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Wednesday, July 23, 2014

Pundits Pooh Pooh Pointless Complexity

News summary by MFWire's editors

The mutual fund industry, lately, has been a cornucopia of complexity, with products as varied as the day is long.

Maybe fundsters need to embrace a bit of simplicity, some pundits have argued recently. Or at the very least, they should try to be right, instead of just being different.

For example, two Barron's columnists, Beverly Goodman and Brendan Conway take to task managers who love bucking conventional wisdom, just because. Deviating from a benchmark is not always a good thing they write. "Being different is less important than being right," reads the tease from Goodman's article.

The indomitable Chuck Jaffe took on mutual fund complexity and malarky in a number of articles, including this diatribe against complex fund types and this one explaining his approach for picking funds.

These paragraphs from his first article say it all:

To be sure, ideas like “smart-beta funds,” “multistrategy alternative funds,” low-volatility funds, managed futures funds, market-neutral or long/short funds and more are not financial quackery. The strategies behind each of these ideas have merit; I have no doubt that, used properly, they can diversify a portfolio precisely as advertised.

But if you are a typical investor, the question is whether they have merit for you.

It’s a bit like high-level power tools. In the hands of a skilled worker or carpenter, they make the job easier, faster, more predictable and likely to be finished as expected and imagined.

In that article, Jaffe writes that the industry inflicts upon itself pressure new products, that ultimately may offer little benefit to the public. 

Edited by: Tommy Fernandez


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