Alternative recommendations for a few underperforming funds?

[mikes425]

A friend of the family who happens to be a wealth management advisor offered to take a look at my portfolio recently and
had some specific sell recommendations on a few funds that have underperformed.  These are relatively long-term 'holds'
and they suffered big NAV drops in 2022.  I'd be interested in any suggestions on better alternatives I might take a look at,
that would offer similar exposure in their respective sectors.   This fellow is also indirectly making a case for how a 1% management
fee would have been justified had I been working with him, and in calling out the 'losers' in the mix, is citing where his choices
would have easily avoided the losses.  For example, he recommends selling:

SAMBX - a bank loan fund, of which I hold about 106k.  Current NAV loss for me, about 9k.
He proposes there are far better ways to get bank loan exposure while being negatively correlated to the market, and that
he utilized funds paying 7-8% dividend with 'little' NAV movement during 2022.

VNQ- about 17k value... he suggests far better ways to get real estate exposure with no correlation to the market, using 
alternative investments including non-publicly traded REITS paying 5%  tax-efficient monthly distributions with cap appreciation
and reports he had some REITS up net positive 10% in 2022.

VNQI - about 29k value - far better ways to get international real estate exposure without correlation to the market.  My ETF has a 
current 9.6k loss.

Magically the losses in these funds equate to about 20k which is in the realm of what a 1% AUM fee would be for my 2.5mm portfolio.

I have never been inclined to shift to an AUM FA but I can't help being intrigued by his sell recommendations.  Now the NAV losses don't necessarily factor dividend/interest income on the surface, and the notion that the yields on these may be gradually improving in 2023.  Still I can't readily wrap my head around holding bond funds with these kinds of losses and would have no problem bailing on these for better opportunities in these asset classes...

Sorry for the Novella, and I welcome any thoughts.  Thanks.

 

[gman57]

Ask for five years worth of year end statements from a current client. Tell them to remove all identifying client info which is easy to do. One year may be easy or lucky but five years of overperformance could be worth looking into. You'll be able to compare performance to a benchmark like the SP500 index fund or similar allocation fund.

[steadyeddy]

Feb 15, 2023 17:56:07 GMT mikes425 said:

A friend of the family who happens to be a wealth management advisor offered to take a look at my portfolio recently and
had some specific sell recommendations on a few funds that have underperformed.  These are relatively long-term 'holds'
and they suffered big NAV drops in 2022.  I'd be interested in any suggestions on better alternatives I might take a look at,
that would offer similar exposure in their respective sectors.   This fellow is also indirectly making a case for how a 1% management
fee would have been justified had I been working with him, and in calling out the 'losers' in the mix, is citing where his choices
would have easily avoided the losses.  For example, he recommends selling:

SAMBX - a bank loan fund, of which I hold about 106k.  Current NAV loss for me, about 9k.
He proposes there are far better ways to get bank loan exposure while being negatively correlated to the market, and that
he utilized funds paying 7-8% dividend with 'little' NAV movement during 2022.

VNQ- about 17k value... he suggests far better ways to get real estate exposure with no correlation to the market, using 
alternative investments including non-publicly traded REITS paying 5%  tax-efficient monthly distributions with cap appreciation
and reports he had some REITS up net positive 10% in 2022.

VNQI - about 29k value - far better ways to get international real estate exposure without correlation to the market.  My ETF has a 
current 9.6k loss.

Magically the losses in these funds equate to about 20k which is in the realm of what a 1% AUM fee would be for my 2.5mm portfolio.

I have never been inclined to shift to an AUM FA but I can't help being intrigued by his sell recommendations.  Now the NAV losses don't necessarily factor dividend/interest income on the surface, and the notion that the yields on these may be gradually improving in 2023.  Still I can't readily wrap my head around holding bond funds with these kinds of losses and would have no problem bailing on these for better opportunities in these asset classes...

