Home' Trinidad and Tobago Guardian : December 13th 2015 Contents DECEMBER 13 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
MUTUAL FUNDS | SBG11
It s been a rough few years for stock-
picking mutual-fund managers, and
investors keep dumping them for
the higher returns and lower expens-
es of index funds.
Now, stock pickers say, market conditions
are starting to turn in their favor as stocks
increasingly go in different directions rather
than moving in unison. Many are feeling so
confident that they re paring down the num-
ber of stocks they hold to concentrate on
the select few they expect to be big win-
A concentrated approach gives stock pick-
ers the potential to achieve much better
returns than an index fund. But it can also
That means investors should pay close
attention to another number when checking
out a mutual fund. Along with fees, returns
and volatility, have a look at how many
stocks a fund owns. It may be fewer than
Fighting against the tide
Over the last several years, only a handful
of actively managed funds have kept up
with the Standard & Poor s 500 index or
other benchmarks, let alone beat them.
Last year, 86 per cent of large-cap stock
fund managers fell short of the S&P 500,
in line with the historical average. For the
decade through 2014, 82 per cent of large-
cap funds couldn t keep up with the S&P
500, according to S&P Dow Jones Indices.
Investors noticed, and pulled US$153 bil-
lion from actively managed U.S. stock funds
in the first 10 months of this year, according
to Morningstar. Nearly that much, US$121
billion, went into their index-fund rivals.
Returns haven t necessarily been poor for
actively managed funds. Most are up strongly
in recent years. They just haven t earned
enough over the index to make up for the
higher expenses they charge. One reason is
how uniformly stocks have been behaving.
With interest rates at record lows in recent
years and the Federal Reserve buying billions
of dollars in bonds to stimulate the economy,
stocks climbed and fell together in great
herds. In 2013, 91 per cent of stocks in the
Standard & Poor s 500 index rose.
When the whole market is moving up as
one, it doesn t matter much which stock a
fund manager picks. So why not stick with
index funds, which track the broader market
and charge much lower fees?
As Peter Clark, managing director at Jen-
nison Associates, puts it: an actively managed
portfolio "struggles when the tide lifts all
A more split market
This year has seen a shift in that pattern.
The S&P 500 is more evenly split between
winners and losers. At one end is Netflix,
up 154.5 per cent through Wednesday. At
the other is Consol Energy, down nearly 80
Fund managers expect this more fractured
market to continue, as the Federal Reserve
pulls back its stimulus measures. The central
bank is widely expected to raise interest
rates this upcoming week for the first time
in nearly a decade. In such a market, stock
pickers say they ll finally get rewarded for
choosing the right stocks and avoiding the
Jennison s Clark says he is focusing on
industries that are producing strong revenue
growth, such as technology, health care and
companies that rely on discretionary spend-
ing by consumers. Growth is still scarce in
the global economy, and Clark expects that
the few companies which manage to achieve
it will be rewarded.
Clark is also focusing on fewer stocks.
Jennison s global equity portfolio is invested
in about 40 stocks, for example. A couple
years ago, it was closer to 55.
Higher reward, higher
Bob Burnstine is an unabashed stock pick-
er. He used to work at Harris Associates,
whose Oakmark Select fund holds only 20
stocks. Since 2011, he s been investing for
clients at Fairpointe Capital, and he now is
the lead portfolio manager at the Aston/Fair-
pointe Focused Equity mutual fund, which
holds just 30 to 35 stocks.
That approach has worked in the past.
Burnstine beat his benchmark, the Russell
1000 index, and the S&P 500 for the three
years through 2014. But this year, the strategy
has hurt him.
Burnstine s fund doesn t own any shares
of Netflix. Or Amazon, or Facebook, or
Alphabet, Google s parent company. He
thinks they re too expensive. But they ve
also been the driving force behind this year s
market gains. As a result, his fund is down
9.2 per cent in 2015, versus a 1.3 per cent
return for an S&P 500 index fund.
Burnstine asks that investors measure
him by how he does over a three- to five-
year period, which is about how long he
plans to hold a stock when he buys it.
"It comes with the territory," he says.
"We don t look like any of the benchmarks.
Over the near term, if we re in the wrong
stocks that aren t working now, that can
hurt us. Any manager can have a good year
or a bad year." AP's Stan Choe
The art of trading is a rather complex
one. There is no end to the different
types of strategies available and dif-
ferent approaches that traders can
try to make when it comes to making
investments. The truth of the matter
is that even with all of the different tactics and
approaches out there, many times, people simply
make the entire trading process too complicated. The
more complicated people make it, the more difficult
trading becomes and the larger the margin for error
starts to be.
Create a system and stick to It
If you want to have long term success in trading,
then you need to have a system. It doesn t matter
who you are or how long you have been trading, you
need a system and you need to stick to it.
The right system will help you stay in control and
stay focused. No matter what that system is make
sure the rules that govern your approach are clear
and easy to follow. You may be tempted to throw
out the rules, but don t. Stick with what you know.
It is really that simple and it is all the difference in
the world between making smart trades and gambling
with your money.
Always check to make sure you aren't
Trade chasing is a very common and a very real
problem that many people today have. Trade chasing
involves jumping on bandwagons and getting caught
up in the excitement of the fast-paced trading world.
Before you make a trade, there is a simple solution
to make certain you aren t trade chasing and you
aren t making stupid gambles.
Take a deep breath, look at the trade and ask your-
self, "Am I using my knowledge to make a smart
investment or am I trade chasing?" If you can honestly
answer that you aren t trade chasing, then go ahead
with the trade, if you can t, it is time to let it go.
Make sure you aren't making emotional
If you don t check your emotions at the door before
you sit down to start trading, then you aren t trading
right. This is a simple tip and one that I wish more
people would follow. If you are about to make a trade,
but want to make sure that you are making a good
trade, sit back and really assess whether emotions
are at play with this decision.
Before you make a trade, make certain that you
are thinking about it logically, that you can back the
decision up with facts and reasons and that emotions
aren t to blame for your decision.
Even though the trading process is notoriously
complicated, and requires a great deal of understand-
ing, many times the simplest tips are the best ones
to follow when it comes to making smart tips. If you
are willing to keep things simple, use the information
that you know to your advantage and take calculated
risks based on your research and knowledge, you will
be ahead of the game when it comes to making smart
trades. US News
tips for making
If you don't check your
emotions at the door before
you sit down to start
trading, then you aren't
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