Is a smart-beta portfolio worth it for 200+ bp fee?
Is a smart-beta portfolio worth it for 200+ bp fee?
I have a long running portfolio that has been managed under a discretionary mandate by a bank. Used to be unbothered by the structures or fees/expenses since it is all auto deducted and managed professionally.
Ever since I came across John Bogle's and Burton Malkiel's book on mutual funds and have been researching on low cost investing for the past 3 years(since Covid), I started digging into the my mandate to find out that :
1. The bank charged 1.8% p.a mandate fee off the port.
2. The underlying are mostly equity and bond mutual funds(which averages 0.40%-0.60% in fee).
3. Smart beta tilt between equity,bonds and small amount of derivaties+cash. It can go anywhere from 70/25/5 to 50/45/5 depending on how the CIO manage. From what I observe the manager trade in and out funds almost on a weekly basis.
4. There is 2-3% allocation on currency hedges( USDJPY, AUDUER etc )which seem to always incur loss on a regular basis.
"The Fund's portfolio holdings primarily consist of investment funds which either (i) promote environmental (E) and/or social (S) characteristics or (ii) have sustainable investments or reduction in carbon emissions as their objective.
The Fund invests according to a dedicated asset allocation for a Balanced investment strategy which reflects the House CIO View on Sustainable Investing.
The Fund is actively managed and is not constrained by a benchmark index."
2018 2019 2020 2021 2022 YTD 2023
-5.22% 18.68% 11.98% 10.48% -15.18% 4.36%
Would I be better off switching out this mandate into a simple 60/40 low-cost world total fund ? Am 30yrs old between.
Ever since I came across John Bogle's and Burton Malkiel's book on mutual funds and have been researching on low cost investing for the past 3 years(since Covid), I started digging into the my mandate to find out that :
1. The bank charged 1.8% p.a mandate fee off the port.
2. The underlying are mostly equity and bond mutual funds(which averages 0.40%-0.60% in fee).
3. Smart beta tilt between equity,bonds and small amount of derivaties+cash. It can go anywhere from 70/25/5 to 50/45/5 depending on how the CIO manage. From what I observe the manager trade in and out funds almost on a weekly basis.
4. There is 2-3% allocation on currency hedges( USDJPY, AUDUER etc )which seem to always incur loss on a regular basis.
"The Fund's portfolio holdings primarily consist of investment funds which either (i) promote environmental (E) and/or social (S) characteristics or (ii) have sustainable investments or reduction in carbon emissions as their objective.
The Fund invests according to a dedicated asset allocation for a Balanced investment strategy which reflects the House CIO View on Sustainable Investing.
The Fund is actively managed and is not constrained by a benchmark index."
2018 2019 2020 2021 2022 YTD 2023
-5.22% 18.68% 11.98% 10.48% -15.18% 4.36%
Would I be better off switching out this mandate into a simple 60/40 low-cost world total fund ? Am 30yrs old between.
Re: Is a smart-beta portfolio worth it for 200+ bp fee?
Those fees are very, very high. You would do better in, say, Vanguard Balanced Index Fund. Compare your year-by-year returns with the returns on that fund:
https://www.morningstar.com/funds/xnas/ ... erformance
https://www.morningstar.com/funds/xnas/ ... erformance
Re: Is a smart-beta portfolio worth it for 200+ bp fee?
That's really expensive.
Probably.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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Re: Is a smart-beta portfolio worth it for 200+ bp fee?
Well, I seem to recall a quote attributed to John Bogle himself:
“You get to keep what you don’t pay for”
In other words, choose securities investments by minimizing investment expenses including management fees, trading expenses, fund loads, commissions, etc. The avoided expenses show up as a bonus in your portfolio investment returns over the long term.
That’s because investing is not Lake Wobegone (“where every child is above average”). You can’t predict which fund or investment manager will beat the average (average being the total or broad market index returns) or when.
And studies show most active investment managers fail to beat the market in a given year. The few who do in any one year are very unlikely to do so again the next year.
