Magazines Decoded: Best Mutual Funds of 2011

I’m catching on some personal finance magazine reading and find myself again rolling my eyes at their respective “Best Mutual Funds” lists. I’ve had subscriptions to all the major magazine for about 5 years now. Here’s how I translate them through my jaded eyes:

Best Mutual Funds of 2011

Here are our picks for the best mutual funds. We don’t chase performance like those other guys. We put tons of hours into finding the best mutual funds with good management skill and experience and other things that sound good in theory. Oh, and they have to have really good performance over the last several years. But again, no performance chasing here. Nuh-uh.

Where were we? Oh yeah, so to start we had to drop some funds from our list this year, due to their recent drop in performance. I’ll also add some other tangential reasons to hide this fact a bit. We really don’t know how that happened, sorry about that. It was completely unforeseeable.

Oh, but not to worry, we replaced them with other excellent funds that did some really smart things during the last crisis/boom/cycle. Now, if we could just have told you before they did awesome, instead of recommending those crappy funds we dropped in the last paragraph…

Finally, we decided to add more low-cost index funds to our list. For some reason, they keep performing well over long periods of time and are gaining customers as a result. The Vanguard Group recently became the largest mutual fund company in the world by assets, surpassing even Fidelity with their 401k monopoly and their famous Magellan and Contrafund-style active funds. Shh… here’s the secret that nobody else knows: low costs are important.

– Love, your favorite personal finance magazine.

Suggestion

Any magazine with a Top Stocks or Top Funds list should always have to include the same list from 10 years ago. So with the Top Funds of 2010 you’d have to see the Top Funds of 2000. That would be interesting.

I just realized I was similarly disillusioned a few years ago and wrote Anatomy of a Personal Finance Magazine Article.

Comments

  1. I stopped reading those magazines when one of them: (1) Touted a real estate investing firm at height of the bubble just months before it went under, and (2) Made a case study of some “smart investor” who bought a condo in Oakland for $100K off bubble prices (which are now $200K too high…)

  2. This post was awesome!

  3. Haha, your response rings so true! I used to feel the same way before I quit reading those useless magazines! I love how they just recently started talking about low cost index funds. I wonder if they realize millions of Americans are going in that direction…

  4. It’s so funny how successful fund managers always try to chalk up their success to discipline, virtue, intelligence, etc. Then the next 10 years pass and you realize it was just plain old luck.

  5. Yeah, my first clue a few years ago was that by far most of the ads in these mags were from the very same mutual fund companies that the mags were recomending.
    But my fav of all time was the Janus Funds who used to run TV ads showing a guy going down into a manhole and it talked about how Janus dug down and investigated these companies and knew everything about them before investing in them. Problem was that not long after these ads were running they got caught holding thousands of worthless shares of Enron. So much for their research.
    Good post Jonathan.
    Greg

  6. DefinedContrib says:

    This is so true. My first job was as a phone rep for one of the largest no-load fund companies. The company name rhymes with Mee Mowe Mrice. Great company to work for. The funny thing is that the phones would ring off the hook whenever a few of our funds got on these lists. The callers didn’t care at all what the fund invested in asset class-wise, they just wanted it because it was on the list! People are funny.

  7. LargeTalons says:

    Nice post. Your blog has more value than all of those subscriptions combined and at an infinitely lower cost :) I guess this just goes to show how much money there is to be made by convincing people that your fund/stock/other complex investment product is better than the index because you do more research/hire smarter people/can predict the future. The sad part is that so many otherwise intelligent people continue to sink money into actively managed funds that don’t really do much else but enrich the manager.

  8. I agree with your blog post in general, but I will defend the magazines a bit, too. They do mention that low costs are important and they do mention index funds.

    Remember that the magazine(s) has (have) to sell – so they’re going to print articles about unknown funds that have had great returns, etc. Printing “buy this index this month and sit on it” every month wouldn’t do much to help sales. Plus they give advice on a wide range of topics.

    As for the Top 25 lists, I agree it gets a little suspicious when the magazine drops a fund or fund family, but those things happen in the real world, too. Someone mentioned Janus – how about Strong Funds? There were many like that – solid funds that took a flyer and nose dived into oblivion. I don’t think the magazine could have seen it any better than anyone else., unfortunately.

    But, you made valid points in your post. Caveat Emptor!

  9. Index funds are the worst for a bear market, but do okay in a bull market. Actively-managed funds do bad in a bear market, but are the best in a bull market. The problem with all the bogglehead studies is that they cherry-pick the time scale and find the worst performing actively-managed fund to compare with an index fund. There are several nice actively-managed funds that have done better than index funds. Visit Morningstar.com and do your DD.

    Happy Investing!

  10. Hmmm, I always had the understanding that mutual funds overall or at least over the long haul have underperformed vs. a method such as value investing. Not to challenge you too much, but most (95%) don’t have a track record of standing the test of time.

    Just my thoughts. Take care.

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