Index Huggers

Is your fund manager just an index hugger in disguise? (Cartoon from )

Investing in most mutual funds is a waste of time as they rarely offer any benefit over low cost index funds. Sure there are some exceptions of managers willing to hold unconventional portfolios like CGM (CGMFX), Fairholme (FAIRX), and Hussman (HSGFX) – but most simply track an index with more fees.

To give an example, I looked at the 9114 funds Morningstar ranks as “all-diversified stock funds”. Of these funds, the average performance is around -12% YTD, and only about 50 have positive performance YTD. The top five are:

HRVIX Heartland Value Plus 11.17
PARSX Parnassus Small-Cap 9.96
FVALX Forester Value 9.29
AARFX Akros Absolute Return 7.81
HFTFX Hennessy Focus 30 7.29

Of the 158 long short funds, only 14 are positive, with the top five being:

HSKSX Highbridge Statistical Mkt Neutral Sel 7.99
DDMIX DWS Disciplined Market Neutral Instl 6.20
HSGFX Hussman Strategic Growth 5.01
MGAAX Managers AMG FQ Global Alt. 3.98
PALIX Palantir Fund 3.66

In a related note, if you had been following the simple TAA timing model from my paper, you would be up around 2% (gross of fees) through the end of July. Even a simple buy and hold would have flat performance YTD through July. . .