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Advisors’ Tips for Sizing Up Funds

By Crucial Clips     November 8, 2013
The following text is a transcript of a portion of a speaker's presentation made at an industry conference or during an interview. This transcript solely represents the view of the individual who spoke, and not the view of Financial Advisor IQ or any other group.
Source: IMS, Oct. 31, 2013 

Chris Latham

Reporter

Financial Advisor IQ

Nancy Daoud

Private Wealth Advisor

Ameriprise Financial

Michael Botwinick

Certified Financial Planner

LPL Financial

Ruben Bakhash

Certified Financial Planner

LPL Financial

Floyd Levy

Senior Regional Director

ING Investment Management

Michael Rosen

President and Chief Executive Officer

Executive Financial Group

Chris Latham

“This is Chris Latham with Financial Advisor IQ. I’m here at the New York Stock Exchange for the Financial Times Investment Management Summit. And I’m asking advisors, given the thousands of mutual fund and ETF options out there, how can they possibly know which ones are best for their client?”

Nancy Daoud

“There’s so many, you’re right, but I think that it’s really important to really understand what the client wants, what the client needs, what their personal objectives are and, based on all of that information, especially the risk tolerance — which I call how much stomach lining do they have? — that’s when to filter down all of the massive amount of ETFs and mutual funds that are out there and then we select based on the individual tailored needs of the client.”

Michael Botwinick

“One of the main factors is, first is sitting down with the client, understanding what their risk tolerances are before we delve into what fund or ETF would be right for them. Then, once we have a good understanding of the risk tolerances, then we can narrow the field down to the specific investment they would like to look at.

“Now, if it’s a growth advisor, we might lean more towards the large growth-oriented-type funds. And, again, narrowing it down to ones that are more aggressive, ones that are a little bit more conservative, to pick.

“So, typically a fund, if I were to put out a name of a fund that I do enjoy using, it would be like an Alger Spectra. Alger Spectra has some defensive characteristics to it, because they do some shorting as well as going long with investments, it gives it a little defense in a down market, not necessarily capturing all the upside.

“On the other hand, if they wanted a fund that was going to capture a lot more of the upside growth, we might look at a Lord Abbett Growth Leaders fund, which has a little bit more aggressiveness to it.”

Ruben Bakhash

“I agree as well with the two funds we spoke about, the Lord Abbett Growth Leaders, as well as Alger. In looking at growth-oriented funds, one of the ways in which we define which funds are best is we look at growth at a reasonable price. And, in terms of being able to filter down with all these choices that you mention, one of the most constructive ways when we look at growth-oriented funds is looking at the PEG ratio, which is the price-to-earnings growth over the next five years. The lower that is, the more inexpensive the holdings. And so you can look at that on a fund level and get a really good sense for what might be a more compelling buying opportunity.”

Floyd Levy

“There’s plenty of tools out there for financial advisors to look at some of the quantitative metrics that are used to evaluate not just performance but risk-adjusted performance. Things such as information ratio, active shares is a very popular metric that advisors are using these days.

“But the other side of the equation is also the people, the process, the philosophy behind what goes into the management of those particular funds. That’s important as well and a lot of people forget about that.”

Michael Rosen

“Hey, you could just throw a dart at a board. No, realistically, there’s a million of them out there, but there’s plenty of tools that you can break them down, like tenure of the manager, the volatility of the fund, then doing a fact-find on what the client’s looking to do and then you try and put it together and make the best decision. But, again, that’s why you need a financial advisor, because there are a million different choices out there and you try and simplify it for the client.”