Sorry for the Novella, and I welcome any thoughts.  Thanks.

 

Non-publicly traded REITs are a NO NO in my investment book. 

[Fearchar]

Sounds like a smorgasbord advisor. Some of this, some of that and with over a dozen, there is bound to be 2 or 3 that he can brag about a year from now.

[mikes425]

gman57,good idea. thanks!

[archer]

mikes425, If you detect any sarcasm, it isn't directed towards you, but to advisors in general. Has he actually sold for others the funds he said he would have sold for you? I can find several holdings and trades over the past year that I would recommend not having held or traded.

I can't speak directly to your specific funds mentioned but I wonder out of the holdings that he pointed out that lost money, how have they performed compared to their benchmarks? This is important unless going completely to cash in late 2022 would have been within your investment possibilities. In other words, the great majority of funds lost money in 22.

I know my comments here are very general and do not address your question for recommendations, but I can't refrain from commenting on the advisor's probably well intended critique. The 20K loss that equates to the 1% fee, should be compared to what he would have you been invested in otherwise. Did any of his recommendations make money in 22, or just offset some of the 20K loss?

[steadyeddy]

We all know that very few "long" investments have made money in 2022. It is only the "shorting" investments that gained in 2022.

[Deleted]

Feb 15, 2023 18:20:58 GMT gman57 said:

Ask for five years worth of year end statements from a current client. Tell them to remove all identifying client info which is easy to do. One year may be easy or lucky but five years of overperformance could be worth looking into. You'll be able to compare performance to a benchmark like the SP500 index fund or similar allocation fund.

That is an excellent suggestion!

[junkster]

Getting ready to go out for the evening so don’t have time for a lengthy response. But SAMBX is a very good bank loan fund and at all time highs on a total return basis as we speak. It survived 2022 with a minuscule loss and outperformed most of its bank loan peers. Its small loss last year has been more than made up for YTD. Of course there are a few better options out there now in bank loans but that is with the benefit of hindsight.  By no means is SAMBX an underperforming bank loan fund.

[Deleted]

Feb 15, 2023 22:37:54 GMT steadyeddy said:

We all know that very few "long" investments have made money in 2022. It is only the "shorting" investments that gained in 2022.

That is a vey good point - commodity funds come immediately to mind. Not "shorting" per se, but definitely a short term play in 2022.

[Deleted]

mikes425

Despite being a family friend, he is seemingly playing on your fear/unease. It is his job, so, something, something, something...leopards can't change their spots.

I think you should think about whether you want to hold the real estate funds (VNQ, VNQI) going forward - what is the likelihood of them performing to your expectations during 2023. And what is the likelihood you would get better results elsewhere, based on risk/reward and the role it plays in your portfolio.

Same thing with SAMBX, if you are holding it for ballast, it held up pretty well last year and is doing fine this year, as junkster pointed out.

[mikes425]

@theycallmenobody , Yeah I can't help feeling a bit of selling is going on, in terms of incentivizing making a wholesale change. I think the
one recurring thing in the pitch is Alternative Investments - non-market-correlated proprietary vehicles that fall under that umbrella which
most giant private wealth manager/brokerage companies can offer that are out of reach of an individual investor. There is an offer to
waive a management fee for the rest of the year as well, but if I took it, it would mean having a portfolio that wouldn't resemble what I
started with, and exiting back out of it if I so chose, would presumably be a logistical and costly ordeal... Just don't think I'm ready to
join the "one-percenters" - if you will.. Hence, I take recommendations that are given and am inclined to want to 'do something' in response,
like the possible changes mentioned in my post ...better alternatives in real estate exposure and bank loan rate, in this example.

I will say the one thing that really does appeal to me is the concept of a profitable investment that is immune from the ups and downs of the market.
Who doesn't want that : )

[mikes425]

junkster , Thanks for your perspective on SAMBX.  Yes I think it's done alright under the circumstances of the worst year for bonds in history,
and it fulfills a specific role in the overall diversification.  

