pre-boglehead actively managed funds

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Topic Author
loggerboots
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pre-boglehead actively managed funds

Post by loggerboots »

Hi Folks,

I own a couple actively managed funds that I bought 11-12 years ago when I first set up my company 401k. These funds have done very well. In the past year, due to life changes, I've learned a lot more about finance and investing and came across the bogle philosophy and I buy it. Now I'm having a lot of cognitive dissonance due to the fact that I own a couple actively managed funds that have done really well over a decade plus and spectacularly the past 3 years and I'm having a hard time deciding what to do with them and going forward.

For example, one of my funds benchmarks the Russel 3000 growth. I picked this one when I set up the 401k because it looked like it was getting the highest return at that time haha. It's had the same manager the entire time I've owned it iirc and it's trounced it's benchmark from what I can see. It's ER is .35 (which isn't bad for an active fund, no?). Here's the historical returns:

1 Yr +68.86%
3 Yrs +31.11%
5 Yrs +27.05%
Life +22.98%

Hypothetical Growth of $10,000 since about 2013 ish (looking at a graph)
fund : $43,027
benchmark (russel 3000 growth) : $31,587
benchmark (large growth) : $27,241

This isn't to humblebrag or to discount the philosophy of investing in indexes. I'm legitimately having a hard time divesting of this fund or wondering if even should. I am still contributing to it. The best I could do (for now) was to bring myself to change future contributions to split one 20% bucket between this fund and another between a vanguard index based proxy of the Russel 3000 kind of a horse race for future contributions I guess.

Anyway, I have one other fund like this, though not as dramatic.

What's the conventional wisdom for dealing with a 'pet' active fund purchased pre-boglehead, especially if that fund has done really well and is now a core holding in an account?

Thanks!

ETA correct benchmark
Last edited by loggerboots on Thu Jan 14, 2021 1:27 pm, edited 2 times in total.
burritoLover
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Re: pre-boglehead actively managed funds

Post by burritoLover »

Performance is not a reason to keep any fund. It is not a reason to evaluate how well your portfolio choices were either - especially since a decade is just noise. You need to assume that the past will not be the future and just come up with a reasonable allocation to low-cost index funds that are well diversified. If you absolutely would have moved out of that fund if the performance sucked the last 10 years, then that is not something you should be invested in.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
Topic Author
loggerboots
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Re: pre-boglehead actively managed funds

Post by loggerboots »

Thanks burritolover,

yes, I probably would have in the past because I picked it for no good reason (just it looked good based on past performance) and if it had done poorly past three years I would have sold for the same naïve reason. It's dumb luck, I know that.

That said, knowing what I know about investing NOW (admittedly still not a lot but way more then when I picked it) my instinct is to diversify the fund (perhaps into its benchmark indexes) as it's a core stock allocation in my portfolio and since it's so "up" the past couple years. I think it's top heavy in AAPL and Tesla, etc. and maybe rebalancing into a differently weighted index would be wise, I dunno. I already rebalanced stock/bonds earlier this year and trimmed it a bit as I needed more bonds
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Re: pre-boglehead actively managed funds

Post by pkcrafter »

loggerboots wrote: Thu Jan 14, 2021 12:45 pm Hi Folks,

I own a couple actively managed funds that I bought 11-12 years ago when I first set up my company 401k. These funds have done very well. In the past year, due to life changes, I've learned a lot more about finance and investing and came across the bogle philosophy and I buy it. Now I'm having a lot of cognitive dissonance due to the fact that I own a couple actively managed funds that have done really well over a decade plus and spectacularly the past 3 years and I'm having a hard time deciding what to do with them and going forward.

For example, one of my funds benchmarks the Russel 3000 (basically a whole market index if I'm understanding it correctly). I picked this one when I set up the 401k because it looked like it was getting the highest return at that time haha. It's had the same manager the entire time I've owned it iirc and it's trounced it's benchmark from what I can see. It's ER is .35 (which isn't bad for an active fund, no?). Here's the historical returns:

1 Yr +68.86%
A fund with this kind of performance is not a Russell 3000 fund, it is probably leveraged. Please provide the ticker symbol.

