Dissect the news:  The financial reporting that impacts where and how you invest your retirement nest egg, has never been more complicated and apparently self-serving.

Today, most retirement investing news is sponsored by Wall Street, designed to deliver a message to change the individual retirement investor’s behavior, to sell more financial product, principally to retirement investors, now a $14 trillion market in assets under management.  Take a look at some of the headlines over the past year:

“Everyone Needs A Financial Advisor:  Financial Planning for the Masses.”  What if you could save money and have increased performance without an advisor.  It is possible.

“Active Investing is Dead”  Really.  Active mutual fund managers, that charge high fees and mimic index funds, should be thrown out, but hold the baby and don’t toss him out with the bath water.

“High Net Worth Women Love Liquid Alternative Investments”  Really?  We have discussed that before here:  “Liquid Alts, Wall Street, and Media Frenzies that Drive Retirement Investors’ Behavior.”

“Retirement Investors Love Advisors that are Both Broker and Advisor:  The Dual Registrant Model”  The dual model is a recipe for disaster, if a retirement investor is ever harmed.  Fees are higher and roles of the broker and the advisor are very confusing to the retirement investor. Wall Street has it engineered through FINRA’s arbitration process that if an investor is harmed, FINRA will simply say they were wearing what ever “hat” that protects them, not the retirement investor.

Not On My Nickel is pleased to help our retirement investors dissect most of the articles that are simply pushing Wall Street product.

Today’s example is from The New York Times, “How Many Mutual Funds Routinely Rout the Market: Zero”, March 14, 2015 by Jeff Sommer.

Yes, it is indeed true, very few active managers outperform their relevant index. However, there are some that have, they are dedicated professionals, that operate in the best interest of their customer, with low fees and a very transparent consistent style.

There are some active managers worth investing your retirement nest egg with.  ZERO is simply a hyperbole to push a product.

What is the issue with this article?  This article appears to be written by a Wall Street firm selling Wall Street product.

Jeff Sommer writes in his article, which should be, but is not, marked “Sponsored Content”:

“I wrote about the initial findings of that study last summer. It is called “Does Past Performance Matter? The Persistence Scorecard,” and it is conducted by S.&P. Dow Jones Indices twice a year. The edition of the study that I focused on began in March 2009, the start of the bull market.”

Mr. Sommer concludes:  “The study seemed to support the considerable body of evidence suggesting that most people shouldn’t even try to beat the market: Just pick low-cost index funds, assemble a balanced and appropriate portfolio for your specific needs, and give up on active fund management.”

Who did the study?  S.&P. Dow Jones Indices

S&P Dow Jones Indices, a division of McGraw Hill Financial, sells Index product.

Screen Shot 2015-03-17 at 3.11.14 PM

Unfortunately, the article does not provide any links to the actual study to determine what funds were in this study.  The periods they were looking at, were not clear.

Why does it matter to the retirement investor? This article is simply pushing a portfolio of index funds and there are no links to the actual study.  However that raises several questions for the retirement investor:

How does one know what index funds to include in the portfolio?  Are they filing their annual audited performance, with the SEC, of their portfolio of index funds?

Who can one trust to manage your nest egg in an index portfolio that does not provide audited returns to the SEC?  What is that individual’s track record of assembling a portfolio over a minimum of five years?

How does the return of this index portfolio after all fees, from portfolio manager fees, to embedded ETF fees, to custody and administration fees, compare to the top active fund portfolio managers, after all fees?

Time to filter the news and not be sold a theory, promoted with no actual data for the reader, that is designed to sell product.  A picture is worth a million words. Sure looks like an active fund outperforming the S&P in our picture below.  We would not label this “Zero” as Mr. Sommer did at The New York Times.

 

Active Management V S&P 500

 

 

The SEC has very strict guidance on how mutual fund performance may be reported.  When you go to sites such as Yahoo Finance, Google Finance and if you subscribe to Morningstar, you will always find the same reporting standards for monthly, quarterly and annual performance for mutual funds.

Unfortunately, it appears the “media” in personal finance has another Agenda, as we have written about with the New York Times, as in this Blog Post, “Hello New York Times, Please Define “Conventional Money Management”.

In an April 10, 2014 Bloomberg article: Mutual Fund Leaderboard: Who’s on Top in 2014? by Suzanne Wooley, Ben Steverman and Bloomberg Rankings, we analyzed one of their top picks for their large cap blend category.

What is the source of the Bloomberg quarterly returns?

What is the source of the Bloomberg quarterly returns?

 

We have asked Bloomberg for clarification on their methodology and sources, as shown to the left and have not heard back from them.  We wanted to confirm we have not made an error.

Take a look at Not On My Nickel’s research methodology and you be the judge.

Bloomberg selected the Dreyfus Fund (DREVX) as their  top performing large cap blend in its category for First Quarter 2014. Their methodology:  “Bloomberg Rankings identified the top-performing fund in each category.  Included were U.S. -domiclied retail mutual funds with a return above 7% in the first quarter and at least $250 million in assets”.

Here is what Bloomberg’s slide is telling retail retirement investors – that the Dreyfus Fund’s first quarter return was 10.7%. Bloomberg Mutual Fund Leader Board April 10, 2014

What should you look for in personal finance articles on mutual fund performance?

(1) Consistency in reporting standards for returns.

(2)  Performance over several periods and never just highlights for a Fund manager’s quarterly returns that simply serves to encourage performance chasing.

(3)  Always includes the overall fees and portfolio turnover for the fund, including references to the management style and the portfolio holdings.

Pictured to the right are the Total Returns for the Dreyfus Fund (DRVEX) as of 3/31/14,Morningstar total returns for DREVX as reported by Morningstar.  There appears to be a significant discrepancy from what Bloomberg reported for first quarter returns:  10.7% vs 1.23% for Quarter ending 3/31/14, as reported by Morningstar.

Bloomberg Has Done Excellent Work on Institutional Side

Quite frankly we are perplexed by this reporting and await Bloomberg’s explanation for what appears to be a significant misrepresentation.  However, Bloomberg is not subject to SEC oversight and has more latitude than the fund companies in reporting performance.  But, this still is not in the best interest of their retail retirement investors who read their reporting.  It may harm their portfolios with improper return data being published, if selections are based on their inaccurate reporting.

Your Independent Research vs Bloomberg’s Leaderboard

You be the judge.  Do you want biased information from conflicted media sources or unbiased research, tools and training to make an informed decision for your retirement nest egg.  The chart below is for 6 months to give a touch longer time horizon.  However, Not On My Nickel urges our subscribers to look at our Six Criteria (Under Save our Sanity) in selecting any portfolio manager.  Only select a manager that has a minimum of five years SEC – filed audited performance.

One should also note the fees in the Bloomberg top large cap blend selection are higher than the Not On My Nickel ‘s researched large cap blend fund. The portfolio turnover is just 3.79% in the fund below and is over 72.91% in the Dreyfus Fund.  Portfolio turnover is directly related to very high trading costs that take away from your returns—money out of your pocket.

We still have not heard from Bloomberg on their “return” methodology for their “Mutual Fund Leaderboard:  Who is On Top in 2014?”  It appears personal finance columns, in media that should be providing a service to retail retirement investors are providing a major disservice.  The New York Times and now Bloomberg reflect the state of the retail retirement “advice” market- disingenuous, misrepresentative and very conflicted.  Reader beware.

You Be the Judge – Why Did Bloomberg Represent, DREVX, as the Top in their Category-or is NOMN in Error?

Not On My Nickel Researched Fund v Bloomberg Top Pick