A brief review of an IRA (Individual Retirement Arrangement) I am in the process of streamlining for one of my client family. Apart from this, the family had a hodge-podge of other assets which had significant account to account overlaps. The husband’s 401(k) plans had some funds where that same asset class was repeated in the wife’s 401(k) and IRA. A holistic approach to portfolio alignment for the entire family finances with the right asset allocation is in the works but the analysis below for one of the IRA is a brief snapshot of the first phase in the investment planning process.
Funds the IRA was invested in.
BARAX – Baron Asset Fund
This is basically a mid-cap fund with a very high expense ratio (1.33%). On top of that, the fund has a 0.25% of 12-b-1 fees. This is a marketing (junk) fee assessed to the shareholders of the fund so that the fund can advertise and attract more assets. Annual holdings turnover is 24% which is high but not atrocious.
Performance compared to its benchmark is awful with the fund lagging the benchmark index by 40% over the past five years. This one has to go.
FASMX – Fidelity Asset Manager 50%
This is an asset-allocation fund with relatively high expenses (expense ratio 0.71%). Major disadvantage is that the asset-allocation remains fixed (it does not adjust with the change in investor’s risk profile) and its portfolio mix is redundant with other investments in the rest of the portfolio. This will go too.
FDCAX – Fidelity Capital Trust
This is a global fund investing in any type and size of stocks. Expense ratio of 0.91% and annual holdings turnover of 182%…did I read that right…yes, 182%. Has to go.
FEXPX – Fidelity Export & Multinational Fund
How do they come up with these names? This is basically a large-cap fund of US based multi-nationals with most of their revenues derived from foreign markets. Annual expense ratio of 0.83% and annual holdings turnover of 109%. This one has to go too.
NBPTX – Neuberger & Berman Partners
Mid-large cap blend fund. Mixing asset classes is not preferred because portfolio rebalancing becomes a challenge. It is best not to leave asset allocation decisions to a fund manager. Expense ratio of 1.04%, 12-b-1 fee of 0.1% and annual holdings turnover of 41% does not help either. So this one is out.
RIMSX – Rainier Investment Management
Small-mid cap blend fund. Same argument as before with respect to mixing asset classes. Expense ratio of 1.24%, 12-b-1 fee of 0.25% and annual holdings turnover of 113%.
And its performance lags the benchmark index by 25% for the past five years. No way, again. Has to go.
RYBHX – Rydex S&P Mid-Cap 400 Pure Growth H
As the name suggests, it is a mid-cap growth fund. Expense ratio of 1.55%, 12-b-1 fees of 0.25% and an annual holding turnover of 448%…what…448%. The entire portfolio gets sold and re-bought every 3 months. Guess who pays for that.
At least it beat the benchmark index by a total of 20% over the past five years but with this kind of profile, it’s better to let this one go too.
SMCDX – WFA Special Mid-Cap Value Fund
Another mid-cap fund but with a value angle. 78% holdings turnover with 1.37% expense ratio per year. Also it lags the benchmark index by a total of 20% over the past five years. This one will go too.
So we are eight for eight. Total house-cleaning.
Image credit – Barney Moss, Flickr