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Post by Mustang on Feb 20, 2024 21:12:24 GMT
Up until a few years ago Wellington’s stock sleeve was very much LV (like Wellesley). Then they did a major makeover and moved into FAANGs. No point comparing to S&P 500 funds or balanced funds based on the S&P 500. True, but currently the S&P 500 is part of their benchmark I believe. Besides, the a good part of the argument about about active is how the manager can change allocations to improve returns. But let's chose since 2018 approx. a 5 year period when Wellington was growthy. The combo index above still wins by more than 1.2% per year. The combo index seems to be of your own creation. It isn't listed anywhere on the Vanguard site. It says 65% SP500 Index and 35% Bloomberg US Credit A+ or Better Aggregate. Wellington's equity is currently 65%.
It would be impossible to compare funds based upon their internal benchmarks. Fidelity Balanced fund's is 60% SP500 and 40% Bloomberg US Aggregate Float Adjusted Index. Its currently 62% equity. American Funds American Balanced Fund says the same. Its currently 63% equity. Vanguard Balanced Index Fund is currently 60% CRSP US Total Market Index and 40% Bloomberg US Aggregrate Float Adjusted Index (It changes around every 4 years.). And comparisons would be far worse if the investor had to create a combo index for each.
I have never seen a single article comparing the best funds written this way. They compare funds performances against each other, index funds included.
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Post by FD1000 on Feb 20, 2024 22:44:12 GMT
If you can't beat'em, you gotta join'em. Active funds will be out of favor sometime. They don't turn on a dime. When US LC is the best wide range category it's difficult to beat for for risk/reward and what happened in 1995-2000 + 2010-current. In that time an index is a great place to be. When value, SC, international do well during 2000-2010, a higher % of managed funds can do better than the indexes. The reason is that US LC companies are well known and analyzed by many. The other categories are not as much. I don't understand the point when someone says you can't compare a managed fund to the index, after all, real managed funds are always different than the index, that is why you use them. IMO, these managers can use it as an excuse, at least not for me.
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Post by mozart522 on Feb 20, 2024 23:43:24 GMT
True, but currently the S&P 500 is part of their benchmark I believe. Besides, the a good part of the argument about about active is how the manager can change allocations to improve returns. But let's chose since 2018 approx. a 5 year period when Wellington was growthy. The combo index above still wins by more than 1.2% per year. The combo index seems to be of your own creation. It isn't listed anywhere on the Vanguard site. It says 65% SP500 Index and 35% Bloomberg US Credit A+ or Better Aggregate. Wellington's equity is currently 65%.
It would be impossible to compare funds based upon their internal benchmarks. Fidelity Balanced fund's is 60% SP500 and 40% Bloomberg US Aggregate Float Adjusted Index. Its currently 62% equity. American Funds American Balanced Fund says the same. Its currently 63% equity. Vanguard Balanced Index Fund is currently 60% CRSP US Total Market Index and 40% Bloomberg US Aggregrate Float Adjusted Index (It changes around every 4 years.). And comparisons would be far worse if the investor had to create a combo index for each.
I have never seen a single article comparing the best funds written this way. They compare funds performances against each other, index funds included.
The combo index is my own creation BASED on the actual components of Wellington as I explained above which are easy to find at M* I can do the same with Wellesley which would be 37% VYM, 44% intermediate corp, and 19% government. In that case since 2010 Wellesley outperformed by .07% per year. Just because no article compares funds to their actual index components doesn't mean someone considering an active fund can't compare that way. Active funds like Wellesley and Wellington are not really able to take advantage of market changes unless they last a long time, and in fact they don't generally try to. I held both for many years and they tend to try to maximize distributions both dividends and capital gains. They set target prices for their equities and sell when that target is hit. They "stick to their knitting" They are both great funds. I'm sure you are happy holding them. But you started this by comparing Wellington to Balanced index and that comparison doesn't wash
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Post by Mustang on Feb 21, 2024 0:30:37 GMT
We will just have to agree to disagree.
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Post by Chahta on Feb 21, 2024 1:16:58 GMT
Interesting this discussion about active vs. index. Index funds were never meant to compete with active funds, head-to-head. They are a Bogle invention to buy and hold and not fight with or trade the market, making it easy for mom and pop to invest with no few worries.
I just hold both, for different reasons, with the active fund in a much smaller percentage.