That said, the VNQ/VNQI arguably could be improved upon.  I'd be interested in any thoughts from you and the group about other candidates to 
consider for some exposure in this space with more robust returns.  The ROI on these has been disappointing.

[steadyeddy]

Feb 16, 2023 16:26:59 GMT mikes425 said:

@theycallmenobody , Yeah I can't help feeling a bit of selling is going on, in terms of incentivizing making a wholesale change. I think the
one recurring thing in the pitch is Alternative Investments - non-market-correlated proprietary vehicles that fall under that umbrella which
most giant private wealth manager/brokerage companies can offer that are out of reach of an individual investor. There is an offer to
waive a management fee for the rest of the year as well, but if I took it, it would mean having a portfolio that wouldn't resemble what I
started with, and exiting back out of it if I so chose, would presumably be a logistical and costly ordeal... Just don't think I'm ready to
join the "one-percenters" - if you will.. Hence, I take recommendations that are given and am inclined to want to 'do something' in response,
like the possible changes mentioned in my post ...better alternatives in real estate exposure and bank loan rate, in this example.

I will say the one thing that really does appeal to me is the concept of a profitable investment that is immune from the ups and downs of the market.
Who doesn't want that : )

Such profitable investments do not exist. Period. Unless they are annuities, cd, mm etc

[Deleted]

mikes425 Just so I am not misunderstood. I have no idea what RE funds will do in 2023. They all had a rough 2022.

I have a $10K in TRREX and it is slightly under water. I am going to hold and see what the first two quarters 2023 bring to the table.

I agree with steadyeddy, that the more profitable (beyond CD, MMF, etc) investments always entail risk. Of course that risk is usually mitigated with a long timeframe, if the companies are solid. 

[steadyeddy]

mikes425, I have a feeling you are NOT planning to switch over to this advisor. ??

[mikes425]

steadyeddy , You're correct: ) Unless he might be willing to work with me on an hourly basis, which I presume is against his firm's policy and I sense he does not wish to go that route anyway. And it is nothing personal. He's a good guy. But, I pretty much outlined my reservations and points of 'contention' about his proposal in an email. I have not received a reply.

I told him that this is not the first time I've weighed the pros/cons of an AUM arrangement vs a self-managed portfolio, or in my case, working with an hourly 'as-needed' FA. I said that in order to justify an AUM arrangement I would have to be assured that I would realize income/growth NET of FEES that, at minimum, would exceed the return I'm currently achieving. So conservatively that'd be 8%, in my case.

I also explained that I could not commit to anything wherein there would be investments that I don't completely understand, i.e. Alternative non-market-correlated investments -- or without having a crystal-clear understanding in advance of what any 'new' portfolio would be comprised of, in specific terms. I also said I was interested in how such alternative investments do not inherently carry higher risk in order to achieve higher returns.

Finally, regarding his offer of a trial period of working with him with all fees waived, I pointed out that if my portfolio composition became profoundly different from what it was before moving all assets to his firm -and presumably this would involve some proprietary assets - the logistics of returning to a self managed situation could be complex or costly, be it due to fees or tax consequences.

I genuinely hope that isn't too harsh of a response to him. Not my intent. However, it's essentially my life savings and I don't think there's any reason not to be absolutely candid and direct about anything involving a monumental decision like this.

Thanks

[Deleted]

I always figure that no advisor is willing to give ones portfolio the attention that it deserves - making timely moves several times a year, small or larger. Other times, they are making moves just to generate fees. 

OTOH, if one is making bad decisions, or none at all, an adviser is probably warranted. A case in point: a lot of folks here, and on other boards, sold all their bond oefs around 4th quarter 2022. It was a prudent move and well telegraphed. I see no advisor doing that. Some folks jumped on commodity funds in mid-to-late 2022 and sold mid-2023. I doubt an adviser would have taken the initiative/time to pull that off. Of course, many DIY investors were frozen.

