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Multi-manager vs single manager vs index funds

post #1 of 20
4/7/10 at 2:51pm
Thread Starter 
Has anyone done any study looking at long term risk-adjusted return on multi-manger funds (manager of managers, or fund of funds) compared to other types of investment vehicles?

I am mainly interested in risk-adjusted return comparison.
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post #2 of 20
4/7/10 at 5:42pm
In what sort of funds? Hedge, fixed income, etc.?
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post #3 of 20
4/7/10 at 6:47pm
There have to be studies like this - heck, I'd bet you could get this data on the fly from a bloomberg

I'd be willing to wager that, less some of the more exotic hedge funds led by gurus of the field with $10M buy-in prices, index funds will have the greatest risk-adjusted return - their risk is inherently absurdly small
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post #4 of 20
4/7/10 at 7:50pm
Quote:
Originally Posted by El_Doug View Post
I'd be willing to wager that, less some of the more exotic hedge funds led by gurus of the field with $10M buy-in prices, index funds will have the greatest risk-adjusted return - their risk is inherently absurdly small
I would also wager that this is correct. There are many graphs and studies showing market indexes outperform mutual funds. Funds of mutual funds will also be expected to under perform relative to an investment in a single mutual fund, as you are paying (basically) 2x the fees every year, and the level of diversification they represent is generally unhelpful, as beyond a certain point (25-35 securities, I believe) diversification does not yield an appreciable decrease in portfolio risk.

I have not run across any relevant data in my studies about other types of funds though RBC does have an index of 250 hedge funds, but I have not compared it to market indexes.
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post #5 of 20
4/7/10 at 8:47pm
Thread Starter 
All the graphs show real return, I am interested in looking at graphs showing only risk adjusted return.

I could have used the Sharpe Ratio. But, I believe Sharpe ratio calculation only covers 1 year, which doesn't say much at all. I need a place where I can get risk-adjusted return graphs for 10, 15, 20 years.
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post #6 of 20
4/7/10 at 9:07pm
Quote:
Originally Posted by chesebert View Post
All the graphs show real return, I am interested in looking at graphs showing only risk adjusted return.

I could have used the Sharpe Ratio. But, I believe Sharpe ratio calculation only covers 1 year, which doesn't say much at all. I need a place where I can get risk-adjusted return graphs for 10, 15, 20 years.
I'm not overly familiar with the Sharpe ratio. Any possibility of simply using average (or net) return and average risk free return over a period of time over the portfolio's standard deviation(adjusted for time if necessary)?

I've been trying to find related graphs, but I am finding them to be surprisingly elusive.
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post #7 of 20
4/7/10 at 9:09pm
and don't forget the high fees many of these funds charge.
Vanguard indexed funds are a real bargain.
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post #8 of 20
4/8/10 at 3:34am
I wouldn't pay much attention to historical performance today. All bets are off for the next couple of years until the mortgage and corporate bond messes fully unwind. That won't happen until late 2012 and early 2013. I don't know what's going to happen, but it doesn't smell good to me.

My take is that the recent rebound in stock prices has more to do with bailout funds taken right back to the casino.

For what it's worth, I'm unloading all of my securities and putting them into real property (, however, prices are good in some markets because mortgage payments are well below rent, which is how I measure the value of real property), some tangible assets and cash. I've also aggressively paid down debt. The credit cards are zeroed out and my car note will be toast by June or July.

My take, of course, but I think the markets are full of funny money. I'd rather sit out the next few years with cash and tangible assets.
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post #9 of 20
4/8/10 at 4:14am
Quote:
Originally Posted by Uncle Erik View Post
I wouldn't pay much attention to historical performance today.
When it comes to the stock market, it's unwise to make decisions on historical data any day. Too much changes too quickly for anything to be particularly useful for long. The "good" things tend to get ramped up to the point where all hell breaks lose when somethings goes wrong(see: Black-Scholes,CDS's, ABCP etc, etc.)

