MaineNewsDirect.com

Don't forget to tell you investors that mutual funds have unlimted loss potential due to the fact that they can not be hedged... ETFs are the only way to go. Most reatail investors do not know how to use an ETF. There is more going on on SMAs then you appear to be aware of.

Pretty random thoughts there David. Let’s go over the basics:
-Your risk in a mutual fund is the amount you invest in it
-ETF’s are good under certain circumstances, not all
- I agree, most people don’t use ETF’s as part of an asset allocation process, but rather as a collection of ideas
-And SMA’s are a waste of money and more cachet than substance.
There you go. Any questions?

Wow Jeff... Are you saying that the total amout of money you place in your Mutual Fund is "ok" to risk? sounds like it. You can not hedge a MF and they are not liquid. SMA's can do this work for clients. ETF's are good for anyone who can buy 1,000 shares or more at time, ideally. There are a lot of these investors who are poorly served by wall street. SMA's can align the money manager with the investor, Wealth Management Accounts do not. And as far as Mutual Funds go, pay win or loose is not very attractive at all, except for the financial advisor and MF company. SMA's can align investor goals with the Money Manager. There is special work that can be done in SMA's that reduce risk and enhance yield...

There you go.... I do not think you understand the SMA world at all.

OK let’s break this down:

•Are you saying that the total amout of money you place in your Mutual Fund is "ok" to risk? sounds like it. Nice try, but no need to put words in my mouth. Every investment has risk, even if you stuff cash in your mattress. Sorry to burst your bubble on that one but this is Investing 101.

•You can not hedge a MF and they are not liquid. SMA's can do this work for clients. Think again. There are many mutual funds that employ hedging in their strategies. Some funds are available that solely focus on certain negative market risks and can be added to a portfolio to protect downside risk. And mutual funds are highly liquid; don’t know what you are getting your information on that one.

•ETF's are good for anyone who can buy 1,000 shares or more at time, ideally. The amount of shares isn’t the issue; it’s the dollar volume of the purchase in comparison to the transaction costs involved. For example, you don’t want to be buying $100 of ETF’s if you’re going to incur a $10 transaction fee; it just doesn’t make sense.

•There are a lot of these investors who are poorly served by wall street. No arguing with you on that one. By the way, SMA’s are highly promoted by Wall Street as well.

•SMA's can align the money manager with the investor, Wealth Management Accounts do not. If you have a significant amount to invest, you will get the customized attention of an institutional manager with a SMA. But for people that don’t have a significant amount to invest, don’t expect a lot of customization and personal touch that go beyond the realm of a mutual fund. And even if you had the assets to invest, will this guarantee adequate diversification and/or superior risk adjusted returns? No. I don’t know what you mean by Wealth Management Account so I’m not going to assume on your behalf.

•And as far as Mutual Funds go, pay win or loose is not very attractive at all, except for the financial advisor and MF company. That’s a pretty lame blanket statement. Although a majority of mutual funds are mediocre or sub-par, there are mutual funds that have delivered value to their investors over time. The same goes with financial advisors; a majority of financial advisors are sales people masquerading as financial planners. But there are client-centered financial planners that provide value to their clients. Value that goes way beyond performance numbers.

•SMA's can align investor goals with the Money Manager. There is special work that can be done in SMA's that reduce risk and enhance yield... This can be done with mutual funds as well; nothing earth shattering or special here my friend.

Rather than play armchair financial planner and throw out random comments, go and prove me wrong. Go out there and find definitive proof that SMA’s are superior to mutual funds for investor, big or small; and from a source that isn’t in the business of directly or indirectly selling them. Then that would make a good blog. Good luck!

Sorry Jeff, I just could not let this go...I very rarly post anything on the net. You were just so far off on this topic. I am sure you do a great job with Insurance products, etc...

