200 other holdings in the fund

[/ QUOTE ]
Have you done any research on whether funds with a strong performance have their five largest position outperform in the future? It doesn't seem like it would be too tough to see if the data matches the theory.

spider · #10 07-13-2007, 01:53 PM

[ QUOTE ]
Yes, I know I have taken on significantly more risk than owning the whole fund.

[/ QUOTE ]

It's not just that you have fewer stocks, but you could end up diversifying in a different way depending on how you pick your five. For example, let's say that as he changes his weighting on financials, he always adjusts commodities to have the exact same weighting as financials. If you don't copy this, it can cause an additional divergence in performance. Maybe better, maybe worse, but different.

You probably already know that, just throwing it out there.