Managed Fund, too good to be true?

August 18, 2005 10:08 AM

Managed Fund, too good to be true?

My Financial advisor, who I am inclined to trust, looked over my 401K investments at my request with an eye towards recommending what should be done, if anything. He recommended a managed fund from Karel-Gordon Investment Associates. It costs 2% to get into it and 1.5% a year. He swears by it and says he has $150 Million in his client's funds invested with Karel-Gordon. The fund invests primarily in Corporate Bond Mutual Funds. When that fund starts down they shift it over to a money market fund till the other fund goes back on an up trend. Their annualized rate of return is 9.96% since 6/30/98. Everything LOOKS good, in fact it looks almost too good to be true. I can find very little about this company online and don't know enough about this kind of investing to make a value judgement. Does anybody have any experience with these people? Failing that some further questions to ask my financial advisor?

posted by amigasteve to work & money (13 comments total)

Their annualized rate of return is 9.96% since 6/30/98.

Surely their prospectus says that "Past performance is no guarantee of future results." You do have a prospectus, right?

What kind of kickbacks does your financial adviser get for people he gets into the fund?
posted by grouse at 10:10 AM on August 18, 2005

Those are pretty high fees. I would be suspicious that this guy gets a cut. Even if he doesn't, that is still a high fee. You are probably better off in a no-load fund.

By the way, I could not find that fund using Google. That would seem to be a bad sign. Did you get the name right?
posted by caddis at 10:28 AM on August 18, 2005

So they have a track record over a certain amount of time of about 10%. But it costs 1.5% to be in there, so to you that's really 8.5%. Compare that figure against the performance of a total stock market index fund for the same time period. Is this expert's performance dramatically better than a plain old no-load index fund? If not, there's no reason to get involved, as far as I can tell. Personally, I would be suspicious of the high fees and the sales pitch... but maybe that's just me.
posted by spilon at 10:52 AM on August 18, 2005

Google sucks. There, I said it.

However, the Karel-Gordon webiste is a NetSol template, so what does that say?

I'd skip this over the fees alone, but the site clinches it....
posted by sageleaf at 10:54 AM on August 18, 2005

First-- The track record, if it is AIMR-PPS or GIPS compliant, should be presented net of fees.

Second-- Investments 101: good performance in a bond portfolio over the last seven years (especially if the periods are cherry-picked) is typical. Rates go down, bond portfolios go up.

Third-- 150 basis points for a managed bond portfolio with a two-percent load in front in addition to the fees internal to the bond funds themselves is highway robbery.

Last-- My gut reaction is that people who market-time using bond funds and distribute their product to retail investors are fucking amateurs.

PS-- of course the advisor gets a cut.

Is the money still in a 401(k)? Are you still with the sponsoring employer?
posted by Kwantsar at 11:22 AM on August 18, 2005

I can't find any information whatsoever about either Karel-Gordon Investment Associates, or its bond fund, anywhere online. That alone is a red flag to me.

Also, how much, as a percentage of your 401(k), does your advisor want you to move into this fund?
posted by monju_bosatsu at 11:51 AM on August 18, 2005

bleh, just buy a bunch of Oil company shares.
posted by delmoi at 11:55 AM on August 18, 2005

You can look up the investment adviser's annual registration form at the SEC Investment Adviser db. Their last statement says $126.6m in AUM and less than 5 employees - that's a really small outfit.

I'd agree with what Kwantsar said - esp. the third point. For those kind of fees, I'd want something a lot more interesting than sweeping money in and out of funds.
posted by milkrate at 12:07 PM on August 18, 2005

Heh. Nice find, milkrate. 150 bps (I bet the broker gets the load, but no trailer) x 126mm = 1.89 million in revenue.

Even if they offer breakpoints or a sliding scale to the bigger investors, it's quite a nice racket.
posted by Kwantsar at 12:24 PM on August 18, 2005

amigasteve--

I'd give a big, fat "meh" on this idea. You mean to tell me that with 8,000 mutual funds out there, the best one your advisor can find is one that is:

1. Tiny
2. With much higher than average fees
3. And no unbiased performance numbers (i.e. from Morningstar, etc.)
4. And has just a couple people managing the money?

I'd steer clear, and I would bring a grain of salt with you the next time you talk to your advisor.
posted by Kibbutz at 1:45 PM on August 18, 2005

You should immediately ask your advisor what fee / bonus he gets if you invest in that fund. Then try to verify his answer independently. If you think he's lying to you, or if he's making substantial kickback, get a new advisor.

Investments like you describe are generally best as a small portion of the portfolio of somebody worth over a million dollars. It sounds like a bad idea to me to invest your entire 401k into something like this.
posted by Nelson at 4:26 PM on August 18, 2005

I think you should find a new advisor. He is obviously doing you no favours whatsoever by acting as your advisor.

Screw him: invest in an index fund and be happy. No/low overhead, and it'll outperform almost all mutual funds over the long term.
posted by five fresh fish at 6:03 PM on August 18, 2005

Damn! You folks are great, thanks for all the great advice. My suspicions were aroused when I did a search on Karel-Gordon and found little of substantial value in Google, or on The Fool. The curious lack of information on their web site also seems a bit, shall we say, odd. Thanks again!
posted by amigasteve at 5:55 AM on August 19, 2005