So, it starts with a real analysis of your skills/willigness to act. Followed by determining what kind of help that you deem you need.

Or just pick an allocation and invest in world-class funds and call it a day. 

[mikes425]

@theycallmenobody , I think in this case the biggest selling point seems to be these 'alternative investment' opportunities that a huge house like JPM or MS can offer. The chief appeal being a consistent better than average return - but - totally non-correlated to "the markets."

There's an inherent sense of unique and exclusive advantage in this offer; It's inaccessible - or so the pitch goes -  to individual investors with accounts at brokerages like Schwab, VG, etc.  

Now since I've not pursued it, I can't specify precisely what these investment opportunities or recommendations are,
but it's easy to speculate what they would be. I'd imagine, the same kind of stuff that this a large Pension Fund or institutional account would have in their portfolio under this firm's management.  I don't know that any of this is higher risk per se. This is the kind of detail that I'd like to know more about if I were going to work with this advisor.  I definitely would never commit to a change without a thorough understanding of what these investments are, and their track record and risk profile.

[Deleted]

Agreed. I do wonder about these opportunities and what they are and how they work.

[johnsmith]

VNQ & VNQI are some of the best ways to get exposure to REITs US + International.

The fact that this "friend" is saying there is a better way, makes me highly suspect their recommendations already!

[yogibearbull]

Be careful jumping into nontraded-REITs (Roach Motels?). Those attractive TRs may be mirages – stale or not-marked-to-market prices. Do you really have those TRs if you cannot cash out due to redemption limits/gates? Several have reached their redemption limits for months (Blackstone BREIT, Starwood SREIT, etc). There is a new Fido private CRE fund for accredited investors.

BTW, if you find VNQ, VNQI too volatile, look at real estate hybrid Fido FRIFX.

M* community.morningstar.com/s/question/0D53o000060xKYGCA2/blackstone-real-estate
MFO www.mutualfundobserver.com/discuss/discussion/60634/fidelity-private-cre-fund
YBB ybbpersonalfinance.proboards.com/thread/371/nontraded-funds-reits-bdcs-interval

[mikes425]

yogibearbull, Thanks for the links!  I'll give them a look.  Not sure that VNQ/VNQI aren't just fine, however.  The advisor called them out as
being sub-par vs alternatives he said generated 7-8% divi in 2022 with no NAV fluctuation.  However, of course, despite my  NAV
losses, the return of dividend income has remained constant and I think has improved as with other bond funds -- and the performance
figure he looked at showing that 9 or 10k loss in VNQ or VNQI didn't take into account the income/return.

[yakers]

Feb 18, 2023 12:58:22 GMT johnsmith said:

VNQ & VNQI are some of the best ways to get exposure to REITs US + International.

The fact that this "friend" is saying there is a better way, makes me highly suspect their recommendations already!

VNQ & VNQI are decent funds to hold this asset class in ones asset allocation. TIAA/CREF has a better (or differently constructed)  real estate fund but it is not avialable to everyone.
I think constructing an appropriate asset allocation of appropriate ingredients is more important than seeking out 'the best' ingredients. Some aspect of virtually any AA will be under or over performing at any time and there are times like 2022 when pretty much everything went down. 
Its fine to discuss indivual stocks & funds but portfolio performance is the key and that has to be appropriately risk based for an indivual investor.

[yogibearbull]

yakers, name is just TIAA now (CREF was dropped from the name in 2016).

Yep, TIAA Real Estate Account VA is available only in TIAA plans. It is like private/direct real estate with guaranteed liquidity from TIAA (once/qtr). www.tiaa.org/public/investment-performance/investment/profile?ticker=41091375

[Chahta]

“I always figure that no advisor is willing to give ones portfolio the attention that it deserves - making timely moves several times a year, small or larger. Other times, they are making moves just to generate fees.”

Of course not because it is poor advice.