ETF or Mutual Funds doing it Buffet Style

[roicommunity]

OK, suppose one doesn't have enough funds to get into one of those hedge funds asking for a million or more dollars. However, one doesn't want to trade individual stocks and take a chance on having some real dogs.

Aren't there ETFs and mutual funds which adhere to Buffet, Graham, and/or ROI style of investing? Why not invest with them for the time being if one doesn't have much free time in one's life right now to do the due diligence and extensive research required for this type of fundamental investing.

Is this a fair question? Or is it that those funds/ETFs don't do very well despite professing a fundamental slant in their stock choices. And those who may do well soon move on to hedge funds with a high barrier of entry.

Just curious as to whether it may make more sense for some of us to concentrate of finding decent funds instead of finding exceptional stocks. Let them do the hard work in exchange for a small percentage.

-JD

[npg]

The problem with managed funds is that they take quite a cut, regardless of performance. Good managers are very rare indeed. However, someone that made it to my list of acceptable funds is Ron Baron Funds.

[roicommunity]

Thanks, npg, for the Ron Baron fund link. It only requires $2K for the initial investment. The cost is slightly less than 1%/year.



While researching for value ETF and mutual funds, I came across this article from Money. It's about the concept of value investing as a fad, and it gave warning that the "value bubble" may soon burst. It underscores npg's point about how big a cut these funds take:

What's more, fundamental index funds charge higher fees than many traditional index funds. The expense ratio for Arnott's RAFI 1000 ETF is 0.60 percent vs. 0.18 percent for the Vanguard 500 Index fund. So the ETF starts out in a pretty big hole.

Here's a short list of value funds from Money. These are meant just as examples of what are out there and potentially stimulate our discussion.


Actively-managed funds

Ticker
Fund name
1-yr return
3-yr return
5-yr return
Exp. ratio
Min. inv.
Style

LARGE-CAP
AMRMX
American Funds American Mutual A
6.6%
9.8%
11.8%
0.6%
$250
Value

SSHFX
Sound Shore
6.3%
10.5%
14.5%
0.9%
$10,000
Value

PRFDX
T. Rowe Price Equity Income
6.8%
10.8%
13.3%
0.7%
$2,500
Value

VWNFX
Vanguard Windsor II
8.4%
11.7%
15.2%
0.3%
$10,000
Value

MIDCAP
FDVLX
Fidelity Value
6.1%
13.0%
17.6%
0.7%
$2,500
Value

JMCVX
Janus Mid Cap Value Investor
9.2%
13.2%
17.7%
0.9%
$2,500
Value

SMALL-CAP
BRSVX
Bridgeway Small-Cap Value N
4.6%
15.3%
N/A%
0.8%
$2,000
Value

FOREIGN
DODFX
Dodge & Cox International Stock
17.7%
21.4%
27.6%
0.7%
$2,500
Large Value

OAKIX
Oakmark International I
4.5%
16.4%
20.1%
1.1%
$1,000
Large Value
Data as of: December 7, 2007


-JD

[roicommunity]

Then there is the Value Line. The ETF (new as of Feb 07) will track an index of the 100 stocks ranked #1 by Value Line for timeliness and reconstituted monthly. The old FVL fund tracked the VL100 stocks in real time as they were updated every week. This lead to ~400% turnover/year and short term capital gains distributions. The new ETF should be much more tax efficient. The new ETF is still called FVL.

To protect value line's intellectual property, the new ETF is designed to not track the VL100 index exactly, as a paid member would get in weekly updates by the Value Line service. Still, the new First Trust Value Line 100 ETF is supposed to track the famous VL100 index more closely than the current Powershares ValueLine Timeliness Select Portfolio (PIV) does.

However, PIV looks better than FVL. But my portfolio looks a lot better than either.

-JD

[roicommunity]

Perhaps there is more to this "value bubble" business. Looking at BRK.A and BRK.B, it is normal for it to move up in a series of gradual slopes then long periods of plateaus. But recently, they are both climbing up in a trend indicative of mass buying. That is, with "value" being the new watchword and Buffett being seen by the public as the poster boy for value, are investors flooding into his company's stocks due to the hype of value amond the media?

If so, then we can expect BRK to drop if the "value bubble" burst.

Hmmm.

-JD