Randall Forsyth had an interesting comment about indexing versus active management in his daily Up and down Wall Street column on Friday.
Index funds have a place in a portfolio, providing a core position at a rock-bottom cost. But providing true diversification and extra returns requires straying well a ways from that benchmark.
The above quote was in the context of interviewing David Winter of the Wintergreen Fund (WGRNX). He used to work at the Mutual Series of funds and has had his own shop for a while. He is on the Connie Mack show on PBS every so often.
If you are managing your own portfolio you may not be inclined to own and follow 45 stocks. I do think that a lot do-it-yourselfers can index a big chunk of their portfolio and then follow ten or maybe a dozen narrower holdings that can, depending on the investor's leanings, increase or decrease volatility or provide exposure to some themes not captured through indexing.
Exposure to single countries is one that is tough to capture through "normal" indexing but can be a way to get some genuine zig-zag compared to domestic holding. I've written more than a few times about water and oil sands as themes that are important to me, chances are there are other non-single country themes that are important to you. A theme like this, assuming it is one you believe in, has the chance a lot of growth that could come regardless of what the market is doing.
ETFs, where they exist, allow investors to simply learn the fundamentals of the theme whereas picking an individual stock requires knowing the theme and the stock. This is absolutely doable but it is obviously at least twice the work. I would say first to focus on the theme and then figure out the best way to invest in it. There may not be a fund or other product; a common stock may be the only way to go.
It is not vital that you own the single best performing thing to capture the effect. For example, I don't think there is an ethanol fund but the pure play stocks (just picking a fad here that I have no exposure to) are very volatile. The theme might be right for you but the stocks may be a little too hot to handle for some folks. If there were an ETF it would capture most of the effect with probably less white knuckle.
The theme is more important than the pick, so says top down theory.
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6 comments:
uranium has appeared here as a potential theme for nuclear energy..saw this posting at a forum i use...so passing it on...looks pretty thorough for a place to begin...sorry for thelength.
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m-photo wrote:
here are some uranium stocks in addition to FRG:
MEGA URANIUM -- MGAFF
http://stockcharts.com/gallery/?MGA.to
http://www.megauranium.com/
LARAMIDE RESOURCES -- LMRXF
http://stockcharts.com/gallery/?LAM.TO
PINETREE CAPITAL -- PNPFF
http://stockcharts.com/gallery/?PNP.TO
http://www.pinetreecapital.com/
PALADIN RESOURCES -- PALAF
http://stockcharts.com/gallery/?PDN.TO
SXR URANIUM ONE -- SXRFF (SXR.TO)
DENISON MINES -- DNMIF (DEN.TO)
URANERZ ENERGY -- URZ (trades on AMEX)
Cameco (CCJ) -- large producer. this stock has lagged recently because of a flood in one of their mines (this mine wasn't producing yet, but was due to start producing in '08).
all the other stocks are up a lot recently because the above flood has affected potential future supply.
http://stockcharts.com/candleglance/?MGA.to,PNP.TO,PDN.TO,SXR.TO,FRG,DEN.TO,LAM.TO,TUE.V,DJE.V,URZ,CCJ,NWTMF,ASX.v
http://stockcharts.com/candleglance/?MGA.to,PNP.TO,PDN.TO,SXR.TO,FRG,DEN.TO,LAM.TO,TUE.V,DJE.V,URZ,CCJ,NWTMF,ASX.v|C
Here's a web site to get the spot price of uranium and other news: The metal price has been going up without any pullback for a long time...
http://www.uxc.com/index.aspx
uranium message board:
http://www.stockhouse.ca/bullboards/forum.asp?symbol=PNP&table=LIST
this site has message boards, and quotes in both u.s. dollars and canadian dollars:
http://www.stockhouse.ca/comp_info.asp?symbol=BRD&table=list&conversion=1&advanced=1&DisplayCurrency=US
links to websites, more info and quotes:
http://www.tsx.com/HttpController?GetPage=QuotesViewPage&DetailedView=DetailedPrices&Language=en&QuoteSymbol_1=lam
martin
http://www.theinformedtrader.com/members/forum/openthread.cfm?forum=1&ThreadID=734#2354 >
Here is how personally would do about indexing or not.
My core holdings are actively managed mutual funds with low volatility. These represent about 50% of my equity and I am holding these for medium to long term. Examples: TWEIX for large cap, (TEDIX or WGRNX) for international(actually more of a world fund than an international fund)
25% of my equity holdings will be with active funds that are more performance oriented. Examples: JAOSX for international exposure. HDOGX for large cap US. DRSVX for US small cap value.
For the rest of 25% I use index funds or options to play short term trends, either going long or go short( to reduce market exposure).
I have very little bonds. Instead I use good balanced funds for my bond exposure. Again I prefer actively managed funds like FPACX or OAKBX.
The overall risk of the equity portion is less than the S&P 500.
i tend to think uranium fits in to the theme discussion too but I do not not know those stocks other CCJ which is a personal holding.
to 8:54 anon, not how I would do it which of course means nothing. It works for you, right? that is clearly the thing that matters.
I would suggest you quantify, for yourself, you comment that you take less overal risk than SPX. maybe you've already done that.
Speaking of risk or volatility, I use the tools at riskgrades.com for tracking my portfolio. My most aggresive portfolio(containing 81% equity) measures 0.61x as volatile as the S&P 500, YTD 14.1%.
The most conservative portfolio(25% equity) measures 0.22 x as volatile as the S&P 500, YTD 6.3%.
Interesting enough, last year I got about the same returns as this year's YTD figures, while last year the S&P returned only 5%.
excellent results, congrats
David Winter of Wintergreen fund has an outstanding record at Mutual Discovery. The fund(MDISX or TEDIX) beats the S&P 500 for YTD, 1,3,5 and 10 year with less volatility and a beta of 0.6. Ditto for Tweedy Browne Global Value (TBGVX). These are good examples of what an actively managed world fund can do for you. I am not aware of any index fund that tracks global market yet. However, it would certainly make sense to have such an index or etf.
Life can be so simple if only we just need to buy one fund or index.
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