How Many Mutual Funds Routinely Rout the Market? Zero

NY Times ^ | 03-14-2015 | JEFF SOMMER

[Alberta's Child]

Yes, but if there's an objective reason why the stocks are included on the list then the person who chooses to include these stocks on the list doesn't have much flexibility over what gets chosen.

The S&P 500, for example, is comprised of the 500 largest U.S. stocks, as measured by market capitalization. The companies in the list can change, but only as a result of changes in the size of the company (or in cases of mergers, such as Exxon-Mobil).

[expat_panama]

Fed and Central Banks in other countries buy futures contracts on broad market indexes and derivatives on the same.

We're on the same page with the overseas banks story (from here):

The Bank of Japan, holder of the second-biggest reserves, said April 4 it will more than double investments in equity exchange-traded funds to 3.5 trillion yen ($35.2 billion) by 2014. The Bank of Israel bought stocks for the first time last year while the Swiss National Bank and the Czech National Bank have boosted their holdings to at least 10 percent of reserves.

There's no hard info on the Fed owning common stock, futures, derivatives, or ETF's.  That means it'd have to be super secret trades that are invisible to any kind of radar.  Kind of like the black helicopters or those mind control cosmic rays we ward off w/ tin-foil hats.  So what we're really seriously talking about here is world wide a few billion in funds (say $100B ?) managed by private firms out of a total world wide market cap of maybe $50T.

We need to understand clearly here that $50T is 500 times bigger than $100B and that buying a fifth of a percent does not represent "control".

[aMorePerfectUnion]

“That means it’d have to be super secret trades that are invisible to any kind of radar. Kind of like the black helicopters or those mind control cosmic rays we ward off w/ tin-foil hats. So what we’re really seriously talking about here is world wide a few billion in funds (say $100B ?) managed by private firms out of a total world wide market cap of maybe $50T.”

Thanks for sharing your thoughts. My head trader says he has never seen anything like this in his long career.

Since we agree that Central Banks around the world are buying S&P futures contracts, why would you imagine that the largest central bank in the world - the Federal Reserve - is not doing the same?

Remember that the Fed trades through major investment banks around the world. They do not disclose their work. Also remember that (in your estimate), $100 billion USD can buy a huge amount of derivatives of many kinds as leverage.

The Fed cannot buy the whole market. Nor do they desire to do so. Nor do they need to do so. They can control the edges to prevent severe declines and to promote the idea that all is normal. It happens regularly.

[ex-nypd]

Apparently the author does not include sector funds in his analysis. I have been investing in 19 of Fidelity’s sector funds for quite some time and my records show that the average of these funds have beaten the S&P 500 handily over the past 1-3-5-10 year periods according to stats given as of 2-28-15. For 1 year S&P is up 15.4% versus sectors funds 17.6%. 3 years, S&P up 17.9% vs sectors 23.2%.5 years, S&P up 16.1%, vs. sectors up 20.8%, and lastly for 10 years, S&P up 7.9% while the sectors rose 12.1%. The funds that I hold include FDFAX, FSMEX, FSCSX, FDLSX,FSRPX, FSRFX,FSDPX,FCYIX,FSCHX,FPHAX,FSDAX,FBSOX,FSPHX,FBIOX,FBMPX,FSHOX,FASIX,FSHCX and FSELX.

[Synthesist]

The main point of the study referred to in the article is that actively managed mutual funds (where stocks are bought, held, or sold by the decision of an “expert” money manager) mostly fail to beat their associated market index benchmark. I don’t think sector funds are considered as being actively managed.

[Synthesist]

And I should add that I agree with your point that the study should have been more focused on what were the best mutual fund investments overall, instead of being limited to just mainly pointing out the failure of active managers to beat market index benchmarks.

Congratulations on your sector fund investment gains, those are some impressive numbers!

[expat_panama]

the Fed trades through major investment banks around the world. They do not disclose their work.

--and if there are no disclosures then please share how you know they're doing it?

[aMorePerfectUnion]

Hey! I asked you a question first ;-)

[expat_panama]

The Bank of Japan, holder of the second-biggest reserves, said April 4 it will more than double investments in equity exchange-traded funds to 3.5 trillion yen ($35.2 billion) by 2014. The Bank of Israel bought stocks for the first time last year while the Swiss National Bank and the Czech National Bank have boosted their holdings to at least 10 percent of reserves.

...Central Banks around the world are buying S&P futures contracts, why would you imagine that the largest central bank in the world - the Federal Reserve - is not doing the same?   ...the Fed trades through major investment banks around the world. They do not disclose their work.

--and if there are no disclosures then please share how you know they're doing it?

...I asked you a question first...

Ah.  My question was rhetorical; the point was that either the Fed's buying common stock to prop up the indexes or they're not.  We agree that they're not reporting any such trades, so that means the only way the Fed could make the trades would be by being sooooo sneaky that the brokers that handle the trades wouldn't even know about it much less their customers who sold the shares or the corporations that have ended up with new voting members or the SEC that collected the trading fees--

It gets so hard to believe that it becomes less credible than tin-foil hats and mind-control cosmic rays.  I mean, even the Czech National Bank has had to report their trades, even the Israelis.  If it's too hard for the them to slip a few million under the radar then the Fed's trillion dollar portfolio would be impossible to hide.

They don't call 'em "publically traded" for nothin.