Russell 3000 1 year return was 18.37%


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Topic Author
loggerboots
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Re: pre-boglehead actively managed funds

Post by loggerboots »

hmmmm.... I'll reveal my ignorance, can't find a ticker. It's apparently not a mutual fund. Here's what it's called.

Fidelity ® Growth Company Commingled Pool Class 3

Information on this investment option was provided by your plan sponsor, plan trustee, investment manager, trustee or third party data provider. This investment is not a mutual fund.
Topic Author
loggerboots
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Re: pre-boglehead actively managed funds

Post by loggerboots »

I think it is FDGRX (or related). SImilar performance, same manager.

ETA - the benchmark is also 'russel 3000 growth' which is probably a distinction worth mentioning (op I just said russell 3000).
burritoLover
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Re: pre-boglehead actively managed funds

Post by burritoLover »

Growth stocks have had an incredible run the last 10 years. The fund you quoted, for example, in the decade prior to that (2000-2010) returned less than 1% (0.92%). We can be biased when we see incredible performance and think we need to have that fund or ETF in our portfolio (or in your case, an index that it is based on such as Russell 3000 Growth). A decade is nothing - a lot can change in the future.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
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loggerboots
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Re: pre-boglehead actively managed funds

Post by loggerboots »

thanks again and agreed. That's why I'm thinking I should get out while the getting's good, into something with a somewhat different allocation? Like maybe a combination of growth/value (e.g. full market index)? Just hard to pull the trigger I'm fond of it haha.

Also, I don't have a whole market index. Just an S&P 500 and Russel 1000 (growth and value variants) and Russel 2000. I could approximate the whole market equally weighted betwen growth and value. That's what I did, actually, for future contributions.

Strongly considering rebalancing into that but also 'stay the course' and 'buy and never sell' and don't time the market are giving me FUD. Maybe I don't sell or rebalance and just put future contributions into the indexes I mentioned. Still, that's market timing, isn't it lol.
Last edited by loggerboots on Thu Jan 14, 2021 1:33 pm, edited 1 time in total.
pkcrafter
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Re: pre-boglehead actively managed funds

Post by pkcrafter »

loggerboots wrote: Thu Jan 14, 2021 1:11 pm hmmmm.... I'll reveal my ignorance, can't find a ticker. It's apparently not a mutual fund. Here's what it's called.

Not unusual for some company funds to not have tickers--they are "commingled trusts"

Fidelity ® Growth Company Commingled Pool Class 3

Information on this investment option was provided by your plan sponsor, plan trustee, investment manager, trustee or third party data provider. This investment is not a mutual fund.
Ok, it's supposed to track the Russell 3000 growth index, but that index was up 32%, so your return doesn't look right for a pure tracking fund. It appears to be leveraged, that's the only way you could get such performance. Be sure the return you posted is for one year.

https://www.marketwatch.com/investing/i ... trycode=xx

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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loggerboots
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Re: pre-boglehead actively managed funds

Post by loggerboots »

yeah, it's a variation of FDGRX (not sure what a comingled pool is, but clearly it's based on this fund). here's a link to the relevent info. The numbers I posted above are from 2013-2014 until now, I guess when that comingled pool whenever that established. Here's a link to FDGRX. It's an actively managed fund, not a passive index. Not sure what leveraged means I'll research!

https://fundresearch.fidelity.com/mutua ... /316200104

ETA correct fund symbol and link
Last edited by loggerboots on Thu Jan 14, 2021 1:41 pm, edited 2 times in total.
pkcrafter
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Re: pre-boglehead actively managed funds

Post by pkcrafter »

loggerboots wrote: Thu Jan 14, 2021 1:30 pm thanks again and agreed. That's why I'm thinking I should get out while the getting's good, into something with a somewhat different allocation? Like maybe a combination of growth/value (e.g. full market index)? Just hard to pull the trigger I'm fond of it haha.

Also, I don't have a whole market index. Just an S&P 500 and Russel 1000 (growth and value variants) and Russel 2000. I could approximate the whole market equally weighted betwen growth and value. That's what I did, actually, for future contributions.

The S&P500 performance is very close to total market, so it's a good choice.

