Document 6565206

D6 Business |
2R
| SUNDAY, OCTOBER 19, 2014
MutualFunds
IS ACTIVE MANAGEMENT
DEAD? NO WAY
Fund Tracker
short­term periods.
To achieve the same
results, an actively man­
Chuck Jaffe
aged fund typically must
Syndicated columnist
overcome higher expenses,
Whenever
meaning it must generate
something is
better returns than the
“new and
index just to hope to match
improved,”
the performance of the
it is seen as
benchmark.
the death
Index funds, meanwhile,
knell for
sacrifice the chance to “beat
whatever
the market” and are
came be­
doomed to decline whenev­
fore, because the original
er their index is troubled.
idea is now old and down­
Morningstar’s John Rek­
graded.
enthaler noted recently that
Thus, a case can be made Vanguard’s actively man­
that smartphones, tablets
aged funds actually have
and laptops have killed the
outperformed their more­
desktop computer, or that
storied index peers, al­
satellite radio has killed
though the active results
traditional terrestrial sta­
may have been helped by
tions.
the fact that Vanguard has
The argument is interest­ closed some disappointing
ing, but there are plenty of
performers in recent years.
people happily using the old
In short, even if “indexing
methods.
is better” is now seen as the
That’s been important to
rule, there are lots of excep­
remember lately as fund
tions.
experts (again) have been
Moreover, even if all of
making the case that index­ the evidence points toward
ing has killed active man­
index funds being the “bet­
agement.
ter” investment, the proof
It’s not a new argument.
isn’t so much in the studies,
Some of that buzz has been but in an investor’s portfo­
kicked up as the Vanguard
lio.
Group — the world’s lead­
Talk to financial advisers
ing fund company best
who espouse the benefits of
known for its index offer­
passive investing, and you
ings — approaches the
may also find that they are
$3 trillion mark in assets;
actively managing portfoli­
the same kind of case was
os of index funds, trading
being made at least $2 tril­
the funds based on market
lion ago and at various
trends or intuitions.
points along the way.
There’s no guarantee that
The rest of the renewed
the person managing a
buzz has been generated by portfolio of “better funds” —
the media, where there has and adding an additional
been no shortage of strong
layer of costs in the process
cases, from a variety of
— actually is improving
sources, ranging from Mar­ performance. In the vein of
ketWatch interview with
“new and improved,” that’s
Chris Philips, one of the
like saying a nail gun is
passive pioneers at Van­
better than a hammer,
guard, to investment legend which stops being true
Charles Ellis suggesting in
when you shoot yourself in
the Financial Analysts Jour­ the foot with it.
nal that “performance in­
Countless studies have
vesting ... is no longer a
shown that investors typi­
game worth playing.”
cally get the worst out of
All told, index funds and
mutual­fund performance,
exchange­traded portfolios buying in only after there
now account for nearly 30
has been strong perfor­
percent of all money in
mance and selling out when
funds; it was one­third that there’s a frightening down­
level in 2000.
turn, meaning that the
That kind of growth and
funds are bought at a high
the inherent common­sense and sold near a low.
of index investing — plus
You can bumble your way
the gazillion examples of
to that strategy in index
how paying a money man­
funds every bit as much as
ager to attempt to beat the
with actively managed
market is a folly — leads to
funds.
all of the “active manage­
So while there’s a clear
ment is dead” talk.
case to be made that the
But just as some people
index fund is the biggest
keep working on desktops
best ride in the financial
or start their car and tune in amusement park, that
to AM radio, so do actively
doesn’t mean you won’t get
managed funds still serve a sick if you’re not emotional­
purpose for a lot of inves­
ly prepared to be strapped
tors.
in to the roller­coaster’s ups
Flawed? Sure.
and downs.
Dead? Not by a longshot.
