Warren's Wisdoms- No Comment- 9/27/2005
As I was proofreading my recent note on Section 529 plans, I found myself wondering why anyone would decide to go down the list to our Number 5, Delaware�s plan featuring Fidelity funds. That thought reminded me of one of my very first assignments as a fee-only planner, a review of 20 or so Fidelity funds owned by a young couple. They were fans of that fund family, even subscribing to a newsletter which gave regular recommendations for investing in specific Fidelity funds. The problem was, after executing that strategy for a few years, they were unsure of the reasons they had invested in any of the funds. Apparently the newsletter didn�t also provide them with sell recommendations. I was able to do the research for them and make some specific suggestions related to portfolio balance but I do remember wondering how they came to select Fidelity as their fund family of choice or even just why they felt the need to use only one.
I encountered a question in a similar vein a couple of weeks ago, when a friend asked what I thought of a particular mutual fund. At Warren Ward Associates, we spend thousands of dollars and hundreds of hours every year on investment research. In spite of that, however, it would be unusual for any of us to have an immediate comment regarding a specific mutual fund, since there are quite literally thousands of them from which to choose. Even after doing the research, we still might not have a good answer because, although our investment strategy includes picking specific funds (and individual stocks in some cases), it begins with a �top down� study of the world�s economy. This includes currency valuations, interest rate movements and global economic trends. Out of that comes an allocation among various asset classes after which we start the process of evaluating specific funds (or investment managers) to fit each category. This final �bottom-up� research step might lead us to any fund in any fund family. It is quite rare � although it does happen � for us to recommend more than one fund in a single family.
This is actually a fairly unusual approach. When I was a stock broker working for sales commissions, the brokerage firm had specific mutual fund companies with whom it had special relationships. Brokers were encouraged to recommend those preferred families to our investment customers. In fact, one of the primary reasons that WWA is a fee-only firm was my growing concern that my clients might not always be best served through a process that began with a fund family, rather than a client�s needs.
At WWA we are believers in, and adherents to, the financial planning process. We understand that any value we may add to the world of investments must come through that process. Our investment strategies are client-specific and are based on individual goals, tolerance for risk, available assets and time horizon. Although we all live in a world of headlines and sound bites, at WWA we don�t believe it is in anybody�s best interests to try to simplify investing down to a favorite stock, fund or fund family.
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