Strongly considering rebalancing into that but also 'stay the course' and 'buy and never sell' and don't time the market are giving me FUD. Maybe I don't sell or rebalance and just put future contributions into the indexes I mentioned. Still, that's market timing, isn't it lol.

If you have a target asset allocation, you need to follow it. If it become more than 5% off, you rebalance. You can do that by sell/buy or you can simply add new contributions to the funds under target.
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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loggerboots
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Re: pre-boglehead actively managed funds

Post by loggerboots »

Thanks Paul, I have an allocation between stocks (foreigh/domestic) and bonds. This would be part of my domestic stock allocation as it stands, today.

Since I only woke up this year and started learning this stuff I had been 100% stocks since I set this up. Good news I didn't blink in March, just closed my eyes haha.

A few months ago (after the recovery) I bought a 20% allocation of bonds. So anything I do to move this active fund into passive funds would be rebalancing within my "domestic stock' allocation. It's pretty messy. Easier to set up it right from the beginning than try to maneuver into it a decade+ in, I'm learning.

Ironically, it was the run up of this fund and it's friends (suddenly I had 'real money' in my account) and the March crash that woke me up and made me realize I should learn about this stuff.

Thankfully, my reaction to March was to 'not look'. I took a mental note of where the NASDAQ was in days prior to the crash and told myself (and my girlfriend) that when the NASDAQ gets back to that level, I will look again. In that couple months I learned that I should be holding bonds and when we got back to pre-crash levels I bought an allocation. Sadly, my bond funds are active, too, only one short term index, the other choice is PIMCO total return.

Maybe I'm taking too much action. Ignoring it served me well for 11 years but I realize this has been an historic run. Hard to know what to do when you've been doing it wrong for so long (but it worked out for the best despite oneself!)
Last edited by loggerboots on Thu Jan 14, 2021 1:56 pm, edited 2 times in total.
burritoLover
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Re: pre-boglehead actively managed funds

Post by burritoLover »

loggerboots wrote: Thu Jan 14, 2021 1:30 pm thanks again and agreed. That's why I'm thinking I should get out while the getting's good, into something with a somewhat different allocation? Like maybe a combination of growth/value (e.g. full market index)? Just hard to pull the trigger I'm fond of it haha.
Perfect time to get out. The 3-funder is a classic Bogleheads strategy:
https://www.bogleheads.org/wiki/Three-fund_portfolio
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
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Re: pre-boglehead actively managed funds

Post by Jack FFR1846 »

You need to convince yourself that indexing is the way to go.

Maybe pull up Callan's periodic table.

I know that it took me a while to give up Contrafund for VTI and the like. But I did.

I'm now fully into broad based, low cost indexing. When looking at a fund, I honestly don't care what it's past performance was. Unless you're filling up the Mr. Fusion, then setting the time settings in the Delorean, I really don't care at all what a fund did in the past.
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GerryL
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Re: pre-boglehead actively managed funds

Post by GerryL »

@loggerboots,
I understand your angst about getting out of a managed fund that has performed well for you.
When I first started investing in the early 1990s, I knew nothing except that I needed to be in stocks. Schooled by a feature article in Consumer Reports on stock mutual funds and the importance of cost, I opted for the Dodge & Cox fund for my IRA, which was in CDs that were about to mature. ER was .52, about the lowest on the article's list of recommended funds.

Even as I learned about index mutual funds, I left the IRA in D&C, never adding anything after the first couple of years. It grew steadily and sometimes dramatically over the next two decades, even through downturns. Some years my earning were more than my initial investment.

Once I retired, I decided to consolidate all of my portfolio in Vanguard index funds ... several times. It was really hard to pull the plug. The decision was to simplify, so I finally did it. I have never gone back to see "what might have been." Doesn't matter.
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loggerboots
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Re: pre-boglehead actively managed funds

Post by loggerboots »

Thanks guys,

Really appreciate all the input. I'm still dragging my feet but at least I pulled the trigger on a new allocation for future contributions to this account and I contribute pretty heavily (16% pretax which gets me full match at 50% and 15% post tax which are converted to ROTH source daily) - so it should build up at a good clip. The new allocation is an 80/20 portfolio:

64% FZROX
16% FZILX
20% FXNAX

I had to build this in my brokeragelink account as they are not available in my normal 401k. Not crazy about holding bonds in my ROTH source but I cannot specify a source in the brokeragelink account and at least this keeps things simple for rebalancing. I really need simplicity at this point.

