“Investors
pulled an estimated net $10 billion out of U.S. equity mutual funds in the week
ended July 27”
This was a headline
put out by Reuters in 2011. In my book,
I spend a lot of time discussing the negative impact of the herd mentality and
trying to time the market over the long-term.
This headline represented mutual fund outflows for just one week in the
year 2011, and by the end of the year U.S. equity funds finished with a net
outflow for all of 2011. Let’s examine
how this individual investor retreat has worked out since July 27, 2011. Since that date and since the end of 2011 the
average U.S. equity fund and S&P 500 TR returns are as follows as of the close on December 7, 2012:
|
Since 7/27/11
|
YTD
|
S&P 500 TR
|
12.16%
|
15.19%
|
Large Cap Value
|
9.14%
|
13.56%
|
Mid Cap Value
|
6.51%
|
14.45%
|
Small Cap Value
|
5.64%
|
12.41%
|
Large Cap Growth
|
6.04%
|
14.15%
|
Mid Cap Growth
|
3.62%
|
12.03%
|
Small Cap Growth
|
2.09%
|
10.10%
|
How have those
redemptions worked out for shareholders?
Not well. People always ask me, “How
have your models achieved such high returns over the last 10 years and since
the year 2000?” Well it’s not rocket
science and it is all explained in my book that you can find at any online book
retailer. For those of you that do not
know about the success they are asking about, here are my model average annual returns
over the last ten years and since inception that are updated daily at www.allocationforlife.com:
|
Since Inception
|
10 Year
|
Model 1
|
9.23%
|
9.23%
|
Model 2
|
10.07%
|
9.80%
|
Model 3
|
11.09%
|
10.38%
|
|
|
|
S&P 500 TR
|
1.61%
|
6.89%
|
My models and my methodology
for success are all outlined in my book.
I rarely give away my process and my current holdings. My newsletter subscriber’s pay for that privilege,
but the one thing I can tell you is time and time again as I look back on my
models, more often than not I am doing the exact opposite as the mutual fund
inflow/outflow data. For example,
foreign equities had a very rough 2011 and a sharp increase was seen in foreign
equity funds outflows. Let’s take a look
now at the average performance for these foreign equity funds thus far for 2012:
|
YTD
|
Foreign Large Cap Value
|
13.08%
|
Foreign Small/Mid Value
|
16.45%
|
Foreign Large Cap Growth
|
15.37%
|
Diversified Emerging
Markets
|
14.29%
|
In all three of my
models I added more money to my foreign equity positions on December 30th
2011. I did not do this because my
crystal ball works, but rather because that is what my models were telling me
to do. People like to call my investment
style “Contrarian”. It’s not contrarian
it’s “Common Sense”. At Allocation For
Life we have tried to simplify the process for individual investors. The way I invest will never change and we
believe giving investors the ability to own strategies that make sense to them,
and that they can follow via the Allocation For Life Investment Newsletter,
should not have to cost them a fortune in fees.
The average investor that seeks help is paying over 1% of their total
assets away in advisory fees each year.
All of my AFL models are available to my newsletter subscribers to own
in self-directed accounts at Folio Investing.
There are no management fees or advisory fees because I am not
advising. My followers simply read my
book and found an approach that makes sense to them. We created a way for these investors to own
what I own and have given them ability to make changes to their models when I
make changes to mine. The process to do
so at Folio takes about 5 seconds. Yes
we timed the process.
Isn’t finding
things that we can relate to and that make sense to us the ultimate goal? I found my way many years ago and I have been
trying my best to spread the word. If you
are deploying an investment strategy that has worked over the long-term and
that you can clearly define, then I say, “Good for you.” That is a sincere
congratulation’s, because if you are at that point then you are in position to
win the war. However, I know the truth,
and that truth is that most individual investors are a part of the herd, and
cannot clearly define how they are going to get where they need to go. The fund inflow/outflow data does not lie,
and it does not paint a pretty picture for the average investor’s success. It's up to us to find our own way.
Jon R. Orcutt is the founder of Allocation For Life, Author of The
Allocation For Life Investment Newsletter, Author of "Master The Markets
With Mutual Funds: A Common Sense Guide To Investing Success" and
manager/creator of the AFL Models available to Allocation For Life subscribers
at Folio Investing.
http://www.allocationforlife.com/thebook.php