But over decades, even seemingly small unnecessary expenses compound into a big drag on returns.
So why pay extra to get less total return over the long term?
“You get to keep what you don’t pay for”
In other words, choose securities investments by minimizing investment expenses including management fees, trading expenses, fund loads, commissions, etc. The avoided expenses show up as a bonus in your portfolio investment returns over the long term.
That’s because investing is not Lake Wobegone (“where every child is above average”). You can’t predict which fund or investment manager will beat the average (average being the total or broad market index returns) or when.
And studies show most active investment managers fail to beat the market in a given year. The few who do in any one year are very unlikely to do so again the next year.
But over decades, even seemingly small unnecessary expenses compound into a big drag on returns.
So why pay extra to get less total return over the long term?
A strategy that works only in bull markets isn’t much of a strategy. Anyway, four dollars a pound.
Re: Is a smart-beta portfolio worth it for 200+ bp fee?
Search in YouTube for "Bogle: Smart Beta Does Not Deliver Better Returns". Pay attention to what he says at the end about index fund charging you 5 (yes, just five) basis points. Today, Vanguard's total stock market index fund (VTSAX) charges only four.
If you have already done three years of research into low cost funds, what is stopping you from switching? Maybe you need something simpler than even what Bogleheads recommend? Then you can read JL Collin's "The simple path to wealth" and get started right away. Collins did a podcast with Boglehead Rick Ferri (podcast 053) which you can listen on YouTube too.
If you have already done three years of research into low cost funds, what is stopping you from switching? Maybe you need something simpler than even what Bogleheads recommend? Then you can read JL Collin's "The simple path to wealth" and get started right away. Collins did a podcast with Boglehead Rick Ferri (podcast 053) which you can listen on YouTube too.
“The simple path to wealth” — JL Collins.
Re: Is a smart-beta portfolio worth it for 200+ bp fee?
VBIAX is up 6.1% for 2023 just in price, not counting dividends and the Exp. ratio is .07%.
A three fund boglehead portfolio with a 20% international, 40% US stock, 40% bond allocation is up 6.5% for the year with exp ratio of .05%.
Both are ahead of your very expensive, professional managed bank job.
A three fund boglehead portfolio with a 20% international, 40% US stock, 40% bond allocation is up 6.5% for the year with exp ratio of .05%.
Both are ahead of your very expensive, professional managed bank job.
Re: Is a smart-beta portfolio worth it for 200+ bp fee?
Even if you wanted smart beta, Goldman Sachs has ETF in the 10-30bp range
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Re: Is a smart-beta portfolio worth it for 200+ bp fee?
In my opinion the idea that the smart beta returns will overcome those high expenses is far fetched. You get a 100% guaranteed return on the fees you don’t pay. I invest in VTI and VXUS and a treasury bill ladder for that reason. I am glad to take what the market returns with minimal costs. I think you have come to a similar decision.
Re: Is a smart-beta portfolio worth it for 200+ bp fee?
You are paying between 2.2% and 2.4% a year, all in expenses on the portfolio. Just looking at the raw performance numbers, it looks like the portfolio has done fairly well. I compared the returns to Vanguard Lifestrategy Moderate Growth which keeps an approximately 60/40 split, though now it is about 63/37. The returns look to be too high. I am suspicious, however, that the returns are from the portfolio itself and don't take into account the annual 1.8% Assets Under Management fee. This is something to ask your Advisor.anxon h. wrote: ↑Thu Jun 01, 2023 9:55 pm I have a long running portfolio that has been managed under a discretionary mandate by a bank. Used to be unbothered by the structures or fees/expenses since it is all auto deducted and managed professionally.
Ever since I came across John Bogle's and Burton Malkiel's book on mutual funds and have been researching on low cost investing for the past 3 years(since Covid), I started digging into the my mandate to find out that :
1. The bank charged 1.8% p.a mandate fee off the port.
2. The underlying are mostly equity and bond mutual funds(which averages 0.40%-0.60% in fee).
3. Smart beta tilt between equity,bonds and small amount of derivaties+cash. It can go anywhere from 70/25/5 to 50/45/5 depending on how the CIO manage. From what I observe the manager trade in and out funds almost on a weekly basis.