In addition, I sold one of my smaller funds in my 401k (one that I wasn't as attached to haha) and it's being sent into the brokeragelink/3fund as we speak. I haven't sold my pet funds as of now but we'll see how this sits over the next little while before I do more.

It's progress. I'm craving simplicity as this stuff is crazy making. Really compelled to tinker so I know just setting up the simplest possible portfolio, automating it, then going back to ignoring it is the way to go for me.
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Re: pre-boglehead actively managed funds

Post by backpacker61 »

I'll make a somewhat unorthodox suggestion; I think it's fine to keep an allocation to an actively managed fund that you like, but I would definitely make your on-going contributions to the broad market index funds. Some like to have what is called a "Core and Satellite" fund strategy; in which the "core" of their savings are in the broadest funds available, with smaller holdings to "satellite" funds in specialized facets of the market. You could consider peeling off some of your commingled fund holdings from time to time to augment your new "core" holdings on a timetable of your choosing. I did that myself years ago with Small Cap Growth fund that was outpacing other holdings in my 401K; allocating a small portion of the fastest-growing fund in my 401K account to the more under-weighted holdings.

I also would have thought it fine to use the S&P 500 index fund in your core funds menu instead of opting in for the complexity of the Brokeragelink account.

I think your fund choices are fine, however.
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Re: pre-boglehead actively managed funds

Post by ruralavalon »

loggerboots wrote: Thu Jan 14, 2021 1:11 pm hmmmm.... I'll reveal my ignorance, can't find a ticker. It's apparently not a mutual fund. Here's what it's called.

Fidelity ® Growth Company Commingled Pool Class 3

Information on this investment option was provided by your plan sponsor, plan trustee, investment manager, trustee or third party data provider. This investment is not a mutual fund.
The fund is a Collective Investment Trust (CIT), and will not have a ticker symbol.

An expense ratio of 0.31% is fairly low, not bad at all for an actively managed fund. What fund company manages this CIT, is it Fidelity? Can you post a link to a copy of the fact sheet for this CIT?

Wiki article "Callan table of periodic returns". The table shows the performance rankings of 10 different asset classes each year for 20 years. "The rankings change every year, thereby demonstrating two key principles of investing:

1) Diversification: by owning the entire market (all of the asset classes), susceptibility to changes in market returns is minimized.
2) Past performance does not predict future performance."

In my opinion simply using the S&P 500 index fund in your employer's 401k plan would be a good choice for investing in U.S. stocks. What other funds are offered in your employer's 401k plan? Please give fund names, tickers if any, and expense ratios.

If craving simplicity a target date fund, like a Fidelity Freedom Index Fund might be best.

Are there any fees charged for using the BrokerageLink, such as an annual fee and per transaction fee?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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loggerboots
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Re: pre-boglehead actively managed funds

Post by loggerboots »

backpacker61

Thanks for the suggestions. I like the concept of the core and satellite funds and the idea of slowly augmenting the core portfolio with the new money and peeling off some of the old funds a bit at a time to ease the transition. I already had to do something similar when buying my bond allocation earlier this year and it's definitely an approach that seems less abrupt and maybe easier to do psychologically.

As to why I went brokeragelink, my 401k funds do not offer a passive foreign stock index (one actively managed foreign stock fund that hasn't done so well) and only two bond funds, one actively managed and one short term index, no total/broad bond market fund.
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loggerboots
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Re: pre-boglehead actively managed funds

Post by loggerboots »

ruralavalon

Thanks for your input! Here is a fact sheet to the comingled pool from the OP (ER is .35 not .31 but still pretty good - not sure why the document has yet a different ER, but the ER on my version of this fund 'Fidelity ® Growth Company Commingled Pool Class 3' is .35 er)

https://www.fidelity.com/bin-public/060 ... IL_pdf.pdf

Most of my fund options do not have tickers. I will update the thread when I can figure out a good way to format the selections. To view the list requires a login so I'd need a way to export.