The right strategy, there­
While more than two­
fore, is less about active or
thirds of the $16 trillion
passive management than
invested in mutual funds is
finding something comfort­
actively managed, there’s
able, limiting your activity
not really much arguing the level and focusing on the
active­versus­passive strate­ total portfolio and progress
gy case by now.
toward your goals rather
Even active managers
than whether all of the
acknowledge that an index individual pieces beat their
fund — which passively
respective benchmark.
tracks a benchmark and
It matters less that some­
tries to keep costs to a mini­ thing is the newest and
mum — typically is a better
most improved, and more
bet long­term than a fund in that you are satisfied with
the same asset category
what you’re using. When
where an average manager you’re no longer satisfied,
tries to do better than the
that’s when it’s time for an
market yardstick.
upgrade.
Simply put, most active
Chuck Jaffe is senior columnist for
MarketWatch. He can be reached
managers — saddled with
or at
significantly higher costs — at [email protected]
P.O. Box 70,
can’t top the index standard
Cohasset, MA 02025­0070.
over time, even if they are
Copyright 2014, MarketWatch
capable of beating it in
Winners and losers: A mutual­fund scorecard
Your Funds
Health­care stock funds
resilient in downturns
By STAN CHOE
The Associated Press
NEW YORK — When
swings in the stock market
cause anxiety to spike, like
it is now, many investors
aim to get healthy.
Stocks don’t come with
guarantees, but health­care
stocks have held up better
than others during past
downturns. People get sick
regardless of the economy’s
strength, after all, and an
aging population around
the world means more
demand for prescription
drugs and hospital care.
That has brought more
attention to health­care
stock funds, as worries
about a weak global econo­
my have sent stocks sinking
in recent weeks. Health­
care stock funds returned
an average of 19.1 percent
annually over the last five
years, more than any of the
other 101 fund categories
tracked by Morningstar.
The strong returns are
luring more dollars: Inves­
tors put more into health­
care funds last month than
they pulled out, contrary to
the trend for stock funds in
general.
Demand for health care
tends to spike once a person
gets past the age of 70. A
similar leap occurs when
someone enters the middle
class. Both trends are occur­
ring around the world.
Weekly spotlight on mutual fund performance
Fund Wkly % YTD %
obj return return
Biggest funds
American Funds A AmcpA p
American Funds A AMutlA p
American Funds A BalA p
American Funds A BondA p
American Funds A CapIBA p
