Mark Yusko, CEO and chief investment officer of Morgan Creek Capital, got off easy when he spoke to the annual meeting of the Financial Planning Association of Massachusetts (FPAMA) last week. Nobody at the FPAMA questioned Yusko’s opinions about investment management fees. But plenty of my Twitter followers took issue with Yusko. Still, nobody’s saying that one should always choose the cheapest fund.
What Yusko said
Yusko seemed to suggest that fees rise along with the investment manager’s ability to deliver performance.
He made the following statements:
- “If you pay low fees, you have your money managed by the worst people”
- “In what business does the best person not charge more?”
- “The idea that you want to minimize costs makes no sense.”
- People say they know that indexing beats hedge funds, but for a 20-year period, S&P 500 returned 6.5% vs. 13.2% for hedge funds.
@BillWinterberg was the first to weigh in on my tweets of Yusko’s comments.
@MariposaCap agreed with Bill.
@NathanGehring raised another issue, saying “By charging higher fees the manager may feel a need to take additional risk to justify the fee.” He also questioned Yusko’s hedge fund returns.
Paul Puckett (@investiphobia) emailed me saying, “Disagree, over the long term the opposite is generally true. Expenses are one factor, not the only factor when choosing managers.”
One lonely defender, but some room for higher fees
Only one person tweeted in Yusko’s defense.
Still, as Paul Puckett noted, nobody suggests that expenses suggests that expenses should be the only consideration when you’re choosing a manager. In fact, this theme came up later in the day at the FPAMA conference.
Fees matter, said Karen Dolan, Morningstar’s director of fund analysis, in “Beyond Stars: Using Fund Analysis to Improve the Investor Experience.” As her slide stated, “Advisors have responded by moving assets to cheaper funds, but there’s more we can do to close the gap.”
Stewardship and portfolio analysis are also keys to choosing good funds, said Dolan. The fund families on her list of “Top Wealth Creators” over the past decade–American Funds, Vanguard, Fidelity Investments, Franklin Templeton, and PIMCO Funds–have all been good stewards, she said.
The great debate about what really matters in fund selection is likely to continue.
* Morgan Creek Capital’s Yusko on investing
* “Using Trading Costs to Identify Better Mutual Funds” in Advisor Perspectives (2007)
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