American Century Ultra Fund

[raymr]

Does anyone else have money in this pig of a mutual fund. It has sunk almost 10% during the same time everything else is +10-20%. It represents about 1/5 of my investments. It used to be a high-flyer when it was 20th Century Ultra. So now the question is should I: Sell, buy more (because its 'cheap'), or just hold on to it?

[R Leo]

Originally Posted by raymr

So now the question is should I: Sell, buy more (because its 'cheap'), or just hold on to it?

Never grab for a falling knife.

[Botnst]

Great metaphor!

You should see my fingers, btw. I grabbed a falling machete one time.

[Dee8go]

Originally Posted by raymr

Does anyone else have money in this pig of a mutual fund. It has sunk almost 10% during the same time everything else is +10-20%. It represents about 1/5 of my investments. It used to be a high-flyer when it was 20th Century Ultra. So now the question is should I: Sell, buy more (because its 'cheap'), or just hold on to it?

I've got money in that fund. Yeah, they're certainly not flying as high as they did back when they were 20th Century Ultra. I've had money in it for 8-9 years and have watched if soar and plummet. It has been coming back recently.

I forget which index it is most closely aligned with, but that's usually the way I determine whether to raise, hold, or to fold.

If your portfolio is properly diversified, some of your holdings will be up when others are down. Keep that in mind, too. Good luck.

Originally Posted by raymr

So now the question is should I: Sell, buy more (because its 'cheap'), or just hold on to it?

On funds the chance of a 20% climb in the near future are almost none. Pull the money out and tap into the international funds, personally I use loser money for long shot stocks.............thats how I roll.

[suginami]

I always tell people to invest in index funds, and your case is another great example of why.

Study after study has failed to show the link between good past results and good future results. In fact, good past results is a better predictor of poor future results than good returns due to the concept of ‘reversion to the mean’. The only consistent reliable predictor of good future fund return is low expenses. Funds with no loads consistently outperform load funds. Funds with lower expenses consistently outperform funds with high expenses.

Everyone wants to beat the market. Unfortunately it’s more difficult than you think, especially over the long term.

Investing is a zero sum game. Investors as a whole make up the market, so as a group, investors can do no better than the market itself. If one investor outperforms the market, another one must underperform it by a like amount.
Mutual fund costs diminish returns. If funds had no costs, investors as a whole would match the market’s returns. But after costs (sales loads, operating expenses, and so on), investors do less well than the market, or index, because the market, or index, doesn’t have costs.

Financial markets are efficient. Information is so readily available, especially about large U.S. companies, that it’s tough for any fund manager to sustain a performance edge over the long term. Some markets are less efficient (international and U.S. small capitalization companies), but they tend to have higher costs, which diminish their returns.

Index investing has an inherent cost advantage. The indexing strategy minimizes fund costs, which can take a large bite out of your investment returns. Index funds have:
Low operating expenses. Index funds expense ratios average 0.28%. The average managed fund has an expense ratio of 1.5%.
Low transaction costs. An index fund does little trading. An actively managed fund’s brokerage and other trading costs may reach 1% of assets annually.

Over time, the broad U.S. stock market indexes have outperformed general equity funds, on average.
Over ten years, the total return of the Wilshire 5000 (1989-1998) is 414.67% (average annual rate of 17.80%). The average general equity fund cumulatively returned 312.48% over 10 years (average annual rate of 15.22%).
In the last ten years 11% of managed funds beat the S&P 500 index. Over the last 15 years only 4% of actively managed funds beat this index.

Yes, that's right. Only a measly 4% of actively managed funds beat the passive index.

Your odds at picking an actively managed fund that will beat an index fund over the long-term are so bad that you would be better off gambling at Las Vegas.

Let's compare your fund to the Total Stock Market Index, the largest and broadest index fund available.

YTD, the index has earned 7.91%, your fund -7.05%
One year, the index has earned 10.25%, your fund -3.11%.
Five years, the index has earned 8.45%, your fund 2.82%.
10 years, the index has earned 8.56%, your fund 5.14%.

[Hatterasguy]

My money is coming out of my Putnam fund that I have had for 7 years next week. I'm tired of it bleeding red, my big mistake was not doing this 2-3 years ago.

[suginami]

Originally Posted by Hatterasguy

My money is coming out of my Putnam fund that I have had for 7 years next week. I'm tired of it bleeding red, my big mistake was not doing this 2-3 years ago.