American Funds A CapWGA p
American Funds A FdInvA p
American Funds A GwthA p
American Funds A HI TrA p
American Funds A IncoA p
American Funds A ICAA p
American Funds A N PerA p
American Funds A SmCpA p
American Funds A WshA p
BlackRock Instl StrIncoOpp
BlackRock Instl EquityDv
BlackRock Instl GlbAlloc r
Dimensional Fds EmMCrEq
Dimensional Fds EmMktV
Dimensional Fds USLgVa
Dodge&Cox Balanced
Dodge&Cox Income
Dodge&Cox IntlStk
Dodge&Cox Stock
DoubleLine Funds TRBd I
FPA Funds FPACres
Fidelity Freedom FF2020K
Fidelity Freedom FF2030K
Fidelity Invest Balanc
Fidelity Invest Contra
Fidelity Invest GroCo
Fidelity Invest LowP r
Fidelity Invest Puritn
Fidelity Invest TotalBd
Fidelity Spart Adv 500IdxAdv
Fidelity Spart Adv TotMktAd r
Frank/Temp Frnk A IncomA p
Frank/Tmp Frnk Adv GlbBdAdv
Harbor Funds CapApInst
Harbor Funds Intl r
Loomis Sayles LSBondI
Metro West Fds TotRtBdI
Oakmark Funds I EqtyInc r
Oakmark Funds I Intl
Oakmark Funds I Oakmark
Oppenheimer Y DevMktY
PIMCO Instl PIMS AlAsetAut r
PIMCO Instl PIMS AllAsset
PIMCO Instl PIMS TotRt
PIMCO Funds Instl Income
Price Funds BlChip
Price Funds CapApp
Price Funds EqInc
Price Funds EqIndex
Price Funds Growth
Price Funds MidCap
Price Funds N Horiz
Price Funds N Inc
Price Funds Ret2020
Price Funds Ret2030
Price Funds Value
Schwab Funds S&P Sel
Vanguard Admiral 500Adml
Vanguard Admiral GNMA Ad
Vanguard Admiral HlthCr
Vanguard Admiral ITAdml
Vanguard Admiral ITGrAdm
Vanguard Admiral LtdTrAd
Vanguard Admiral MCpAdml
Vanguard Admiral PrmCap r
Vanguard Admiral STIGrAd
Vanguard Admiral SmCAdm
Vanguard Admiral TtlBAdml
Vanguard Admiral WellslAdm
Vanguard Admiral WelltnAdm
Vanguard Admiral WdsrIIAd
Vanguard Fds TotIntBInv
Vanguard Fds DivdGro
Vanguard Fds STAR
Vanguard Fds TgtRe2015
Vanguard Fds TgRe2020
Vanguard Fds TgtRe2025
Vanguard Fds TgRe2030
Vanguard Fds TgtRe2035
Vanguard Fds TgtRe2040
Vanguard Fds TgtRe2045
Vanguard Idx Fds TotlIntl
XC
LV
BL
IB
BL
GL
LC
LG
HC
BL
LC
GL
GL
LC
GT
EI
MP
EM
EM
LV
BL
IB
IL
LV
MT
MP
MP
MP
BL
LG
XG
MC
BL
IB
SP
XC
BL
WB
LG
IL
GT
IB
BL
IL
LC
EM
MP
MP
IB
GT
LG
BL
EI
SP
LG
MG
SG
IB
MP
MP
LV
SP
SP
MT
HB
IM
IB
SM
MC
LC
SB
SC
IB
BL
BL
LV
WB
EI
BL
MP
MP
MP
MP
MP
MP
MP
IL
XC
SP
XC
Vanguard Idx Fds TotStk
Vanguard Instl Fds InstIdx
Vanguard Instl Fds InsTStPlus
5­yr %
return
­0.7 +3.4 +14.1
­0.6 +2.7 +12.6
­0.6 +2.7 +11.4
+0.4 +5.4 +4.8
0.0 +2.6 +8.5
­0.2 ­0.3 +8.4
­0.8 +0.5 +12.2
­0.3 +1.0 +12.3
+0.4 +1.6 +8.7
­0.3 +3.1 +10.8
­0.5 +4.6 +12.6
+0.2 ­3.5 +9.6
+0.5 ­4.8 +10.4
­1.1 +2.7 +14.0
­0.3 +2.7 +6.2
­1.1 +0.4 +11.7
­0.8 ­1.1 +6.1
­0.5 +1.2 +3.8
­0.7 ­0.4 +1.2
­1.0 +1.0 +15.2
­1.0 +2.6 +11.9
+0.1 +5.5 +5.5
­0.2 ­1.0 +7.3
­1.6 +1.0 +14.0
NA
NA
NS
­0.3 +1.4 +10.1
0.0 +1.2 +7.8
