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No. of Recommendations: 3
Morningstar is reporting that 2012 was a good year for investors.

YTD averages Category Number of funds
11.89% All Categories 12,689
13.91% US Stocks 7,779
17.05% Intl' Stocks 3,607
7.83% Bonds 6,289
11.40% Balanced 4,408
-1.24% Alternative 775
14.16% Sectors 1,447

7.83% All Bonds 6,289
3.68% All Gov't 705
6.53% All Non-gov't 1,919

12.23% All Specialty Bonds 1,573
14.60% High-yield Bonds 585
11.44% Multi-sector Bonds 284
7.78% World Bonds 303
17.56% EmgMkt Bonds 208
7.43% Non-traditional Bonds 193

7.11% All Tax-free Bonds 2,092
8.87% Muni Nat'l Long 234
13.73% Muni High-yield 162

As you can see from the YTD results for the various fund categories, if you had done nothing more imaginative than throw a dart at the preceding list and bet all of your money on where it landed, your odds would have been pretty good of achieving a return in the neighborhood of 11.40%. That’s not big money. But it is very decent money, offering a real-rate of return after taxes have been paid and a realistic, 5%-6% rate of inflation has been subtracted.

If you had done some tactical asset-allocation (aka, market-timing), you might have made a bit more. OTOH, if you had bet on the hedgies (the ‘alternative’ fund managers), you would have gotten killed. This isn’t to say that hedge funds might not serve some investors well. But the ordinary investor is better off sticking with simple, ‘plain vanilla’ investments: some US stocks, some US bonds, and maybe a dab of something mildly exotic like international stocks or bonds, or taxable and municipal high-yields.

Of special interest to me is the category ‘multi-sector bonds’, because that is my sole and only investment-objective, and it has been so for a dozen years now. Morningstar reports there are 284 fund managers who pursue that investment-objective, and their average return was a respectable 11.44% this year. The highest return for the group was a whopping --and very outlier-- 21.20%. Morningstar doesn’t report the lowest return, nor do they report all of the returns. But they do report the top 42.

Rank %tile YTD Ticker Name
1 0.99 21.20 PONAX PIMCO Income A
2 0.98 18.54 AGDAX AllianceBern High Income A
3 0.98 17.40 PLSRX PL Strategic Income I
4 0.98 16.32 RGCAX Russell Global Opportunistic Credit A
5 0.97 15.95 MXLMX Great-West Loomis Sayles Bond Init
6 0.97 15.49 LSFIX Loomis Sayles Fixed Income
7 0.97 14.98 LSBDX Loomis Sayles Bond Instl
8 0.96 14.96 JYGAX JHancock2 Global High Yield A
9 0.96 14.92 SMARX Brandes Separately Managed Acct Res Tr
10 0.95 14.25 DINBX Morgan Stanley Fixed Income Opps B
11 0.95 14.19 PDVAX PIMCO Diversified Inc A
12 0.95 13.96 NAMFX Virtus Multi-Sector F/I A
13 0.94 13.81 MASAX MainStay Flexible Bond Opportunities A
14 0.94 13.62 HFAAX Henderson Strategic Income A
15 0.94 13.58 PIAFX Invesco Premium Income A
16 0.93 13.43 OPSIX Oppenheimer Global Strategic Inc A
17 0.93 13.34 NEFZX Loomis Sayles Strategic Income A
18 0.93 13.12 LBNDX Lord Abbett Bond-Debenture A
19 0.92 12.77 JESNX JHVIT Strategic Income Opps Trust Ser I
20 0.92 12.72 PDINX Putnam Diversified Income A
21 0.92 12.72 RNSIX RiverNorth Doubleline Strategic Inc I
22 0.91 12.47 JHSEX JHancock2 Strategic Income Opps NAV
23 0.91 12.42 TSIAX Thornburg Strategic Income A
24 0.91 12.41 GGBFX GuideStone Funds Global Bond GS4
25 0.90 12.40 VCSBX VALIC Company II Strategic Bond


27 0.89 12.27 FRSTX Franklin Strategic Income A
28 0.89 12.22 SDIAX SunAmerica Strategic Bond A
29 0.89 12.14 KSTAX DWS Unconstrained Income A
30 0.88 12.06 IDITX Transamerica Flexible Income A
31 0.88 11.87 SLDSX Western Asset Global Strategic Income B
32 0.88 11.81 NSTLX Neuberger Berman Strategic Income I
33 0.87 11.60 COSIX Columbia Strategic Income A
34 0.87 11.51 JHFIX JHancock Income A


36 0.86 11.23 AIAAX Forward Income Builder Institutional
37 0.86 10.84 FSICX Fidelity Strategic Income
38 0.86 10.83 PSRAX Pioneer Strategic Income A
39 0.85 10.82 MFIOX MFS Strategic Income A
40 0.85 10.68 PRSAX T. Rowe Price Strategic Income Adv
41 0.85 10.61 STIAX Federated Strategic Income A
42 0.84 10.52 HCMFX Direxion HCM Freedom Svc

Now, a Buddhist parable:

Ques: What did the monk do before he won the lottery?
Ans: He chopped wood, and he carried water.

Ques: What did the monk do after he won the lottery?
Ans: He chopped wood, and he carried water.

My investing results are fully competitive with the top fund managers in this country who share the same investing-objective, and I'm guessing I'm working no harder, nor any longer, than they are, which is a 20-hour work week, and --like me-- they like what they are doing, meaning, even if I/they were to win the lottery, we'd still be managing money, because we like the game. It isn't the whole of our life, but it is an important part of who we are and what we do. But that isn't the case for most investors. Not only are they not having much fun, they aren't doing very well, either. As the DalBar 20-year studies of investor behavior and results so clearly document, the 'average' equity investor achieves only two-thirds of their industry-standard benchmark over the long haul, and the 'average' fixed-income investor achieves only 16% of their industry-standard benchmark.

Why? Why is there such a discrepancy between the results that passive-indexing would have offered and what the average investor actually achieved? Dalbar suggest that poor timing is the biggest contributor to under-performance. Rather than putting together a reasonable allocation plan and then sticking with it,, average investors tend to "buy high and sell low." So the obvious lesson is be made is this. If you know that you don't know how to time markets, --or should infer so from your results-- then don't try to become an active investor. Instead, just find one of the many, excellent, off-the-shelf products there are, park money in it, and then get on with the rest of your life. My bet is that 2013 will offer similar opportunities as 2012, meaning, prices will up and prices will go down, but those who have a plan and who stick with it will be able to grind out decent enough returns.

That plan could be based on active-management, or it could be based on some variant of indexing. It just doesn't much matter. The money obtained is going to end up being pretty much the same. Sound plans --soundly executed-- will grind out profits. But even the best of plans --when poorly executed-- will produce low returns or losses. Before you jump into the market in 2013, commit to paper your goals and objectives for the year. Identify your means, needs, skills, and resources, and then promise yourself that this year, finally, you really will stick with what you have committed yourself to doing.


“If you can’t measure it, you probably can’t manage it. Things you measure tend to improve.” (Ed Seykota)
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