Would you like to name the fund so that I can beat it up compared to the passive index fund?

[raymr]

Thanks for the replies. I am also troubled by American Century emails telling me, based on my current holdings, I should diversify into other AC funds to reduce my risk exposure. Are they expecting this thing to really tank?

If I 'diversify', it won't be with them.

[Wodnek]

I have been it in for about 12 years. In that time it has almost trippled. I am a buy hold type of investor though.

[Hatterasguy]

Originally Posted by suginami

Would you like to name the fund so that I can beat it up compared to the passive index fund?

Putnum Voyager fund I think thats the title.

[suginami]

Originally Posted by Wodnek

I have been it in for about 12 years. In that time it has almost trippled. I am a buy hold type of investor though.

In the last 10 years, the fund has averaged about a 5% return, which means your money would double in a little over 14 years, compounded.

As a buy and hold investor, you would have done significantly better if you had simply bought the passive stock market index.

[suginami]

Originally Posted by Hatterasguy

Putnum Voyager fund I think thats the title.

Oh geeeez, your fund has been a dog.

YTD, the index has returned 7.91%, Putnam Voyager -1.9%.
Three years, the index has returned 13.09%, Putnam Voyager 3.76%.
Five years, the index has returned 8.45%, Putnam Voyager 0.83%.
Ten years, the index has returned 8.56%, Putnam Voyager 3.81%.

Why are you putting your money with these pointy headed Harvard MBA educated idiots, who can't even come close to matching the performance of the passive index, much less beat it?

What's more, not only are their annual expenses high, but they are charging you a load (a sales commission on the front end) for them to massively underperform the market.

I say fire them and move your money into Vanguard Total Stock Market Index (at least the equity portion of your money).

[suginami]

I'm just sitting here, feeling sorry for all your poor chaps, trusting your money with these actively managed funds, in the hands of fund managers who almost universally over the long haul seriously underperform the general market!

When will you all learn?

You can't beat the market consistently over time. You are guaranteed to lose.

[PC Dave]

Originally Posted by suginami

You can't beat the market consistently over time. You are guaranteed to lose.

Tell Warren Buffet that, Paul. I'm not being facetious; have a look at the long term track record of Berkshire Hathaway, which Buffet and Munger have effectively run as an actively managed mutual fund with steady insurance premium float to fund new purchases. Since Malkiel popularized Efficient Market Theory in "A Random Walk down Wall Street" in the 70s, (I know, others originated the theory), lots of people have bought into it, but that doesn't mean it's valid; even Malkiel admitted in the most recent edition that sometimes efficiency is suspended.

Google Buffet's essay "The Superinvestors of Graham-and-Doddsville", which he originally wrote as an introduction to one of the editions of Ben Graham's "The Intelligent Investor"; I'd guess it's available online somewhere. He reviews the long term track record of several of Graham's students and colleagues (inclduding himself), all of whom beat the indexes consistently for decades using Graham's approach to value investing, and he argues pretty persuasively against efficient markets. I believe that all of those investors have continued improving their relative outperformance in the decades since the essay was published, and there are some excellent newer funds out there achieving similar results with the same approach (e.g. Longleaf Partners, LLPFX, which I believe is closed to new investors). Another fund to have a look at is the Hussman Strategic Growth Fund, HSGFX (www.hussmanfunds.com), which I've been a happy investor in since it was founded in 2000. The fund has a short track record, but it's covered a couple of market cycles during that period and soundly beaten the S&P.

Another concern about investing in index funds is our current position in the very long term bull/bear cycle in US equity markets. If you go back to the turn of the last century, US markets have alternated between 15-20 year secular bull and bear markets (i.e. 1982-2000 - bull, 1966-1982 -bear, etc.). Over the same time, essentially all of the long term return in the US market has come during the bull periods, while the bear periods have esssentially been flat. Under this perspective, we've been in a secular bear cycle since 2000, and we will be until 2015-2020. Threre will obviously be short term bull and bear markets within the larger cycle - I know, the Dow just made a new high, though not in inflation-adjusted terms - but the more representative S&P is still well below it's 2000 high and NASDAQ's a nightmare.

I agree that most actively managed mutual funds suck, for a lot of systemic reasons, and the average investor would be better served in an index fund or ETF during a longer term bull cycle - index investing was a great play in the '80s and '90s. Still, it's not impossble to beat the averages with a bit of work, and given our place in the larger cycle, I really wouldn't want to be investted in an index fund for the next decade or so.