There are NAV graphs that show how a fund is doing, so wht is the way to see if it is doing well or it will fall,like the stocks tht have a zillion indicators and overlays to help one. so how do we judge a fund?

Secondly, is there an exit strategy for the funds, like the stocks?

Aditi

No load funds are mostly managed by banks and other big institutions, Therefore, their funds are big enough to not be influenced by movements from clients. This would explain that major funds held by banks or companies such as Fidelity perform as well as funds managed with fees such as Primerica’s or Investors.

Another example would be Sprott Asset Management; It is a smaller mutual funds company with a small sales force. Their penalty is only applicable on the first 180 days (which is pretty small). At one point, the Canadian Equity fund was so popular that they simply closed (not issuing anymore new shares) in order to control the money held within the fund. It has a 10 years annualized return of 30% and 25% since inception. So even small funds with (virtually) no penalty fees can succeed pretty good.

I personally never read about any advantages from back end or front end fees mutual funds. I guess that if you invest over a long period of time (which is highly recommended if you want to make good returns) it won’t make much difference after all.

And a point of note, I do agree with what you are saying.

V

I was thinking… If a no load Mutual Fund Manager does not have a sales force pitching their fund (or a relatively small sales force compared to a company like Primerica or Investors Group) here’s what happens, correct me if I’m wrong:

When the economy is in a downward spiral like it is now, most people in a no load have not payed anything to get into them. So when they see their portfolio loosing money, without anyone to advise them otherwise they will pull out. When they redeem their shares, the fund manager must sell stock (to come up with the money to pay these people). As such, the NAVPS of the fund should fall significantly lower. So you have the market influences, as well as the sellling of shares contributing to poor performance.

when the economy is good, more people will buy no load funds based on the fact that there are no “fees”. Now the Mutual Fund Manager is getting money more money to buy stock, but he’s buying when they’re most expensive! (Remember, the market is hot) And if you remember above, he had to sell when the economy was bad… Logically, this does not sound right to me.

On the other hand, the mutual fund manager of the fund with a sales force (like Primerica) is receiving an influx of money to invest when the economy is performing badly as well as when it’s good. So the fund manager is actually buyin more STOCKS when they are cheap, and buying less Stocks as they get more expense when the economy recovers. In theory, this should boost the NAVPS of the fund when the economy turns around since the average cost per share is spread out over the neg/pos periods in the business cycle.

In my opinion, it makes complete sense to dollar cost average. But your mutual fund should ALSO be dollar cost averaging or else you’re wasting your time. It will be more difficult for the manager with a smaller/no sales force to out perform the market when more people are selling shares when the economy is bad, and buying when the economy is good.

Cheers,
V

You are in reference to B shares for back end loaded funds. A shares are front loaded. If investing for the short term, A shares are better (the load is over with up front.) If investing long term, like many of the clients out there, B Shares are better since you will have more money being invested long term.

These are not specific to Primerica. All and all, the type of share (as well as fund(s)) should be decided based on the intentions of the client.

First things first, some people will always be more concerned about how much you make in commission than how much they will make with the funds. We all have bills to pay and it’s normal that you are making money while selling a mutual funds It is unfortunate, but those people will not understand the structure and only think about their pocket.

I am not sure I understand your point about sales force. For example, most bank have “no load” mutual funds but they still have a sales force. I also believe in periodic investment and suggest it to my clients too.

Most funds are so big that they don’t really get influence by investment habit. Because even though you are getting all your clients on board with dollar cost averaging, you will also bring more massive amount of money when you transfer a client from another institution. Same thing if a part of your clients are transferring out or buy a property for example.

Fund managers have so much money to handle that daily fluctuation should not be that important in their investment strategy. HOWEVER, history saw many managers fail because they were too popular. They simply received too much money to invest within a short period of time since everybody wanted “the fund outperforming the market for the past 10 years”.

Do Primerica funds have back-end load fees? If so, that might explain why your clients are keeping their funds for 6 years Seriously, regardless of the fees, a good investor should keep their funds for at least 6 years in order to go through 1 full economic cycle. Unfortunately, most people panic after 6 months of negative results!

I guess this is how good investors make money

I do have a question. I guess when I was writing that quetion up, I was thinking about mutual funds with a sales force, vs funds that dont’ have a sales force or no load… Because people are always worried about our commissions as reps or the expenses associated with our funds. But there are huge benefits to having a mutual fund with a sales force no?

For example: Primerica is a Life Insurance company first, but we are a marketer of financial products: Mutual Funds, Debt Elimination programs, Legal advisors, wills etc. etc. Now, we are one of the largest marketers of mutual fund in all of North America. So, when a client gets into a mutual fund that is marketed by Primerica, don’t they have an advantage over someone who gets into a mutual fund by themselves?

Have you ever heard of “double dollar cost averaging?” We have all heard about putting money into an investment over time. As the market takes a downswing you are able to buy more shares and when the market is doing well, you buy less shares. So you get a smooth average of the good and bad years. I believe in this philosophy. But what about if your mutual fund is also dollar cost averaging?

Money Managers who over-see our funds are getting 30 Million dollars on Monday morning to invest in stocks/bonds (for sake of argument), and on Tuesday morning they’re getting another 30 Million, and Wednesday they’re getting another 30 Million and so forth… Because we (as Primerica reps) are investing and we’re educating our clients about why they need to put money away etc.

The “no load” manager who doesn’t have a sales force marketing his mutual fund isn’t getting 30 million on Monday morning. It depends on how people “feel”. If the market is doing good, people will put money in, and if it’s bad they’ll take money out. It doesn’t cost them anything to get into these funds so they just sell/buy shares whenever the feel like it. that doesn’t happen with our funds because clients are educated about dollar cost averaging and they have an advisor coaching them to put more money in when things get tough. On average, our clients stay invested in our mutual funds for at least 6 years (on average) before redeeming any shares.

This is what I was trying to refer to when I said “turnover.” Sorry for the confusion.

What is your take?

Cheers,
V

In short, the Alpha is how much value the fund manager(s) bring to the fund. The Beta is, in essence, how much risk the fund takes compared to an index.

Eg, a 1.0 Alpha means, on average, the managers bring enough value to beet the index by about 1%. I have seen a few funds that have an Alpha of 2 or greater. Not that many though.

A .6 Beta for instance means the fund generates it’s returns with about 40% less risk than the index it self.

In other words, a high alpha and low beta means greater returns with less risk than the index it is compared to.