My Actively Managed Funds

My Actively Managed Funds

My Actively Managed Funds

Hello everyone! Welcome back to The Green Swan. Today’s post is a continuation of recent posts on my investment portfolio and strategy. If you haven’t read the previous posts, check out Invest to Win and My Investment Portfolio. I appreciate all the questions and comments I have received on these two posts which have spurred further discussion and additional articles to post. Today I will take a deep dive into My Actively Managed Funds.

I want to thank all those who commented on My Investment Portfolio post. Some folks expressed caution to me for holding so much of my investments in actively managed funds given the higher fees while some thought it was no big deal so long as they are performing well. And since I will need to do a large re-balancing in the next month (since I need to sell a large amount in my taxable brokerage account to invest in the new small family business previously discussed) there is no better time to re-analyze my current portfolio of actively managed funds. So let’s take a look.

Below I will be addressing the returns, fees and other important characteristics associated with my actively managed funds, excluding those held in my Health Savings Account since it is a small amount of money and there are not many good investment alternatives offered. Note that the charts below have been provided Morningstar. You can look them up online if you haven’t heard of them before, but they are a very good research website and offer a number of free resources

As an overview, the analysis below is based on the last five full calendar years and year to date through 5/31/2016. The returns shown below are after taking out the annual fees the fund charges (shown below as the Net Expense Ratio).

The chart shows the returns of the fund, its benchmark category (e.g. LB or Large Blend for OAKLX; blend meaning a blend of value and growth stocks), as well as the broader market return (e.g. the S&P 500 for domestic funds).

For the analysis, my primary concern is whether they have performed well compared to their benchmark category (their investment universe) and that is how I’ll judge their performance as Acceptable or Unacceptable.

OAKLX (Domestic, Large Cap Blend)

4.7% of our portfolio, held in IRA and taxable brokerage accounts

My Actively Managed Funds

Summary: OAKLX performed very well from 2011 to 2014, beating the category and S&P 500 in each of those years. However, it has given back some of those gains in 2015 and YTD. While its expense ratio is ~1%, it has more than offset the cost and performed well.

I like this fund’s track record and it will remain in our portfolio after I re-balance. It will be a good counterpart and diversifier to my large cap S&P 500 index fund.

Conclusion: Performance has been Acceptable

ARTKX (Foreign, Large Cap Blend)

4.4% of our portfolio, held in IRA and taxable brokerage accounts

My Actively Managed Funds

Summary: When comparing this fund to the category and MSCI, it has performed great. However, if you chart it against the S&P 500 it will show it has underperformed. And the reason is because international hasn’t done as well in recent years compared to domestic funds, and part of the reason is the strength of the dollar which has eaten away from the returns when the investments are converted back to USD. While my ultimate goal is for my portfolio to track or beat the S&P 500, this is a fundamental characteristic of a diversified portfolio. Sometimes international will under-perform domestics, and vice-a-versa.

I note the expense ratio has been above 1% annually, but performance has made this cost easily worth it. All-in-all, this fund will continue to be an important part of our portfolio’s international diversification.

Conclusion: Performance has been Acceptable

PENNX (Domestic, Small Cap Blend)

5.3% of our portfolio, held in IRA and taxable brokerage accounts

My Actively Managed Funds

Summary: This fund has been a disappointment in recent years. I bought this fund initially to be a conservative investment into the Small Cap space. This fund has been touted to be a “safer” investment, performing better than average in downturns although performing below average in upturns. In reality, this fund has underperformed both in upturns and downturns. The last 18 months to 2 years is when I would have expected it to do better, and it hasn’t. If you can’t tell, I’m very disappointed in this fund and am ready to sell it. I don’t have any good actively managed funds I plan to move this money into, so for the time being I’ll probably move it into my small cap index fund.

Conclusion: Performance has been Unacceptable

PRMSX (Foreign, Diversified Emerging Markets)

2.5% of our portfolio, held in IRA and taxable brokerage accounts

My Actively Managed Funds

Summary: This fund represents our portfolio’s only entry into the Emerging Markets (“EM”) space. I note that this is considered a very risky and volatile place to put money. But I want EM to be part of our portfolio because I think in the long term it will outperform the S&P 500. Because it is risky though, I have kept it as a small percent of our portfolio. While it has underperformed the MSCI in recent years, I would expect EM to bounce back soon.

With that said, this fund has outperformed the EM category. Actively managed funds in this space are expected to be more expensive given it being a more research intensive space to invest (more difficult researching EM investments, etc.). And that is the case for this fund as well, clocking in around 1.25%. However, compared to the category, it has been worth it given its out-performance.

