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Snow Jobs or Meaningful Data

July 13, 2017

Pick one: A snow job from a prestigious investment manager or meaningful data from someone that just trudges away. Last week I was asked to review the performance of two asset managers and was provided with performance reports.

The prestigious firm – I will call them BS1 and the trudger I will call GG1 [for Good Guy]. You can get a hint where I am going now.

What I liked about the GG1 review was a cover page with detailed summary for this year to date and a second page for last year. The summary began with the beginning of the year market value, it added contributions into the account and subtracted withdrawals; it subtracted sales and added purchases; likewise with any transfers in and out; it showed realized and unrealized gains or losses; interest and dividend income; any portfolio expenses; and management fees. The net result was the ending market value. There was a total column and a separate column for each investment category, i.e. cash and equivalents, fixed income, equity, and other classes. This gave me an easy snapshot of their performance. As backup they had the typical portfolio position details, cost and current market per share and aggregate cost and market value and unrealized gain or loss, bond duration, yields and ratings. The 24 page report was printed on standard size paper with a single staple. Very easy to use and maneuver through.

The BS1 report was 35 pages bound with five tabbed sections, slightly too large to put in a file; and if I wanted to scan it, I would have had to dismantle it and take out the extraneous pages. A little annoyance, but the report itself did not contain the summary I described above so I was not able to easily figure out the dividends and interest, realized and unrealized gains or losses, or even the fees paid to them. They did have something the GG1 report did not have – the portfolio performance by components compared to the appropriate index [but not all investment categories were represented with the index]. They also had a nice schedule and table of the large cap equity sector weightings, except that large cap constituted a little less than 50% of the portfolio. There were no other sector weightings although that was 35% of the portfolio. Fixed income was about 10% and other classes the balance. I also noticed that there were mutual funds many of which were sponsored by the investment company that comprised about 40% of the portfolio with expense ratios of about 1%. I question what their fees were and what they were being paid to invest in these funds. So, where is the element of management and was it worth the double costs? A good feature they included was a comparison with the targeted allocations which were pretty close. In all, their 35 page report did not give me basic information to evaluate their performance and cost.

Both portfolios were of equivalent size but the GG1 had about 20% in fixed income, all in individual bonds. Something I like much better than the bond funds BS1 invested in. Also GG1 had a small allocation in low cost international ETFs rather than the 1% fee proprietary funds BS1 had. For last year the GG1 portfolio returned 9.8% while BS1 returned 6.8%. For the current year to date the periods were not similar but it looked like BS1 was outperforming GG1. In all fairness, an adequate comparison of the two managers would need a longer period and additional information, so I was not yet in a position to evaluate them fairly.

The takeaway here is that when you have someone manage your investments it is essential that you be provided with the right information to understand how your investments are performing, how close they are to the targeted allocations and your total costs. It is your money and you should know if it is doing what you need it to do.

Fancy covers, manager hype, myriad pages of generic economic data, and testimonials about how good and caring the investment manager is without essential performance information does not make a meaningful report. To me, that is a snow job.

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