­0.1 +0.1 +8.7
­0.5 +3.8 +10.7
­0.9 +1.1 +13.8
+0.6 +2.7 +16.3
+0.2 +0.2 +14.5
­0.6 +3.9 +10.8
+0.3 +5.5 +5.7
­1.0 +3.7 +14.0
­0.5 +2.5 +14.2
0.0 +3.3 +10.2
­0.3 +2.8 +6.5
­0.7 +1.4 +13.8
NA
NA
NA
+0.3 +4.7 +9.2
+0.3 +5.5 +7.3
0.0 +0.6 +8.9
­0.1 ­10.0 +8.9
­0.6 +2.4 +15.2
­0.1 +0.1 +7.5
NA
NA
NA
NA
NA
NA
­0.1 +4.2 +5.2
NA
NA
NA
­0.6
0.0 +15.6
­0.2 +5.0 +12.2
­0.6 ­0.4 +12.0
­1.0 +3.5 +13.7
0.0
0.0 +15.1
+1.1 +1.4 +15.4
+1.6 ­3.8 +19.7
+0.2 +5.6 +4.6
0.0 +1.5 +9.8
0.0 +0.8 +10.9
­0.7 +2.2 +14.1
­1.0 +3.6 +13.9
­1.0 +3.7 +14.0
+0.5 +6.1 +4.2
­1.2 +15.3 +18.9
+0.4 +7.4 +4.9
+0.3 +6.0 +6.6
+0.2 +2.2 +2.3
+0.5 +2.6 +15.4
­0.3 +6.7 +15.1
+0.1 +2.2 +3.3
+1.8 ­2.5 +15.1
+0.3 +5.6 +4.3
­0.2 +4.8 +9.3
­0.5 +4.0 +10.6
­1.3 +2.3 +13.0
0.0 +6.6
NS
­0.7 +2.7 +13.5
0.0 +2.3 +9.5
­0.1 +2.8 +8.5
­0.1 +2.5 +9.1
­0.2 +2.1 +9.6
­0.2 +1.7 +10.0
­0.2 +1.3 +10.5
­0.3 +0.8 +10.7
­0.3 +0.8 +10.7
+0.1 ­4.8 +4.2
Best performers
Price Funds AME Fd
Price Funds InstAX­fd r
Frank/Tmp Frnk Adv TFrMkAd
GMO Trust Taiwan
Fidelity Selects MdEqSys
ProFunds Inv Cl UltraJapan
AQR Funds MultStrAlt I
Rydex Dynamic NasdStrH
Eaton Vance A AsianSCo t
Allianz Funds D GlblWell
Fidelity Adv Foc A HlthCrA r
Fidelity Selects Health
Schwab Funds HlthCare
Fidelity Selects Pharm
Pioneer Funds A EmMktA
Fidelity Selects NtGas
Fidelity Advisor A ValLdA p
Fidelity Invest JpnSm
ProFunds Inv Cl UltBull
Rydex Dynamic S&P5 2xH p
Fidelity Invest BlueChVal
ProFunds Inv Cl UltDow30
Hennessy Funds LgCFn Inv
Oak Assoc Fds LivOakHlt
Bridgeway Funds BlChp35
Putnam Funds A GlblHlthA
AQR Funds DivArb I
Zachs Funds MktNeutA t
ICON Fds Hlthcare S
Eagle Funds Gr&IncA
+2.5 +14.1
+3.7 +14.0
+2.7 +14.3
Fund Wkly % YTD %
obj return return
SQ
SG
SG
SG
SQ
SG
SE
SG
SG
SG
SG
HB
SG
PR
SV
SC
SG
SG
SC
SG
SG
SC
SC
SC
SG
SC
SG
SG
SC
SQ
+20.1
+10.9
+17.6
+10.5
+16.4
+13.8
+21.0
+12.9
+14.8
NS
+17.8
+25.2
+13.0
+9.3
+8.0
+6.7
+11.2
+13.6
+13.7
+12.5
+12.5
NS
+16.9
+15.4
NS
+14.4
+12.9
+10.9
+13.3
­35.8
Fund Wkly % YTD %
obj return return
5­yr %
return
EM
EM
EM
PR
HB
SQ
MP
SQ
PR
HB
HB
HB
HB
HB
EM
NR
XV
PR
SQ
SQ
XV
SQ
FS
HB
LC
HB
MP
SQ
HB
EI
+5.5
+5.0
+4.8
+4.5
+4.1
+4.0
+3.9
+3.9
+3.5
+3.4
+3.4
+3.3
+3.3
+3.3
+3.2
+3.2
+3.2
+3.1
+3.1
+3.1
+3.1
+3.0
+3.0
+3.0
+3.0
+2.9
+2.9
+2.9
+2.9
+2.9
5­yr %
return
­15.0
­14.8
­17.3
­13.5
­11.0
­12.3
+12.2
­13.2
­10.1
­7.8
­6.5
+17.4
­7.9
­1.5
­15.2
­10.2
­16.3
­7.0
­10.9
­8.6
­13.1
­1.6
­11.6
­4.0
­6.4
­7.9
­3.0
­10.7
­6.0
­17.5
ProFunds Inv Cl UltSmCap
Oberweis Funds EmergGr
Buffalo Funds MicroCp t
Oberweis Funds MicroCap
Rydex H Class Rus2KStrH p
Ivy Funds MicroCGA t
Fidelity Selects Trans
RidgeWorth Funds SmCpGrI
AMG Managers EmgOppSv
AMG Managers FrntrSCG I
Lord Abbett I DevlpGro