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Post by Norbert on Feb 21, 2024 5:30:53 GMT
We will just have to agree to disagree. It's tough to beat any index fund that's mostly based on the S&P 500. Read about its construction here: www.investopedia.com/articles/investing/090414/sp-500-index-you-need-know.aspWhen dealing with small caps or foreign stocks, it's a different story. I would never use simple market-cap indexes for those markets. But, VBINX is mainly the S&P 500. If you backtest Wellington against a few index funds using identical asset class proportions as Wellington, the results are very close. I still give Wellington the nod because it didn't follow the dot-com bubble like the S&P 500 did; the correction was painful and allowed Wellington to take a lead. Not by much, though.
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Post by richardsok on Feb 21, 2024 12:16:05 GMT
We will just have to agree to disagree. It's tough to beat any index fund that's mostly based on the S&P 500. Read about its construction here: www.investopedia.com/articles/investing/090414/sp-500-index-you-need-know.aspWhen dealing with small caps or foreign stocks, it's a different story. I would never use simple market-cap indexes for those markets. But, VBINX is mainly the S&P 500. If you backtest Wellington against a few index funds using identical asset class proportions as Wellington, the results are very close. I still give Wellington the nod because it didn't follow the dot-com bubble like the S&P 500 did; the correction was painful and allowed Wellington to take a lead. Not by much, though. Hasn't been around long enough to feel confident about, but I'm encouraged by AMOM. tinyurl.com/m94r8t9m
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Post by mozart522 on Feb 21, 2024 16:39:16 GMT
We will just have to agree to disagree. well, it seems like then I can choose any fund I want regardless of internal allocation and compare it to Wellington? Ok then I choose QQQ since 2010. Man Wellington really sucks in comparison.
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Post by mozart522 on Feb 21, 2024 16:55:17 GMT
We will just have to agree to disagree. It's tough to beat any index fund that's mostly based on the S&P 500. Read about its construction here: www.investopedia.com/articles/investing/090414/sp-500-index-you-need-know.aspWhen dealing with small caps or foreign stocks, it's a different story. I would never use simple market-cap indexes for those markets. But, VBINX is mainly the S&P 500. If you backtest Wellington against a few index funds using identical asset class proportions as Wellington, the results are very close. I still give Wellington the nod because it didn't follow the dot-com bubble like the S&P 500 did; the correction was painful and allowed Wellington to take a lead. Not by much, though. Exactly what I was trying to point out to Mustang. If using the index funds that represent the internal allocation of an active fund it is usually pretty close in my experience. I found that Wellesley is also close when looking at that. Considering the ER drag and the drag from expenses involved in buying and selling, you might even say the active fund does better. The benefit of indexes for many I believe is knowing exactly what you own and knowing you will own the same thing a year from now or 5 years from now with small changes as stocks move out due to not meeting the index criteria (small caps getting too big, for example) the 500 index is really the most active broad index, IMO. Both active and index will work with a clear plan and good investing discipline.
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Post by Mustang on Feb 21, 2024 19:31:35 GMT
From Norbert's link: "According to a study by McKinsey, the average lifespan of a company on the S&P 500 was 61 years in 1958. As of 2021, it was 16 years. The study also states that by 2027, 75% of the companies currently listed on the index will disappear."
If 75% of the companies currently listed on SP500 are expected to disappear in 3 years, how do you know what you will have? All you know is that you own an index fund. Just like an actively managed fund, the underlying assets change constantly.
I understood the point you were trying to make. Its just very, very few investors would do that. Buy and hold investors would never do it. If they want to invest in a moderate-allocation index fund they are not going to buy three funds and change allocations every year as the actively managed fund changes.
