Anyone making regular investments? I’ve been looking at an allocator fund that is about 50/40/10 EQ/FI/AI. All rebased to my home ccy. Front end fees on each monthly investment are 3%. Good deal / bad deal? Thinking of having this as my core portfolio. Set up and forget.
I’d say bad deal. Spend a little time allocating for yourself and save the front end fees.
3% front end fees are ridiculous. If you don’t have multimillions, just allocate and rebalance quarterly yourself (or monthly if things seem to be moving fast). Back end fees that expire over time are more justifiable. However, I just looked back and saw AI was in the mix, which I assume means alternative investments. If that means there are private equity, hedge funds, or hedge fund replicators in the mix, it is something that you can’t allocate on your own unless you are wealthy enough to be a “qualified investor.” That might justify the 3% fees, but only if the alternatives give you 3% diversification improvement (which seems like a tall order). However, if the alternatives are just real estate and generic commodities (rolling over futures and nothing else), do that yourself.
If you’re on a CFA board, don’t you think you should have the knowledge to do it yourself?
I hear what you guys are saying, here’s the rub: - It is a global asset allocator - Exchange rate risk is hedged vs USD (most you guys are based in the US and this is not an issue for you) - Losing 3% on total return over 10+ years should not be meaningful i.e. it’s not 3% pa I like & understand the idea of ETFs, but they are no panacea for me. - ETFs would still require me to invest on a month by month basis for the indefinite future: I wouldn’t trust myself to have the discipline over 10+ years. This gives me discipline. - To add positions I would need to ramp up for the dollar cost averaging effect. - There are still fees with ETFs Correct me if I am wrong but there are no asset allocating ETFs. So using the ETF approah I would have to add lets say an equity ETF, a bond ETF and some alternative ETF on a regular basis. Then rebalance on a quarterly basis which costs. And hedge… Tell me what I am missing here. I normally do bottom up investing and will continue to do so. This is my autopilot investment if you like. It’s not really about knowledge. It’s about time, discipline, cost and practicality.
whats your time horizon? is this for retirement? if youre fairly young (<30 or so), having 40% in fixed income at that age seems a bit conservative. and forget about the front end fees, i would guess theres an annual expense as well? you can get index fund exposure for next to nothing (couple bps) iam 24 and have 50% of my money in an EM index fund and 50% in the S&P 500. i got a long way to go before ill need this money so the thought of having any in fixed income for me seems inappropriate, unless i were taking advantage of some serious mispricing in the market ie high yield bonds at the end of 2008/beginning of 2009.
So do you think the 50/40/10 allocation is good Muddahudda? I’d personally be going for a higher weighting in equities and AI and a lower weighting in FI. Maybe 60/25/15
Muddahudda Wrote: ------------------------------------------------------- > - Losing 3% on total return over 10+ years should > not be meaningful i.e. it’s not 3% pa Your later investments into the fund would have the 3% allocated over a much shorter time horizon, and would then become far more meaningful.
Not sure what the big advantage of a balanced ETF would be over a mutual fund, other than (perhaps) the tax implications. Generally you wouldn’t want to short a balanced ETF, because the whole point of a balanced fund is to capture the diversification advantage (I suppose there might be some strategy where you are betting that correlations will change, but that seems awfully complex). If you’re really looking for a balanced fund, you’d probably look for a no-load mutual fund or possibly a closed-end-fund. There will be additional risk because of the discount/premium in the CEF, but usually that risk will be compensated by a higher total return.
As BChad said, what are the alternative investements? This could be the difference maker.