Rydex Investor Biotech
Turner Funds SmlCpGr
Oberweis Funds ChinaOpp
SchdSmCV r
Royce Funds MicroCapI
Columbia Class Z SCpGthZ
Amer Century Inv SmCapGr
RBC Funds EntprI
Wells Fargo Adv A TradSCGrA
John Hancock A SmCpEqA
Mairs & Power SmallCap
AMG Managers EmgCo Inst
JP Morgan Instl SmallCo
Vanguard Instl Fds R2KGrth
Westcore MicroOpR r
Scout Funds SmCap
Wilmington Fds SmCapGI
Wilmington Fds SmCapStr I
Rydex Dynamic InvNasdSt H
Worst performers
­0.5
­1.0
­0.5
­4.2
­4.2
­4.1
­3.4
­3.3
­3.2
­3.1
­3.0
­2.9
­2.7
­2.6
­2.5
­2.4
­2.3
­2.2
­2.2
­2.1
­2.1
­2.1
­2.1
­2.0
­2.0
­2.0
­1.9
­1.9
­1.9
­1.9
­1.9
­1.9
­1.9
+11.1
+11.7
­2.1
+2.1
+8.2
­22.2
­0.8
+11.1
­5.2
+13.6
+16.4
+16.8
+10.0
+12.5
­5.3
­4.0
+0.3
­7.7
+4.2
+4.5
+0.6
­2.2
­4.1
+7.9
+3.2
+14.1
­4.4
­0.6
+13.1
+1.4
+8.4
+8.8
+6.1
+7.1
+15.0
+6.3
NS
+32.7
+4.4
+17.6
+23.2
+23.8
+18.7
+20.8
­1.7
+2.3
+9.1
+9.4
+22.7
+23.2
+9.4
+21.9
+7.9
+17.4
+12.9
+15.7
+1.2
­0.5
+18.3
+11.5
Footnotes: e: Ex capital­gains distribution. f: Previous day{rsquo}s
quote. n or nl: No upfront sales charge. p: Fund assets are used to
pay for distribution costs. r: redemption fee or contingent deferred
sales load may apply. s: Stock dividend or split. t: Both p and r. x: Ex
cash dividend. NE: Data in question. NS: Fund did not exist at the
start date. NA: No information available.
Key to abbreviations and footnotes:
Fund objectives: AB: Long­term top­grade corporate and govern­
ment bonds. AU: Gold oriented. BL: Balanced. EI: Equity income.
EM: Emerging markets. EU: European region. GL: Global (includes
U.S.). GM: General municipal bond. GT: General taxable bond. HB:
Health and biotech. HC: High­yield taxable bond. HM: High­yield
municipal bond. IB: Intermediate­term investment­grade corporate
bond. IG: Intermediate­term Treasury/government debt. IL:
International (outside U.S.). IM: Intermediate­term municipal bond.
LC: Large­cap core. LG: Large­cap growth. LT: Latin American. LU:
Long­term Treasury/government debt. LV: Large­cap value. MC:
Mid­cap core. MG: Mid­cap growth. MP: Mixed portfolio (stocks and
bonds). MT: Mortgage. MV: Mid­cap value. NM: Insured municipal
bond. NR: Natural resources. PR: Pacific region. SB: Short­term
investment­grade corporate bond. SC: Small­cap core. SE: Sector
(specific industries). SG: Small­cap growth. SM: Short­term munici­
pal debt. SP: S&P 500. SQ: Specialty diversified equity. SS: Single­
state municipal debt. SU: Short­term Treasury/government debt.
SV: Small­cap value. TK: Science and technology. UN: Unclassified.
UT: Utility. WB: World bond. XC: Multi­cap core. XG: Multi­cap
growth. XV: Multi­cap value
5­year % return: Annualized performance over the past five years.