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Post by gman57 on Feb 21, 2024 20:44:30 GMT
From Norbert's link: "According to a study by McKinsey, the average lifespan of a company on the S&P 500 was 61 years in 1958. As of 2021, it was 16 years. The study also states that by 2027, 75% of the companies currently listed on the index will disappear." If 75% of the companies currently listed on SP500 are expected to disappear in 3 years, how do you know what you will have? All you know is that you own an index fund. Just like an actively managed fund, the underlying assets change constantly. I understood the point you were trying to make. Its just very, very few investors would do that. Buy and hold investors would never do it. If they want to invest in a moderate-allocation index fund they are not going to buy three funds and change allocations every year as the actively managed fund changes. I tend to think of it (SP500 index) as a managed index fund. Companies that aren't doing that well are thrown out and replaced by companies that are doing better. I'd rather have 500 of the best companies than some that are struggling. Win-Win IMHO
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Post by Norbert on Feb 21, 2024 21:34:32 GMT
From Norbert's link: "According to a study by McKinsey, the average lifespan of a company on the S&P 500 was 61 years in 1958. As of 2021, it was 16 years. The study also states that by 2027, 75% of the companies currently listed on the index will disappear." If 75% of the companies currently listed on SP500 are expected to disappear in 3 years, how do you know what you will have? All you know is that you own an index fund. Just like an actively managed fund, the underlying assets change constantly. I understood the point you were trying to make. Its just very, very few investors would do that. Buy and hold investors would never do it. If they want to invest in a moderate-allocation index fund they are not going to buy three funds and change allocations every year as the actively managed fund changes. I tend to think of it (SP500 index) as a managed index fund. Companies that aren't doing that well are thrown out and replaced by companies that are doing better. I'd rather have 500 of the best companies than some that are struggling. Win-Win IMHO Exactly. The S&P 500 is a rule-based index fund. "Managed index" is a good description. That's very different than a simple market-cap based index that may include unprofitable companies or, say, large government-run firms. The issue is that the S&P 500 is still market-cap driven, allowing a handful of companies or a particular sector to dominate the index. That's good news when the momentum is positive, but has led to sharp downside volatility when a group of overvalued stocks corrects. On the other hand, an active manager can be wrong about "overvaluation" or he can pick the wrong future high performers. So, over time, it's tough to beat the S&P 500. That doesn't prove that market-cap "indexing" is the best way to invest. The S&P 500 is unique in terms of construction and in that it represents the heart of American commerce and industry.
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Post by yogibearbull on Feb 21, 2024 21:58:00 GMT
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Post by retiredat48 on Feb 22, 2024 3:25:30 GMT
A comment about index funds. Everybody seems obsessed that it may be a flaw that index funds are "forced" to own unprofitable companies...or very poor companies.
However this often result in huge/outsized gains. A real example. In the financial crisis bear market, an auto company, Stock A, lost lots of money, and its stock went to $1.50/share. Now let's assume another auto company, stock B, did the same, going to $1.50 share. Nobody is buying them. The index does however for instance if it is an all stocks index...or an auto company index.
So the fund uses $3000 to buy 1000 shares of stock A and 1000 shares of stock B. Two years later, stock B is bankrupt...worthless. Worth $0/share. Lost entire $1500. Auto company stock A however recovered.
BTW that auto company A in real life was Ford Motor Company. It went to $15/share in recovery. So that means $15,000 of value. So $15,000 plus zero (bankruptcy) is a huge percentage two-year return on $3000 invested.
Edit to add: I won a Bogleheads.org stock pickers contest one year by selecting Tenent Healthcare Company, at $1.50/share at the bear market bottom. It went up to like $5 share in first year; today it is $91.46/share. Now that's what I am talking about!
R48
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Post by mnfish on Apr 4, 2024 10:32:41 GMT
Market capitalization index funds may stop outperforming if they become too expensive. Money is likely to flow to non-cap weighted index funds if they start to outperform the market cap weighted index funds. Investor psychology makes much of the market a trend following machine. Agree. We are seeing the potential flaw of index funds/ETFs. That is, as new money flows in, most are cap weighted and have to buy mostly the top performing stocks like Mag 7. This compounds daily, driving prices up very high. The ETFs must buy within a day the underlying stocks. Like if AAPL doubles this year, the funds must allocate 2X money into AAPL. But the reverse is also true. Start a downturn and the money must mostly flow out of the mag 7. We will test this thesis someday, big time. Like what will happen with Bitcoin ETFs if downtrend ensues, and money starts leaving the ETF! Will be fun to watch, as bitcoin must be sold immediately with fund departures/outflows. R48 At least David Einhorn agrees - " I view the markets as fundamentally broken…Passive investors have no opinion about value. They’re going to assume everybody else has done the work." “All of a sudden the people who are performing are the people who own the overvalued things that are getting the flows from the indexes. You take the money out of value and put it in the index, they’re selling cheap stuff and they’re buying whatever the highest multiple, most overvalued things are in disproportionate weight,” On the bright side he says - "An investor can now find the same scenario at four- or five-times earnings. And if an investor pays four to five times earnings and the balance sheet isn’t levered, the company should be able to return cash and buy back 10% to 20% of its stock. That means in four or five years, it’s either going to run out of stock or the price is going to go up" he said.
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Post by retiredat48 on Apr 4, 2024 21:54:58 GMT
I watched the Einhorn interview...a good one.
R48
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