4. There is 2-3% allocation on currency hedges( USDJPY, AUDUER etc )which seem to always incur loss on a regular basis.
"The Fund's portfolio holdings primarily consist of investment funds which either (i) promote environmental (E) and/or social (S) characteristics or (ii) have sustainable investments or reduction in carbon emissions as their objective.
The Fund invests according to a dedicated asset allocation for a Balanced investment strategy which reflects the House CIO View on Sustainable Investing.
The Fund is actively managed and is not constrained by a benchmark index."
2018 2019 2020 2021 2022 YTD 2023
-5.22% 18.68% 11.98% 10.48% -15.18% 4.36%
Would I be better off switching out this mandate into a simple 60/40 low-cost world total fund ? Am 30yrs old between.
In any case, you are paying way too much to have these funds managed. Yes, you would be better off switching to a 60/40 low-cost world total fund.
I am suspicious of the stated returns, something just doesn't look right to me. Are you adding monies to the account? Are you taking monies out? You could do a rough manual calculation of the returns yourself to see if these numbers make sense. I am also suspicious of the stated returns because of the weekly trading of the account. It is very difficult to outguess the market, in other words successful tactical asset allocation most often doesn't work. The more one trades, the higher the odds that one is making bad trading decisions which weigh down returns.
A fool and his money are good for business.
Re: Is a smart-beta portfolio worth it for 200+ bp fee?
2.2-2.4% fees is absolutely terrible. Leave as soon as you can
Crom laughs at your Four Winds
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Re: Is a smart-beta portfolio worth it for 200+ bp fee?
I have a friend who was offered something called a ‘structure’ like this one. There were no ticker symbols, prospectus, or any filings to view. She was given documents that were mostly worthless ‘fund facts’ and ‘advisor disclosures.’
One key thing I found sifting through the documents for her was there were multiple sliding fee scales and that the returns stated were gross returns instead of net returns after fees. I would read what literature is given to you to see if the returns stated are net of fees. I told her to run away from the structure and not return the FA’s calls.
• Is it in a taxable or retirement account?
• Is it a large or small investment amount?
• If taxable what would be your cost basis and capital gains if sold?
If this is in a retirement or tax-deferred account, the answer is easy to dispose of it. If there is not much capital gains in a taxable account, it makes sense to dispose of it as well.
One key thing I found sifting through the documents for her was there were multiple sliding fee scales and that the returns stated were gross returns instead of net returns after fees. I would read what literature is given to you to see if the returns stated are net of fees. I told her to run away from the structure and not return the FA’s calls.
• Is it in a taxable or retirement account?
• Is it a large or small investment amount?
• If taxable what would be your cost basis and capital gains if sold?
If this is in a retirement or tax-deferred account, the answer is easy to dispose of it. If there is not much capital gains in a taxable account, it makes sense to dispose of it as well.
Re: Is a smart-beta portfolio worth it for 200+ bp fee?
No fund is worth 200bp
Re: Is a smart-beta portfolio worth it for 200+ bp fee?
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Re: Is a smart-beta portfolio worth it for 200+ bp fee?
Those fees are crazy high. Vanguard has ESG fund with lower fees. I don't get excited about ESG, but if I wanted that:
https://investor.vanguard.com/investmen ... v#overview
You could invest 65% as your core fund.
Then invest 35% in separate vanguard bond fund, and consider your portfolio "balanced".
https://investor.vanguard.com/investmen ... v#overview
You could invest 65% as your core fund.
Then invest 35% in separate vanguard bond fund, and consider your portfolio "balanced".
Re: Is a smart-beta portfolio worth it for 200+ bp fee?
