Sunday, November 26, 2017

NCRS Pension and Treasurer Folwell

Bottom line: NC Treasurer Dale Folwell is headed in the right direction. But, progress is never a straight line.  

Treasurer Folwell impressed me by freezing new commitments to alternative investments.  He further impressed me by quickly firing a dozen active equity managers. But, I was disappointed that the $7 Billion of equities was liquidated instead of being transferred to index managers.  This lowered the equity exposure of the pension portfolio from 44% to 37% at a time that equities rose 10-15%. 

However, to be fair, the self-described longterm target allocation to equities is 42% for the NC pension.  Thus, liquidating some of the fired manager portfolios made sense as the fund was essentially 2% over-weight equities. And, the current allocation of 38% is well within the self-imposed guidelines of the fund of 37-47% equities.  

Treasurer Folwell will likely face criticism from the investment industry for his strategy of moving away from trendy, expensive alternative investments and toward low-cost inhouse indexing.  (A strategy I fully support!) Thus, the treasurer can’t really afford the distraction of further criticism for straying from longterm asset allocation targets. 

Hopefully Treasurer Folwell will ignore the barking from Monday-morning quarterbacks, continue to resist pressure to make new investments, and resume his intense focus on cutting manager fees by moving toward low-cost, inhouse passive managent of plain vanilla stocks and bonds.  


http://wr.al/19u2A

Sunday, April 2, 2017

Picking Stocks is Hard, Picking Mutual Funds is Harder

Princeton Economist Burton Malkiel, author of "A Random Walk Down Wall Street" famously pointed out, 
“If picking stocks is a random walk down Wall Street, picking mutual funds is an obstacle course through Hell’s Kitchen."
The editors of Kiplinger's personal finance magazine have validated that statement.  Kiplinger's regularly publish "The Kiplinger 25" - a list of Kiplinger's favorite mutual funds.  I dug up a 10-year-old Kiplinger's magazine from January 2007 and analyzed the 10-year-old Kiplinger 25 with the help of Morningstar. Here's what I discovered:
  • Only one mutual fund from the January 2007 Kiplinger 25 still makes the Kiplinger 25 just 10 years later.  I won't even tempt you with the name of that one surviving fund since it has under-performed it's style benchmark index by more than 1% per year the past 10 years.  
  • 17 of the Kiplinger 25 funds have failed to beat their style benchmark index the past 10 years. 
  • The average Kiplinger 25 mutual fund under-performed its style benchmark index by an average of 1.25% per year the past 10 years. 
  • The average US stock fund in the Kiplinger 25 under-performed its style benchmark by an average of 2.10% per year the past 10 years.