ETA - here's a brief list of my funds choices. Just hand typed as couldn't figure out an easy way to export the info. Hope this is useful for any further direction!

BlackRock LifePath® Index funds (a series of target date funds in five year increments, low ER like .06)

Fidelity® Contrafund® Commingled Pool Class 3
ER .35%

Fidelity ® Growth Company Commingled Pool Class 3
ER .35%

Vanguard Institutional S&P 500 Index Trust
ER .011%

Vanguard Russell 1000 Growth Index Trust
ER .02%

Vanguard Russell 1000 Value Index Trust
ER .02%

Artisan Mid Cap Account
ER .502%

DFA Small/Mid Cap Value Account
ER .2683%

Vanguard Russell 2000 Growth Index Trust
ER .03%

International Growth Account
ER .4905%

International Value Account
ER .508%

PIMCO Inflation Response Multi-Asset Fund Institutional
ER 1.03%

PIMCO Total Return Account
ER .246%

Vanguard Short-Term Bond Index Fund Institutional Plus Shares
ER .04%

BlackRock Short-Term Investment Account
ER .04
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ruralavalon
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Re: pre-boglehead actively managed funds

Post by ruralavalon »

loggerboots wrote: Thu Jan 14, 2021 4:47 pm . . . .
It's progress. I'm craving simplicity as this stuff is crazy making. Really compelled to tinker so I know just setting up the simplest possible portfolio, automating it, then going back to ignoring it is the way to go for me.
Target date fund.
If you really mean that then a fund from among the "BlackRock LifePath® Index funds (a series of target date funds in five year increments, low ER like .06)" is your best choice. Just pick the one with the asset allocation which seems most suitable to you.

BlackRock LifePath funds are excellent target date funds, are very diversified index funds with very low expense ratios.

Morningstar (8/15/2019) "Mind the Gap 2019", link. Target date funds seem to insulate investors from behavioral mistakes, and so lead to higher investor returns.


If you don't want a target date fund.
If instead you want individual funds for a three-fund portfolio, then in your 401k you could use:
1) Vanguard Institutional S&P 500 Index Trust ER .011%;
2) an international stock index fund with a low expense ratio thru the BrokerageLink; and
3) PIMCO Total Return Account ER .246%, OR Vanguard Short-Term Bond Index Fund Institutional Plus Shares ER .04%, OR a combination of the two bond funds.


U.S. stocks.
In my opinion in a plan that lacks a total stock market index fund, a S&P 500 index fund is good enough by itself for a domestic stock allocation. A S&P 500 index fund covers over 80% of the U.S. stock market investing in stocks of selected large-cap and mid-cap U.S. companies.

In the 28 years since the creation of the first total stock market index fund the performance of the two types of funds has been almost identical. Portfolio Visualizer, 1993-2020. So it seems that adding a little in mid/small cap stocks trying to mimic the holdings of a total stock market fund has historically made little difference in performance.

See also:
1) Allan Roth, CBS Moneywatch (02/03/2010), "John C. Bogle on the S&P 500 vs. the Total Stock Market"; and
2) Wall Street Physician (01/17/2019), "Should You Invest in the S&P 500 or the Total Stock Market?".



Bonds.
In my opinion PIMCO Total Return Account ER .246% offered in your 401k is a good choice for a bond fund. Although actively managed it is a well diversified intermediate-term bond fund with a low expense ratio, and compares well to a total bond market index fund. My personal preference is for an intermediate-term bond fund over a short-term bond fund.

Please see nisiprius post in forum discussion "Bond Fund for Three-Fund Portfolio", Total Bond Market vs PTTRX?. “As for PIMCO Total Return versus Vanguard Total Bond, that's a tough one. They act generally the same, they both show the steady upward lift on a growth chart that comes from reinvested dividends, there are no funny places where one does something wildly different than the other, and the size of the fluctuations in PIMCO Total Return are not visible larger than in Vanguard Total Bond. In the chart above, both funds go up and down together, but PIMCO just keeps steadily widening the lead. PIMCO Total Return definitely made more money."

Morningstar, “Growth of 10k”, "PTTRX vs VBTLX".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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