Thank you for posting. I too am suspicious that the returns are gross returns and not net of fees. Did rough comparisons to my own investment returns and to the returns of the Vanguard LifeStrategy Moderate Growth fund. Just eyeballing, the stated returns looked just too high, particularly when you take into consideration the 1.8% Assets Under Management fee.Hacksawdave wrote: ↑Fri Jun 02, 2023 11:12 am I have a friend who was offered something called a ‘structure’ like this one. There were no ticker symbols, prospectus, or any filings to view. She was given documents that were mostly worthless ‘fund facts’ and ‘advisor disclosures.’
One key thing I found sifting through the documents for her was there were multiple sliding fee scales and that the returns stated were gross returns instead of net returns after fees. I would read what literature is given to you to see if the returns stated are net of fees. I told her to run away from the structure and not return the FA’s calls.
• Is it in a taxable or retirement account?
• Is it a large or small investment amount?
• If taxable what would be your cost basis and capital gains if sold?
If this is in a retirement or tax-deferred account, the answer is easy to dispose of it. If there is not much capital gains in a taxable account, it makes sense to dispose of it as well.
A fool and his money are good for business.
Re: Is a smart-beta portfolio worth it for 200+ bp fee?
The 200 bps expense ratio is too high. I also feel like no broker has the secret sauce to consistently beat the market. That’s why I have always invested in the three fund portfolio or something very similar.
"I started with nothing and I still have most of it left."
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Re: Is a smart-beta portfolio worth it for 200+ bp fee?
They are ripping you off and probably laughing about it.anxon h. wrote: ↑Thu Jun 01, 2023 9:55 pm I have a long running portfolio that has been managed under a discretionary mandate by a bank. Used to be unbothered by the structures or fees/expenses since it is all auto deducted and managed professionally.
Ever since I came across John Bogle's and Burton Malkiel's book on mutual funds and have been researching on low cost investing for the past 3 years(since Covid), I started digging into the my mandate to find out that :
1. The bank charged 1.8% p.a mandate fee off the port.
2. The underlying are mostly equity and bond mutual funds(which averages 0.40%-0.60% in fee).
3. Smart beta tilt between equity,bonds and small amount of derivaties+cash. It can go anywhere from 70/25/5 to 50/45/5 depending on how the CIO manage. From what I observe the manager trade in and out funds almost on a weekly basis.
4. There is 2-3% allocation on currency hedges( USDJPY, AUDUER etc )which seem to always incur loss on a regular basis.
"The Fund's portfolio holdings primarily consist of investment funds which either (i) promote environmental (E) and/or social (S) characteristics or (ii) have sustainable investments or reduction in carbon emissions as their objective.
The Fund invests according to a dedicated asset allocation for a Balanced investment strategy which reflects the House CIO View on Sustainable Investing.
The Fund is actively managed and is not constrained by a benchmark index."
2018 2019 2020 2021 2022 YTD 2023
-5.22% 18.68% 11.98% 10.48% -15.18% 4.36%
Would I be better off switching out this mandate into a simple 60/40 low-cost world total fund ? Am 30yrs old between.
Re: Is a smart-beta portfolio worth it for 200+ bp fee?
Even leaving aside how practically impossible it is to identify the next such fund ahead of time, this isn't even a fund. It's a managed fund-of-funds where 1.8% is being charged by the bank annually to move them in and out of various funds (on nearly a weekly basis, apparently) based on whatever the "house CIO" feels like doing. Sounds like smoke and mirrors.60B4E24B wrote: ↑Sun Jun 04, 2023 12:18 pmThat's just simply not true.
https://en.wikipedia.org/wiki/Renaissan ... llion_Fund
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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Re: Is a smart-beta portfolio worth it for 200+ bp fee?
Somehow their open-to-the-public fund is trailing the S&P 500 since inception, yet their secret employees-only fund is crushing the market? Can't wait for the other shoe to drop on that one.60B4E24B wrote: ↑Sun Jun 04, 2023 12:18 pmThat's just simply not true.
https://en.wikipedia.org/wiki/Renaissan ... llion_Fund