Top 5 mutual funds by objective, year­to­date % return
Emerging markets
InstAX­fd r
AME Fd
EmMktI
EmgMkts I
EmMktSC p
Price Funds
Price Funds
Virtus Funds I
Westwood Funds
Templeton Adv
Equity income
Paydenfunds
Federated Instl
Invesco Funds A
Touchstone Family
Neubrger&BermFds
ValLdrs
StrValDvIS
Utilities p
PrYldEq Y
EqIncInst
Health | biotech
Biotech
Health
HlthCrA r
HlthSci
BioDisA p
Rydex Investor
Fidelity Selects
Fidelity Adv Foc A
Price Funds
Frank/Temp Frnk A
Global
Lazard Instl
Brookfield Fds
Cohen & Steers
Virtus Funds A
Vanguard Fds
GblInfra I
GblLstInf Y
GblInfra I
GlbInfraA p
GblMnV Inv
IntlOppt r
Canada
WldEqIncA
ForOppI
IntlA p
+11.7
+11.1
+7.1
+5.9
+5.7
Stewart Capital
Longleaf Partners
Davenport Funds
Columbia Class Z
Lazard Open
YTD %
return
Small­cap core
+7.4
+7.1
+6.7
+5.5
+4.9
PrmCap r
PrmcpCor
StrDvIn
LowVolEq I
StlCPlus
Invesco Funds A
Lazard Instl
Wasatch
Hennessy Funds
Prudential Fds Z&I
YTD %
return
Mid Cap
SmCap
EqtyOpps
MdCpVlZ p
USMidC O
SmallC p
USSmMid I
SmCapV
CorGrow O
SmallCoZ
Natural resources
+17.4
+16.8
+16.4
+15.4
+15.4
Invest Managers
Invest Managers
Oppenheimer A
Oppenheimer Y
Oppenheimer Y
YTD %
return
+9.8
+8.5
+7.5
+5.9
+5.3
+3.8
+1.6
+1.2
+0.8
+0.2
+6.7
+6.2
+6.2
+5.9
+5.0
+6.9
+6.2
+3.9
+3.6
+3.1
YTD %
return
YTD %
return
YTD %
return
Large­cap core
Vanguard Admiral
Vanguard Fds
Fidelity Invest
BMO Funds
Vanguard Instl Fds
Mid­cap core
YTD %
return
International
Wasatch
Fidelity Invest
Guggenheim Funds
Virtus Funds I
First Investors A
YTD %
return
+3.9
+1.2
­0.4
­0.5
­0.8
YTD %
return
Sector
Fidelity Selects
ReavSelct
Fidelity Selects
Fidelity Selects
Invest Managers
Trans
+12.2
+7.3
ConStap
+7.0
Air
+5.1
MgdFutSt I +4.6
YTD %
return
Balanced
Wells Fargo Adv A
Federated A
Advance Capital I
USAA Group
Westwood Funds
IdxAstAll A
MnSkAd p
RetInc
GrTxStr
IncomeOp I
YTD %
return
Intermediate bond
+15.6
+14.9
+14.9
+11.7
+10.6
Invest Managers CutwSelInc
Dimensional Fds
ITExQual
BMO Funds
CorpInco I
MorganStanleyInst CorPlsFxI
BlackRock A
TotRetA
Pacific region
YTD %
return
Long­term bond
Matthews Asian
Frank/TempFrnkA
Eaton Vance A
Neubrgr&BermFds
EuroPac Funds
IndiaInv r +48.5
IndiaGrA p +32.4
GrIndia t
+30.9
GtChinEq I +7.0
AsiaSmCoA +6.2
MLP&Engy
MLP&EnI I
StlpthAlpha
Alpha Y
Sel40 Y
Science | technology
Price Funds
Fidelity Selects
Fidelity Advisor I
Columbia Class A
Columbia Class A
GlbTech
+14.4
Electr
+13.2
Electronic +12.9
SelComm A +8.0
GlobTech
+7.0
YTD %
return
Gold oriented
GAMCO Funds
Tocqueville Fds
First Eagle
OCM Funds
Invesco Funds A
YTD %
return
GoldAAA
Gold t
SGenGld p
GoldInv t
GoldPrec p
+9.5
+9.5
+5.2
+4.3
+4.3
LTBnd
LTGrAdml
ExtDrGS4 x
ExtDurI
CorpInc
Vanguard Idx Fds
Vanguard Admiral
GuideStone Funds
Del Inv Instl
Price Funds
ExDurTreas
USTryFd
LTsyAdml
SpLTTrAd r
LTUSG
+8.2
+8.2
+7.5
+7.2
+7.2
YTD %
return
+17.1
+15.6
+15.3
+15.0
+8.3
+35.1
+25.6
+20.4
+20.4
+19.8
YTD %
return
Mortgage
Managed Acct Srs
Legg Mason A
Vanguard Admiral
SEI Portfolios
Deutsche Trust
YTD %
return
YTD %
return
Long­term U.S.