Quote:
All bets are off for the next couple of years until the mortgage and corporate bond messes fully unwind. That won't happen until late 2012 and early 2013. I don't know what's going to happen, but it doesn't smell good to me.]My take is that the recent rebound in stock prices has more to do with bailout funds taken right back to the casino.
Amen. However, it can be argued that all regulatory changes will do is serve to foster a new wave of financial innovation. Are we better off repeating essentially the same crash over and over again, or by jumping into murky waters? It's an interesting point for discussion, but it seems, no matter which way it goes,the "average" investor does not win.

Quote:
For what it's worth, I'm unloading all of my securities and putting them into real property (, however, prices are good in some markets because mortgage payments are well below rent, which is how I measure the value of real property), some tangible assets and cash. I've also aggressively paid down debt. The credit cards are zeroed out and my car note will be toast by June or July.
I'm glad to see people are still finding some good deals out there. The bailouts, while arguably necessary, seem to have created a falsely inflated sense of stability, when the reality is that many of the problems are still there, just in different forms.

Quote:
My take, of course, but I think the markets are full of funny money. I'd rather sit out the next few years with cash and tangible assets.
Mind if I ask which currency you're holding your cash in?
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post #10 of 20
4/8/10 at 4:51am
Thread Starter 
I guess no one here has any experience with multi-style multi-manager funds.

I only have 20% of my holdings in US-based equities anyway. It's better to be in the market than not; an easy 3% annual dividend compounded quarterly will turn into some decent cash even if the market is going side ways for the next few years.

Dirt investment is such a pain, you not only have to deal with renters, you will have to maintain the property, pay property tax and deal with nasty home associations. The worst part is your income is taxed at ordinary rate so you lose 40% right there assuming you are in the top bracket (I am assuming you are not putting your properties under a Roth IRA custodian). Sure you can depreciate your property and deduct your expenses, but when you sell your property, all your depreciation gets added back to your basis . The one good thing I like about real property investment is you can leverage up (although that's what got us in this situation in the first place).

To put all your eggs in one asset class is not very prudent IMO.
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post #11 of 20
4/8/10 at 12:01pm
If you're going to invest in the index funds, you might be better off investing in them directly (ETF) like The Qs, Spiders and Diamonds. Spread the money over all of them. Also think about investing with conglomerates such as GE. Depending on how long you intend on investing, long-term (more than 10 years) those will offer you the most reliable risk adjusted returns. That said, I would not use any single investment strategy. Real estate and other tangible appreciable real assests should be implemented. Don't forget about cash. It's good to have a portion on hand. It's all about balance. There is no one-and-done solution.
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post #12 of 20
4/8/10 at 1:25pm
I've always been a fan of Index funds. Everyone thinks they have a secret sauce for picking the right stocks, but I've never been convinced that anybody can really beat the market through skill.

I reserve judgement on hedge funds, but I'm a ways away from being a accredited investor (especially if they up the requirements), so I haven't looked too much into them.
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post #13 of 20
4/8/10 at 3:07pm
Quote:
Originally Posted by Uncle Erik View Post

My take, of course, but I think the markets are full of funny money. I'd rather sit out the next few years with cash and tangible assets.

Completely agree. Different forms of bail out soothes the media and hence the general public. There are still way too many problems right now that are not truly uncovered to the public. Credit card debts are a HUGE problem for America right now. Rating agencies are still iffy to me.

Well, they do say Cash is King right?
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post #14 of 20
4/9/10 at 8:26pm
Quote:
Originally Posted by El_Doug View Post
There have to be studies like this - heck, I'd bet you could get this data on the fly from a bloomberg

I'd be willing to wager that, less some of the more exotic hedge funds led by gurus of the field with $10M buy-in prices, index funds will have the greatest risk-adjusted return - their risk is inherently absurdly small

Im not sure how you arrived at this conclusion with so much obscurity in the hedge fund industry and potential for fraud. Remember Madoff?
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post #15 of 20
4/9/10 at 8:27pm
Quote:
Originally Posted by gknix View Post
Completely agree. Different forms of bail out soothes the media and hence the general public. There are still way too many problems right now that are not truly uncovered to the public. Credit card debts are a HUGE problem for America right now. Rating agencies are still iffy to me.

Well, they do say Cash is King right?
Soon enough gold is king
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