Tuesday, December 30, 2008

Fund of Funds - The more fund managers there are, the more people are managing my money, therefore i feel safer.

We engaged a cheapskate artist to help us draw a pictorial view on why its not wise to invest with fund managers. With the latest invention of fund of funds, which is basically, a fund which invest in other funds, its even more silly. The more managers there are, the more manager fees one pay, the less cash is actually invested. This is lame.
With the recent scandal of Madoff, it signals that the more people there are managing one's money, the higher the risk there is. Remember the lawyer who ran away with the clients money? So, in conclusion, the above shows when one uses fund managers, they decrease their returns and increase their risk.

But if one is really clueless about investing, then just go for exchange traded funds, like for example STI ETF or Lyxor where your investment just tracks the index but fees are way less. Yeah it kinda sucks that fees still have to be paid for someone just to copy and track the index, but its the lesser of 2 evils.

Read what the Old Fogey Warren Buffet has to say about fund managers in general.
Important: The objective of the articles in this blog is to set you thinking about the company before you invest your hard-earned money. Do not invest solely based on this article. Unlike House or Instituitional Analysts who have to maintain relations with corporations due to investment banking relations, generating commissions,e.t.c, SGDividends say things as it is, factually. Unlike Analyst who have to be "uptight" and "cheem", we make it simplified and cheapskate. -The Vigilante Investor, SGDividends Team

2 comments:

  1. hiya.. i like this blog as it gives the other side of view from analyst reports who are PAID to write.. anyway with regards to this topic of fund managers, so can i say that investing in unit trusts is probabaly not as efficient than as compared to investing directly via purchase of shares? But what if for example i would like to invest in certain companies overseas like Brazil, China,etc the most efficient and easiest way will still be via UTs right?

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  2. hi Anonymous,

    We think we know what you mean. Do you mean that one can only invest in emerging markets companies via UTs specialising in these?

    Actually in our opinion, taking what you mentioned in consideration, we still think DIY is still better because:
    1)we have many many companies to choose to invest already in NYSE, AMEX, NASDAQ, HKEX , SGX ( note these exchanges do list companies that have operations in emerging markets and are therefore able to ride the emerging market's rapid growth. For example Freeport Mcmoran, has most of their operations in South America, Africa and Indonesia and they are listed in NYSE. Schlumbeger has a lot of their operations in Africa, Middleeat too and they are listed on NYSE)

    2) Maybe you have pinpointed some specific companies that you are targetting which are not listed on these exchanges. But in this case, you will still have to search for UT managers who carry these companies. Even if they carry these specific companies, a UT investor has no say over what the UT will invest in, and a UT might not invest in the pinpointed company as time go on. So back to sqaure one, a UT doesnt solve the issue

    3) Anyway, UT generally invest in public listed companies. So one can find these companies listed on major exchanges. Only if one join a venture capitalist fund do they invest in privately held companies.

    Our point is. In the end, UT still does not solve anything. DIY is still the most efficient, however one looks at it.

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