Posted by Fundmentals on November 06, 2009 at 18:44:10:
In Reply to: New Century Alternative Strategies (NCHPX) posted by David Snowball on November 06, 2009 at 17:32:38:
I hadn't realized that what I had linked was actually another fund you could buy. I thought it was a portfolio advisory service. Thanks for linking to your nice writeup.
About the fund expenses, you have captured some main points. There is also another way to look at it.
This is not really just a single fund but a portfolio and an actively managed portfolio at that. So from that perspective it is better compared to actively managed portfolio services, hedge funds being one of them as you have pointed out.
The usual caveats about using cheap funds are not directly applicable here when we look a little bit closely at the rationale for that advice.
If you had a fund that was trying to beat some asset class via stock picking in that asset class, then there is an argument that can be made that an active manager may not be able to provide enough stock picking ability to overperform and cover the gap in expense ratio from a relevant passive indexed fund or another cheaper actively managed fund.
This doesn't mean that such an expensive fund will necessarily not do well, it just means that one may have kept the expense ratio gap for themselves by buying a cheaper fund and have similar or better returns with the ER savings combined.
We cannot generalize this to say any expensive fund is to be avoided. For one thing, the fund and the purpose it serves may have no cheaper alternative that serves the same purpose. But also, the goal of such a fund is not to beat the market (especially via stock picking) but rather satisfy goals such as capital preservation, reduction in volatility/drawdown, etc. via asset allocation (and tactical asset allocation as this fund does), while it will likely underperform the market during a bull run. The expenses are for satisfying that goal.
A static mix of funds will not necessarily satisfy those goals and so the only alternative is to do the portfolio management on your own. And that is the only alternative unless there are other funds with similar portfolio management capabilities.
In my case, I have sufficient time and skills to do the same thing on my own and so such a fund would not be for me but for many that require a fund for their goals and don't have the time and/or skills to do their own active management, it may be quite worthwhile. The fact that, for example, there are Vanguard index funds out there with a fraction of that expense ratio doesn't mean anything as to what they will get from the funds because they are apples and oranges in goals.
On another note, it is a bit sad that one needs to become rich before they realize the investment strategy they need must have risk management and capital preservation capabilities. :-)
: Hi, Fundmentals.
: NCHPX is a fund of hedgy mutual funds. The link you provided describes their portfolio and its underlying allocation assumptions. The fund is small, reasonably successful (down 22% last year, up about 17% this year) and reasonably expensive (around 2% plus a 2% redemption fee). For what interest it holds, I've linked my original profile of the fund below.
: As ever,
: David