Conclusion: Performance has been Acceptable

FCNTX (Domestic, Large Cap Growth)

11.2% of our portfolio, held in my wife’s 401(k)

My Actively Managed Funds

Summary: While it has underperformed the S&P 500, it has outperformed the category consistently and by a fair amount. And its under-performance to the S&P 500 is only marginal and it has tracked it closely over this timeframe. Since it continues to be a good diversifier to my S&P 500 index funds and tracked it closely, I’m leaning toward keeping this in our portfolio. There are limited investment options in my wife’s 401(k), but the primary alternative would be an S&P 500 index fund.

Conclusion: Performance has been Acceptable

MSIQX (Foreign, Large Cap Blend)

5.3% of our portfolio, held in my wife’s 401(k)

My Actively Managed Funds

Summary: Strong performance having beaten the category in the YTD period and all but one of the previous five years. While the expense ratio is ~1%, it has consistently offset that cost and outperformed.

Given the limited investment options in my wife’s 401(k), this is a very good performer and will continue to be a primary investment selection for us.

Conclusion: Performance has been Acceptable

International Fund of Funds

9.8% of our portfolio, held in my 401(k)

My Actively Managed Funds

Summary: Analyzing fund performance for my 401(k) is a bit more difficult. The international actively managed fund available is considered a fund of funds (it is a mutual fund consisting of three other international mutual funds – talk about diversification!). And the availability of this fund is solely through my employers 401(k) which means I can’t look it up on Morningstar and provide the nice looking charts as I have on the others.

With that said, it’s benchmark is the MSCI as outlined in the table above. In summary, this fund has a limited history but has outperformed in aggregate over the last 3 years, although it has underperformed a bit in the YTD period.

Conclusion: Performance has been Acceptable

Overall Conclusions

By in large, I have been very happy with the few actively managed funds I’ve selected to be part of my wife and my portfolios. They have provided a bit of extra diversification and have performed well. With that said, this part of my portfolio does require a bit of extra routine monitoring and analysis to make sure the funds continue to be appropriate and perform well. As part of this analysis, I may take the opportunity of re-balancing to drop a fund or two and move money to more appropriate funds.

As far as how much of my portfolio I want to maintain in actively managed funds, I think I’m currently a bit overweight today at ~50% of my portfolio. I may also take this opportunity to move a portion into index.  Perhaps I target a third of my portfolio to actively managed funds.  This would mean if I hold 5 actively managed funds, that I would target 6-7% of my portfolio to each fund which seems reasonable.

Note: I use Personal Capital to manage and track my expenses as well as my investment accounts, allocations and performance. It is absolutely free to sign up and use and has some fantastic features when it comes to investment management. I highly recommend it to everyone. Note, if you sign up to Personal Capital by clicking the image below I may receive an affiliate fee. But rest assured that I would not recommend this tool so highly if I didn’t use it myself and love it. It adds so much convenience to managing personal finances. Plus it’s free!

Disclaimer: Please reference my Disclosures page. This post is for informational purposes only and is not to be construed as financial advice. If you need help with investing or financial decisions, please consult a financial professional.

What are your thoughts? Would you kick out PENNX and FCNTX or keep them in? Are there any actively managed funds that you own and love that I should consider? Let me know in the comments below.

Thanks for taking a look!

The Green Swan

Work Harder, Work Smarter, Retire Earlier and Find Your Beach






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  1. This is all pretty fascinating to me. I am not a “finance” person and would never attempt to actively manage my own portfolio at all (at least at this point!) I paid a high fee to have someone do it for years and now I have moved everything to Vanguard. I always want to learn more though – so reading what you are doing is really interesting. I need to go back and read about the business venture you are entering in to as well!

  2. Enjoyed reading your take on things. Of course it all depends on what your risk tolerance is, how you deal with volatility, and where you are in terms of journey / timeline towards FIRE. For my age, it would likely be the same set of considerations with a different answer.

    I am sure those over at the Bogleheads forum would howl in pain at the high expense ratios but that is of no concern to you.

    Ultimately what matters is that any decision sits well with you, your family and what you need. You appear to be very much on top of that.

    1. Thanks, I appreciate your viewpoint Mr. PIE as well as all the Bogleheads. I understand the argument from that side of the coin, and I think we will continue to migrate that way as part of the effort to rebalance. I can’t argue with how the majority of my actively managed funds have done in the last 5 years though so we’ll continue to make room for them in some degree. Thanks for the comment and keep them coming!

  3. I had PENNX a long time ago. It was a good diversification, but it didn’t perform very well back then either. I kicked it. Now, we only have index funds. It’s just easier for us. In the future, I might move some of our international investment to active funds. That seems to be where the big difference is.

    1. Somethings never change I guess, huh. Thanks for sharing your history with PENNX. I agree, my preference for actively managed funds would be primarily international and also small cap. Part of the reason we own so much actively managed for large cap is because of my wife’s 401K and the strong performance of FCNTX, but we may need to look at lowering that a bit.

