A reader left the following comment in response to my earlier post about OEFs.
I am of the opion that if I want to buy an actively managed fund I have the expectation that it would beat the benchmark index. So I don't mind the manager deviate from the strict style box! With so many index funds and etf's available,there is no problem to select a combination of index and actively managed funds for my portfolio. However, I question the need to have all style box filled in this market. Personally I do not own US large cap funds, yet I own all sorts of international funds(emerging, Eastern europe, Latin America and Europe).
I think there is something to be learned here. First and foremost the strategy spelled out is perfectly valid, no US large cap exposure. I imagine this person's portfolio has done very well. I have been writing for ages about mega caps lagging and I think they will continue to lag. However, when will they lead again? Personally, I'm not sure. I don't see any visibility now but I am not sure that I will catch a turn when it comes. Future success for this reader relies on transitioning into US large cap some where close to the right time. The exact time won't be important just within six months or so, probably. The reader might execute this very well whenever the time comes.
If you follow this type of strategy in your portfolio this is what you need to be in touch with. The risk you are taking by not being properly diversified is missing something or worse, staying too long in hot sectors . There is absolutely no question that large cap will lead again, that is just how markets work. It is not valid, in my opinion, to believe large will never lead again (not what the reader is saying).
I am not willing to bet my clients' money that I can nail the timing of the rotation from small back to large.
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1 comments:
I don't think it is too difficult to follow the fund sectors that are doing well . For example, using the latest catagory return data from Morningstar, international funds have outperformed US large or small funds for the past 1, 3 and 5 years. I may not be able to detect the precise moment when US large cap begins to outpace the other catagories, but until it turns up(evidenced by 3 month, YTD data), I would not worry about it. GMO's 7-year Global Forcast projects the return from US Large cap would probably not even beat the inflation during that period!
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