Doug Fabian's Successful Investing has sent out a flyer soliciting subscriptions to the mutual timing service which his father started 30 years ago. Doug dumps on the mutual fund industry and the funds, saying how bad they are compared to index ETF's, and announcing that he will no longer recommend mutual funds at all but ETFs instead.
Doug talks on about the high fees and costs and corrupt practices, and the fact that many if not most mutual funds trail the indexes they are supposed to better. And I agree with him that 90% of managed US mutual funds are a total waste of capital. They trail the indexes, can only be bought at the close of business, and generally have higher costs per dollar invested than ETFs. ETFs can be bought and sold anytime during the market.
But I looked at some of Fabian's fantastic ETF's compared to a famous old style mutual fund in the same sector. Namely I compared Vanguard's health care mutual fund (VGHCX) with the cream of the crop health care ETFs, all on a total return basis since 2000.
Vanguard's old time mutual fund (VGHCX)beat the socks off all the health care ETFs I could find who have been operating more than a few years. Also, according to MSN Money, VGHCX has a cost of 0.21%(!) per year, lower than the ETF's.
My conclusions:
1. Yes, most mutual funds are worthless
2. ETF's are easier to manage (buy and sell) in a portfolio
3. If you want a good brain picking your stocks instead of a cap-weighted index committee, research the mutual funds and find the consistently index-beating low cost pickers of stocks. There are a few companies out there with a few funds that have consistently performed better than the indexes for decades with stable managements.
4. Doug Fabian *failed to mention* that mutual funds have been trying to restrict fund timers like Fabian since it makes their own portfolio management more difficult on a day to day basis. Timing mutual funds is what the Fabian family has always done via moving averages and perhaps other indicators.
Fabian is dumping on the mutual funds because they won't let him time on their funds. But Fabian doesn't even mention timing restrictions as a reason for deserting mutual funds for no brain index ETFs, only the faulty assertion that index ETF funds are better than mutual funds managed by thinking humans.
Sorry Doug, you lose in truthfulness. No subscription from me, buddy. (© 2005)
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