  4. I am a fan of the Oakmark Fund Families. I only have the OAKIX international fund and held there OAKEX emerging markets funds until recently.

    I mostly hold index funds, but still have some actively managed funds for certain asset allocations & sectors.

    1. I am a fan of the Oakmark family too and, as a matter of fact, actually held OAKIX until just a few years ago. In an effort to consolidate the number of mutual funds I owned, I sold it in favor of another international fund, but it did well for me.

      Generally speaking, sounds like we have similar views in terms of active versus index fund ownership. Thanks for sharing!

  5. I don’t own any actively managed funds right now, have taken the simple index fund approach in all of our accounts – I may explore them when I have more time

    Morningstar is a great research tool – I used it when evaluating the funds in my 401k

  6. I have no actively managed funds as I do not want to pay that 1% fee. While some of the funds do outperform, I would rather throw them in a Vanguard Index fund due to the low expense fees. I will likely look more into actively managed funds if I find some that constantly beat the market. With the new fiduciary rules it will be interesting to see how it plays out.

    1. Stefan – check out AGTHX for an excellent example of a fund that “constantly” beats the market. And yes you can get a no-load version if you don’t want the professional advice. Once I do some research on the above funds I’ll get back to you Green Swan!

  7. I am a index-fund proponent. Less expense, less time, and similar results. I got burned about 15 years ago when our company 401k had an actively managed fund that dropped 30% in one day through complete incompetence. While these cases are relatively infrequent, they do happen and are an added risk of actively managed funds.

    1. Wow, talk about a wake-up call that must have been. Very rare, but very scary and a huge drop!

      I agree with your logic on index funds. The counterpoint would be that if you have some solid actively managed funds which manage to outperform the index by 1% per year (which they theoretically can and should do) that adds up to some significant money. Ultimately, is the added risk worth working a few years longer? Maybe, maybe not. Not necessarily a big deal for me, but I do like the slight added diversification they provide too. Thanks for the comment!

  8. Index fund user here as well, I invested in mutual funds “by mistake” following bad recommendations from advisors with a conflict of interest a while ago (when I was completely financially illiterate), that was frustrating enough that I’m not going that road anymore.

    1. Very understandable, thanks for sharing. I go back and forth whether I should completely get rid of all my active management funds. Or do I begin to reduce the amount invested in then gradually over time and eventually cutting them out completely. One thing is for sure, I’m too heavy in them right now.

  9. (part one – the bottom of the page gets cut off if I try to post the whole thing:) First off, kudos JW for even acknowledging that you -can- beat the market, after all expenses. It’s extremely hard, and very rare, but it can and has been done. Trying to get someone in the FIRE community to actually acknowledge that fact is like pulling teeth. Most people just dig in their heals and insist on it not being possible, point to studies that say it’s -almost- impossible, all while ignoring the outliers and walking away. Which blows my mind, as it’s not an opinion – it’s a fact. There absolutely, positively are funds that have and very likely will beat the markets over meaningful periods of time. AIVSX has been doing it for 83 years now!

    I liked seeing your list of funds and their reasons for owning. I usually look at turnover rate (how much of their portfolio they trade yearly) first, and practically all of those funds have very low turnover rates of around 18-30%. If it’s close to the average of around 100%, they’re usually not going to fare well.

    1. Thank you, Ron. I have no problem recognizing there are good actively managed funds out there. I guess I’m not your average FIRE blogger :)!

      And I never knew that about AIVSX, that’s impressive!

      Thanks for pointing out the turnover rate. I’m aware of that concept and can see why it’s important but admittedly haven’t paid much attention to it historically. Thanks for the tip!

  10. Part two: The expense ratio is nice to have low, but what it costs isn’t nearly as important as what it makes you. Michael Jordan cost a lot, but he reliably put up the performance. While the average (index) is perfectly fine, I’ll take proven Michael Jordans any day.
    My personal favorites are mostly American Funds. They invest conservatively and don’t get caught up in market manias. AGTHX is my core favorite, and AIVSX is a more conservative version. There are more. They recently became available through Fidelity as no-load funds, and ALL their US equity funds have beaten the indexes over time. No smoke, no mirrors:
    Let me know what you think! I’m very intimate with these funds and the company (I used to work with them professionally but have no connection now) and can tell you pretty much anything you’d want to know.

    1. I love the Michael Jordan analogy! Such a great point. I think that is the downfall of many bloggers and others who are huge advocates of index funds when they point solely to the expense ratio. It’s a blind spot in there analysis that some funds are very much worth the extra expense, and like you said it’s just a matter of finding those funds and the strategy that fits your style.

      Thanks for sharing that about American Funds. I’ve noticed there high ratings in the past.

      And thanks so much for the very insightful comments! An insider view like you have is not easy to find and yet so valuable. I very much appreciate your perspective!

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