The most troubling part of the article was that the Fidelity Blue Chip Fund wants to change its benchmark from a broad-based benchmark (S&P 500) to a style-based benchmark (Russell 1000 Growth).
It may have never come up before on this site but changing benchmarks can be quite precarious. The proposal by Fidelity is not about switching to a better mouse trap but calls for fundamentally changing fund from broad to style. The article makes it seem like this has been proposed because the fund owns what has been the wrong part of the market.
The fund is what it is, it will be in favor sometimes and out of favor the other times. An attempt to change benchmarks due to lagging returns in the current benchmark is a disaster waiting to happen.
Fidelity as a zillion funds. There are probably quite a few funds targeted to parts of the market that are not working and plenty of funds that are doing well. Next year or the year after or the year after then when Pfizer, Microsoft and Citigroup lead the market, the old Fidelity Blue Chip would have been a great name to hold.
The majority of the article is devoted to how long big blue chips have lagged, how long small cap has lead and some comments about why large cap should finally take the lead but with a an occasional dissenting view for balance.
One of the leaders of the pro large cap-camp was Jason Trennert from ISI. The article acknowledged that Trennert has been wrong about this for a while but he still believes the values are compelling.
He is on TV a lot and while I do not know whether he is ever right about anything it would be more useful to hear how he allocates money. He favors large cap. OK, what does that mean? Is he 100% large cap? Is he 20% large cap with 10% in eight other things? What?
You'd think, if for nothing else, he would disseminate more detail just so he wouldn't look as wrong as he does. This kind of ties in with comments I have made about Vince Farrell in the past. These guys are not dumb but when they come on TV or get quoted they don't really say anything.
One thing I will repeat is that large cap will absolutely have its day again. You can try to time it if you think you can but it will happen. For all I know this article could be the bell ringing but having money exposed when the time comes will let you have, at a minimum, decent returns without having to be that smart.
Lastly this chart was in the article and while it is interesting I'm not sure how relevant it was.
5 comments:
I read somewhere Fidelity is trying to tie the compensation of fund manager with the performance which is linked with the benchmark. Therefore, pegged to a wrong benchmark could spell trouble for the fund's future and the manager's tenure. I also read Wasatch microcap value has moved from primarily a domestic fund to one containing 30% international. I can see more and more funds are moving toward multi-cap and flexible style(go anywhere). This will confuse a lot of typical investors and the relieve is definitely not in sight!
Some fresh thoughts from the peanut gallery...
1. Re: Benchmarking. Caveat: Whenever I say this, many people freak out and call me an idiot. You are free to do the same, but give it some thought first.
There is far too much thought and pseudo-science put into finding the most precise benchmark for each and every fund out there.
In my view there are only 2 relevant benchmarks: >0%, and better than what your portfolio would have acheived without adding Fund X.
In the first case, I'm just talking about an absolute return approach. Congratulating yourself for "beating" any benchmark by losing only 10% when the index lost 20% is totally absurd.
In the second instance, consider Roger's discussion of Third Millenium Russia the other day. I don't give a hoot if this guy Connor is up 74.5% and the RTS index (or whatever) is up 80.2%. The important thing to me is that I have added it to my portfolio and my overall return is much better than if I had not added a Russia fund into the mix.
There is an entire cottage industry based on "performance analysis". To me, this is a really sad waste of human effort. Successful investing comes down to two things in my book: are you earning a greater than zero return on your investments, and are you consistently improving your rate of return by adding higher-returing stocks/funds/ETFs, whatever into the mix?
Do those two things right over time and I guarantee it won't matter what benchmark Fidelity wants to use.
2. Re: Talking heads... As a media veteran, I can tell you that most of what you see on the tube is complete B.S.
When you watch CNBC you are not watching financial news as you might think, you are watching a TELEVISION SHOW. And like all TV shows, the guests need to be articulate, at least marginally good-looking, and have something topical to say. Right or wrong plays no part whatsoever in the producer's decision to book a guest.
I've interviewed dozens of the world's best fund managers in my career and I can tell you that many of the best and most insightful of all would put you to sleep in 30 seconds. CNBC would go off the air if they put these people on TV.
One note on long term benchmarking: I think it would make sense over the next 10-20 years to switch from the S&P500 to a more international index (DJ wordlwide let's say)to benchmark overall performance as China, India and other parts of the world gain financial momentum. Any thoughts on this?
I'll put up a post later today to respond to these questions in detail.
John I don't think you are an idiot. Idid say that Third Millennium Russia might be the best way to invest in Russia but I wonder if the manager really has any intelligent commentary given that he almost always lags.
As far as JT's and ISI's asset allocation recommendations go they are as follows (as of 12/12/2005 - haven't seen any major changes since).
Equities - 75
Bonds - 20
Cash - 5
Value - 35
Growth - 45
Blend - 20
Large Cap - 93
Mid Cap - 5
Small Cap - 2
I've been reading their material for six years now and have found their track record to be hit or miss.
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