1.) MF's have max loss to zero. If you are counting on the Fund Manager to reduce your risk, you are going to get your clients hurt. ETFs can provide an absolute, known risk to the penny for every line item open in the account when used in tandem with protective strategies.
2.) In fact there are very few funds that are utilizing hedging and going short the market. If you want out of your MF now, you can place the order, but you will not get the fill until the close of business. MF's are priced once per day at 4:00pm. That's quite illiquid would you not agree?? Now of case when the market does not open, like on 9/11, you can sit and quess what your exposure is going to be... ETFs worked within an SMA can solve all those problems in the hands of a manager who knows what he or she is doing. This is not Financial Advisory work, this is Investment Advisory work. That's just some of what is going on in the SMA world.
3.) By stating that the investor needs to be able to afford 1,000 shares, I am stating it's all about the assets. EWJ is $14 per share, SPY is $133 per share, if you can afford to hold ETFs like these, you are moving towards being able to be served via an SMA and a private money manager.
4.) Wall Street is buying SMAs with clients, assets and a track records of yield. They are not organically growing these for the most part. They are shopping ....
5.) You would be surprised with the the level of service that SMA clients emjoy. You would also be surprised with the performace based compensation that an SMA Money Manager would be willing to work with to earn and keep clients.
6.) You should talk to John Bogle Founder and CEO of Vanguard. He recently wrote, the MF company takes 80% of the return, puts up 0% of the capital and takes 0% of the risk. The investor on the other hand, gets 20% of the return, puts up 100% of the capital and takes 100% of the risk. It took over 100 years to train our investment public to get used to that kind of milking. Fortunatly, the ETF industry is eating MF assets in ever increasing bites.
7.) Nope... just not accurate. You can not do anything with MFs relative to ETFs. For example: Try seting up and Equity Collar on your Mutual Fund. What is that? Long ETF in Concert with a Protective Put in Concert with a Covered Call. The Client has risk off set of up to 95%+ with income of as much as $1 per share, monthly, while leaving room for some cap appreication.

I think that I just proved you wrong... I am not saying that SMAs are superior to MFs. I am saying that ETFs are superior to MFs. Further I am saying that SMA's provide an efficent structure to work the ETFs on behalf of the investors who hold assets within the Firm.

I don't have time for a Blog. I spend my time managing my cleints assets withn their SMA's. And yes the yields are strong and the risks are managed to client risk profiles. But, you claim all that value is just a "waste of money and more cachet than substance" Some of your readers may think otherwise, I know my clients would....Good Luck!

1.) If an efficient mutual fund (say a S&P Index Fund) goes to zero due to some catastrophic geopolitical event, I think that we would all be worried about other things than what is on our investment statements. And I don’t think someone will be waiting around to settle with you on your hedge strategy either if that’s the case. You’re showing a prohibitive scenario in portraying a mutual fund, do the same on the SMA or EFT side as well.

2.) Last time you said that mutual funds can’t hedge so I guess you changed your tune there. And there are a lot more funds with partial or absolute hedging strategies than you convey. And mutual funds are quite liquid; if you really think you can add value by being able to time your transaction at any moment of the day, (which you can’t), then I can understand why you think that way. And in a 9/11 scenario, you are going to run into liquidity issues with SMA’s and ETF’s as well. Again, another analogy against mutual funds portrayed on an uneven field.

3.) Then why didn’t you say it was dollar volume in the first place then rather than shares? Just because you can afford to buy SPY, it doesn’t mean that you are heading towards getting any extra value from dedicating your portfolio to SMA’s.

4.) And that’s where the investor isn’t getting any value because that adds in a layer of high costs, and that’s when it gets inefficient, especially when there is no structured asset allocation strategy behind the advice.

5.) If you have the money, you get the attention. If the manager has hundreds of clients, you are not going to get the same personal hand holding if you invest $50K as opposed to the person who invests $10M.

6.) I love the Jack Bogle’s argument and it’s a play on numbers. 80% of the return; does the mutual fund company remove shares from the clients account and put it in their own account to retrieve that value? I don’t think so. If somebody gets that 80% where does that go? Risking 0% of their capital and having 0% risk? They are a business and have to raise capital to exist. And they have business risk; don’t execute and they go out of business. It comes down to cost and the Bogle analogy can trip across all investments when there are costs involved, whether it’s cash drag, taxes, transactions, spreads, and management/administrative fees. The instruments that are cost effective and exact their strategy correctly will add value including mutual funds. So again, stick to playing on a level playing field here because investing in mutual funds can be more cost effective than ETF’s under certain circumstances and SMA’s under a lot of circumstances.

7.) If you want preciseness in your risk great, using individual securities in the manner prescribed will do that. But your can create the same level of risk within your asset allocatiion. Asset allocation is going to drive portfolio performance and a combination of mutual funds can provide the same level of risk with just as much efficiency as your strategy.

Then what are you really saying? Don’t pick on SMA’s because I manage one? ETF’s can be superior to MF’s under some circumstances. It depends on how you use them in an asset allocation strategy because asset allocation, not timing and selection will be the dominant driver of your performance over time. And I highly doubt that most people would be able to create a collection of SMA’s (the focus on the article, not ETF’s) that would be truly diversified and more effective than what you can find in the mutual fund world. I do have to say is at least you are using ETF’s to mitigate your costs.

I don’t have a conflict of interest like you do. All I have to say is that I am in a wonderful position where I can choose the best vehicles for my clients, whether it is ETF’s. mutual funds, SMA’s or other options. And SMA’s do not provide a platform that allows for management of a truly diversified portfolio, nor do most live up to the hype. In the end its results are what matter. And mutual funds and/or ETF’s (alone) provide a better platform to exact the strategy.