VanguardInstlFds
Wasatch
Vanguard Admiral
Fidelity Spartan
PIMCO Instl PIMS
+8.9
+5.9
+5.9
+5.9
+5.5
US MrtgInst
WAMtgBkA
GNMA Ad
GNMA A
GNMA S
+6.9
+6.1
+6.1
+6.0
+5.8
WHEN
TO SELL
A MUTUAL
FUND
Investing
Scott Burns
Syndicated columnist
Q: My
husband
and I have
more than
$100,000
invested in
two funds,
Morgan
Stanley
Smith Barney ClearBridge
Aggressive Growth Fund
(ticker: SHRAX; expense
ratio, 1.29 percent) and
ClearBridge Appreciation
Fund (ticker: SHAPX;
expense ratio, 1.05 per­
cent).
We’ve considered mov­
ing the investment to a
lower­cost fund at Van­
guard. If we sell the invest­
ment, we will owe quite a
bit in taxes since the funds
have appreciated substan­
tially since purchase. How
does one assess whether to
sell and pay taxes versus
staying put?
A: The first thing to
remember is that taxes are
not a problem. They are a
consequence of financial
gain.
The second thing to
consider is that the tax rate
on long­term gains is rela­
tively low. With that mind­
set, let’s look at the specif­
ics.
Just because a managed
fund has an expense ratio
higher than an index fund
doesn’t mean it should
immediately be sold. In
your case, for instance, one
fund should be sold while
the other should be
watched closely, or sold.
Your ClearBridge Ag­
gressive Growth shares
carry a four­star rank
(above average) by Morn­
ingstar. It blasted ahead of
the S&P 500 by a margin of
4.81 percent annualized
over each of the last five
years. That’s not some­
thing you casually throw
away.
Unfortunately, superior
past performance doesn’t
guarantee superior future
performance.
So I suggest watching
the fund closely and being
ready to replace it if perfor­
mance falters for a sus­
tained period of time.
Your ClearBridge Appre­
ciation Fund shares are a
different matter.
Over the last five years,
62 percent of comparable
funds have provided better
returns.
It has trailed the S&P
500 by an annualized 2.02
percent a year.
Selling this fund will
realize less in capital gains.
It will also give you an
opportunity to start mak­
ing your own decisions
and buy a low­cost index
fund.
Q: After years of relying
on the experts to guide me
on insurance purchases
and advice, I got really
burned by a so­called
friend and church deacon.
Since then I have been
gun­shy of all insurance
advisers.
I am 74 and my wife is
66. No debt, and house
and cars are paid. We both
have Social Security bene­
fits; I have a modest com­
pany retirement.
A: I’m not sure what
kind of insurance products
you are writing about so I
can’t comment.
But if any of your insur­
ance policies are life insur­
ance, you might consider
either dropping the policy
or converting any cash
value to a life annuity.
Life insurance is useful
when we are young be­
cause we have big familial
projects to complete. They
won’t be completed if we
die.
But with Social Security
and pension income, a
debt­free home and no
consumer debt, you’ve got
the essentials covered and
probably don’t need life
insurance.
Questions:
[email protected]
Copyright 2014,
Universal Press Syndicate