JKR, I wouldnt do 100% in equities. You basically have 50% risky and then 50% very risky. I’d like the insurance of fixed income if most major equity markets follow Japan (2 lost decades predicated on a zero interest rate policy, sound familiar). I’m not keen on dollar cost averaging for ever if markets continue to go sideways and down. Each to their own. Plus, are you adding to it each month and then managing the weighting? Or is it just a lump sum? Soddy, I’d be happy with a higher equity weighting for sure, but am at the max of the risk spectrum in this case. The point about 3% on later investments is a vaild point. Bchad, are you saying there are balanced ETFs out there? I haven’t looked into the market in detail though I know you can get individual market exposures/sectors etc. Wouldn’t suprise me if you could get asset allocating ETFs, but not sure if they have been created. Nobody has mentioned the FX part. I would have to hedge all USD back to EUR every month.
that is a RIP off! WOW…Being a charterholder or candidate in the CFA program you would know that 2 huge detractors of performance are 1) TRANSACTION COSTS and 2) TAXES. Very important.
List the alternative please.
Could you not buy Euro denominated ETF’s? I’m based in the Eurozone but I generally buy a mix of Dollar/Euro/Sterling denominated stuff for the added diversification.
Muddahudda Wrote: ------------------------------------------------------- > Bchad, are you saying there are balanced ETFs out > there? I haven’t looked into the market in detail > though I know you can get individual market > exposures/sectors etc. Wouldn’t suprise me if you > could get asset allocating ETFs, but not sure if > they have been created. I recall seeing some balanced ETFs on some lists I looked at a while back. I don’t really remember, because it seemed kinda pointless to me to buy a balanced ETF, so I didn’t keep track. But if there is a management fee to be earned from something like that, surely someone is willing to collect it.
My firm has significant positions among many managers that do this sort of thing, but we own them in a 40 act structure and have all fees Load waived or own the Institutional class. The upfront fees are too much. Just buy FPA Crescent (FPACX) or something.
Through a quick search I found these Allocation ETF’s through PowerShares (Invesco)…no AI allocation though. Fees are around 0.26%. Maybe you could add you own AI allocation. http://www.invescopowershares.com/pdf/P-NFA-IVG-1.pdf
jkrecords Wrote: ------------------------------------------------------- > the thought of > having any in fixed income for me seems > inappropriate, unless i were taking advantage of > some serious mispricing in the market ie high > yield bonds at the end of 2008/beginning of 2009. or deflation
Shhh!! Evil speak not thy name.
speaking of…El-Erian weighs in: Pimco’s El-Erian Says Chance of U.S. Deflation Is 25% The U.S. faces a 25 percent chance of deflation and a double-dip recession, according to Mohamed A. El-Erian, chief executive officer at Pacific Investment Management Co., which runs the world’s biggest bond fund. “I do not think the deflation and double-dip is the baseline scenario, but I think it’s the risk scenario,” said El-Erian, 51. U.S. unemployment will probably stay unusually high, he told reporters today in Tokyo. Companies are accumulating cash and individuals are saving, making it tougher to counter deflation, El-Erian said. That reduction in private-sector spending makes government policies to stimulate the economy less effective, he said. A mix of the lowest U.S. inflation rate in four decades and concern that the global recovery will falter is boosting Treasuries, sending two-year yields to a record low this week. Bill Gross, who oversees the record $239 billion Pimco Total Return Fund, raised holdings of U.S. government-related debt in June to the highest level in eight months, according to the company’s website. The U.S. two-year note yielded 0.57 percent at 7:58 a.m. in London, after reaching a record low of 0.5143 percent on Aug. 3. The 0.625 percent note due July 2012 traded at a price of 100 3/32, according to BGCantor Market Data. Consumer Prices Consumer prices excluding energy and food held at a 44-year low of 0.9 percent in June, according to the Labor Department. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, has narrowed to 1.82 percentage points from this year’s high of 2.49 percentage points in January. Deflation is a general decline in prices. Savings Rate The savings rate for American households increased to 6.4 percent in June, the highest level in a year, according to the Commerce Department. U.S. companies held cash reserves and liquid assets of $1.64 trillion as of March 31, 26 percent higher than the same point a year ago, according to the Federal Reserve.