{"id":2015941,"date":"2015-02-23T16:59:23","date_gmt":"2015-02-23T11:29:23","guid":{"rendered":"http:\/\/stockviz.biz\/index.php\/?p=2015941"},"modified":"2015-06-20T20:20:06","modified_gmt":"2015-06-20T14:50:06","slug":"mad-trading-mutual-fund-edition","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2015\/02\/23\/mad-trading-mutual-fund-edition\/","title":{"rendered":"Mad Trading: Mutual Fund Edition"},"content":{"rendered":"<h3>Churn and Burn<\/h3>\n<p>When retail investors trade stocks, the market impact of trading decisions are <em>de minimis<\/em>. However, when a fund trades its portfolio, it has a noticeable market impact. According to a study quoted <a href=\"http:\/\/www.economist.com\/news\/finance-and-economics\/21576683-fund-managers-trade-too-much-retail-investors-can-learn-not-dont-just-do\" target=\"_blank\">here<\/a> in the Economist article, when academics compared the returns of the funds with their estimated trading costs, the funds with the highest costs had the lowest returns.<\/p>\n<p>For contrast, lets compare the DWS Tax Saving Fund with Templeton India Growth Fund.<\/p>\n<h3>DWS Tax Saving Fund<\/h3>\n<p>First, investors would have been better off buying a CNX Midcap index fund. Between 2006-06-01 and 2015-02-19, DWS TAX SAVING FUND has returned a cumulative 143.52% with an IRR of <strong>10.74%<\/strong> vs. CNX Midcap&#8217;s cumulative return of 209.71% and an IRR of 13.83%.\u00a0(<a title=\"shortlink for sharing\/bookmarking\" href=\"http:\/\/svz.bz\/1EHGTxu\" target=\"_blank\">http:\/\/svz.bz\/1EHGTxu<\/a>)<\/p>\n<p>Second, the fund looks like a fun trading vehicle for the manager rather than something that is meant to build wealth over the long term. Here&#8217;s how the manager has churned his portfolio:<\/p>\n<p><iframe loading=\"lazy\" width=\"1020\" height=\"574\" src=\"https:\/\/www.youtube.com\/embed\/nAsFPutEdVU?feature=oembed\" frameborder=\"0\" allowfullscreen><\/iframe><\/p>\n<p>Not only should you stay away from this fund, but you should use it in informational videos on how not to churn your portfolio.<\/p>\n<h3>Templeton India Growth Fund<\/h3>\n<p>First, even though returns are not the absolute best that it could have been, between 2006-06-01 and 2015-02-19, Templeton India Growth Fund has returned a cumulative 267.72% with an IRR of <strong>16.09%<\/strong>.(<a title=\"shortlink for sharing\/bookmarking\" href=\"http:\/\/svz.bz\/1EHIljm\" target=\"_blank\">http:\/\/svz.bz\/1EHIljm<\/a>)<\/p>\n<p>Second, the portfolio doesn&#8217;t look like a mad scramble like the one above. Markedly fewer holdings for longer:<\/p>\n<p><iframe loading=\"lazy\" width=\"1020\" height=\"574\" src=\"https:\/\/www.youtube.com\/embed\/l1TMUjJduKY?feature=oembed\" frameborder=\"0\" allowfullscreen><\/iframe><\/p>\n<p>When you compare the two funds with each other, you can see who is doing a better job (<a title=\"shortlink for sharing\/bookmarking\" href=\"http:\/\/svz.bz\/1EHJCa2\" target=\"_blank\">http:\/\/svz.bz\/1EHJCa2<\/a>):<\/p>\n<p><a href=\"http:\/\/stockviz.biz\/adhoc\/5fb4041a1c384fbd8fea99deac36f1e2635603069071622457.png\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" alt=\"DWS TAX SAVING FUND vs. Templeton India Growth Fund\" src=\"http:\/\/stockviz.biz\/adhoc\/5fb4041a1c384fbd8fea99deac36f1e2635603069071622457.png\" width=\"1000\" height=\"800\" \/><\/a><\/p>\n<h3>Conclusion<\/h3>\n<p>Beware of funds that churn their portfolios frequently. It might be a reflection of shoddy research, poor conviction or immaturity that you end up paying for.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Churn and Burn When retail investors trade stocks, the market impact of trading decisions are de minimis. However, when a fund trades its portfolio, it has a noticeable market impact. According to a study quoted here in the Economist article, when academics compared the returns of the funds with their estimated trading costs, the funds &hellip; <\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471,9],"tags":[17],"class_list":["post-2015941","post","type-post","status-publish","format-standard","hentry","category-investing-insight","category-your-money","tag-mutual-funds","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2015941","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=2015941"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2015941\/revisions"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=2015941"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=2015941"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=2015941"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}