YouSaid · the spoken record

Jeff Ptak

lines on the record: 59
first: 2016-12-20
most recent: 2016-12-20
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Bloody Valentine. They put out a very influential record called Loveless. But there was another band called Ride, which I think some people are familiar with, but they're not quite as well known as My Bloody Valentine. And they put out a record, which if memory serves is called Nowhere, which I love. And it's a very rewarding listen, real hookie stuff. There's a lot going on in the background. Walls of guitar and so forth. I think you'll quite enjoy that one as well. So X and Ride.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Oh, that's such a great question. What fun. So maybe I'll focus on it's an LA punk band. Their heyday was really in the 80s, and they have a very, very sort of piffy name. The name is X. And the record I would recommend is you can actually, when I bought it, you could get the two records together, Los Angeles Wild Gift of the two of those I'd probably recommend Wild Gift. I think that's a great, great record. And then the other one, which is a bit of an obscurity, but for people that are interested in some of the sounds that came up in sort of like the alt-rock era, sort of these walls of sound and so forth, you actually found some of the inspiration for that overseas, probably the most famous of those bands is One Day.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Hopefully they're growing up to understand that not everybody's in that same situation. And one day they'll be able to inculcate their own children in that same sort of mindset. That's an ongoing effort, and we'll see how it turns out. But that's sort of my big project of trying to give back a little to my children.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“And they were willing to tolerate me for that half dozen years. So I have to thank my former colleagues at Arthur Anderson, you know, John Stewart, Amy Rappe, Rick Peterson, the late Ben Newhausen, and so forth, who were in that group at the time. I thank them for doing that for me. It was a very, very nice gesture. You know, and then sort of nicest thing that I've done for other people. Maybe we'll step out of the professional realm here. You alluded to it before. I have a young family, four children. And I would say collectively, I try to make everyday better than the one before it and help our kids learn and sort of show them the way and lead by example most of all by showing them the value, I hope, of empathy and understanding different sort of circumstances that people live in. We're very lucky that we lead a safe and comfortable life.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so let's start with the first one. I mean, I think that, you know, probably the kindest thing that someone has done for me professionally, and this goes back to an earlier juncture of my career when I was in public accounting, I started my career at what was then known at Arthur Anderson. And I had an opportunity to catch on with an internal group there called the Professional Standards Group, which was the firm's really sort of resource expert on technical accounting and auditing matters. It was a very, very prestigious group. I was a young kid, not polished at all, and they took a chance on me, and I spent the next six years of my career working for these extremely accomplished, unbelievably hard-working partners in this group. And they did not have to do that. And they did that. And I got to work at their feet and learned a great deal from them.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“For me in a couple of ways. First, it happened, and the industry hadn't had that sort of traumatic experience. And then also it was the way we responded as a firm. I'm really, really proud of the colleagues that I work with and was proud of the way they responded. They responded by identifying a number of firms that had engaged in these activities and warning investors away from them. And that was not an easy thing to do. You can imagine the reaction it elicited from some of these firms, but it was the right thing to do. And I think it was very much congruent with, you know, sort of the investor's first ethic that, you know, we try to make sure that we put front and center. So it was certainly a pivotal moment in the history of the industry. And it was also a very indelible moment for me in my career here at Morningstar and learning sort of what it is that defines us as researchers and sort of kind of the responsibility we feel towards the users.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“So I would say this was when I was a newly minted analyst back 2002, if I'm not mistaken, I could have my timing wrong. We gathered around a TV in our headquarters and we watched Elliot Spitzer basically unveil these allegations of market timing against a number of mutual fund complexes. To this point, I think that generally speaking, the fund industry should be pretty proud of what it's offered to investors. It's given them access to the markets in a reasonably priced way. There's always room for improvement. I think the market has seen us solving that problem given the shift to low-cost investments. But I think at that juncture, it was fairly lily white. It hadn't had any sort of widespread scandals. And so that really stands out.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“That's associated with the intrinsic value estimate of a particular security, which we also promulgate. And so these are all efforts that we have made to recognize that there are more sophisticated ways that we can go and classify securities and try to attribute their performance. And so that's why we put the risk model out and made it available to some of the users of our research and tools.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“That's a great question. We actually, not to be a commercial shill here, but one of the things that we did recently, and this is a credit to some of my colleagues in the quantitative research side led by Lee Davidson, we actually put out a commercial risk model. It's part of one of our tools. And it actually spans numerous different factors. So we've moved well beyond the sort of the nine box style box grid that many people associate us with and that we're very proud of. But I think it's an acknowledgement of the fact that, you know, classifying funds and their various attributes, it goes beyond size and even value growth. We have to consider some other things. And you named a few of those. We've got momentum, quality. We have a few of our own proprietary factors that we've developed. You mentioned MOT before. There's valuation. There's the uncertainty.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Became more of a story than an investment thesis, where there was quite a bit of tag along. And so I think in situations like those, we've got to step back, pause, ask ourselves what our thesis is, so to speak, for that investment. And hopefully that's enough to keep us out in those sorts of situations. And then the other thing that we have to do is just make sure that we are entering with the appropriate mindset and expectations and that when we're representing clients, we are leveling with them. And if it's an active fund, we're saying, hey, this is not something that we're going to own for just three or even five years. This is something we're going to own for some period of time. And there's probably going to be some underperformance along the way because that's part of the price of outperformance in some cases. And so if we do that, then it prevents some of this in opportune buying and selling.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“And the more sort of resolute shareholders, the basin shareholders who stay in it so they don't have to pay for that baggage of you entering and exiting the fund having to transact. So I really have no quarrel with that at all as long as it's judiciously applied. In terms of sort of guidelines that we can follow as investors or in the case of advisors and intermediaries in that process, I think that one sort of telltale huge warning sign is a big influx of assets into the strategy concern. We've seen this time and again. Whether we're talking about tactical mutual funds following the global financial crisis, I could think of a few pretty popular liquid alternative funds around 2011 that gathered just torrents of assets. And it really became”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“So I actually feel that entry and exit fees applied judiciously can make a good deal of sense. I am not opposed to those at all. Like you say, I think that it gives investors and those that represent them something to think about before they go in. Now, I'm certainly not advocating for big front-end loads or punitive redemption fees, which is some of the drek that you'll see on certain types of products. I think that's very unhelpful in some cases. It can be outright predatory. So that's not what I'm suggesting. But we've seen some very respectable firms, and I would include Vanguard in this. There are certain of their funds, if I'm not mistaken, where you actually have to pay. It's a nominal fee, but it is a fee all the same to ensure that you're not here today going tomorrow.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“To look through to your investments and you see how they do over a shorter period of time. And it scares you or you get greedy and you make a change. And that's why transparency, it's a virtue, but if we use it in excess, it can really hurt us.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“For the stock market to close for some period of time starting tomorrow, say for five years, right? Approach it with that level of seriousness, and again, to use that word irrevocability, right? I think what he's getting at is being able to watch something sort of squiggle around in a screen is not really what counts. What counts is the forethought that goes into investment, doing your homework up front. Sure, check in occasionally, especially to rebalance maybe on an annual basis, but don't use transparency in excess, right? Where you're going to be getting yourself so worked up that you're going to be over transacting. And then back to one of our earlier themes, the gap between the dollar-weighted return and the actual return of your investments, that sort of gap opens up when you overtrade. And one of the reasons why that happens is because you've”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“And I have to tread carefully here just given the fact that my employer, I mean, transparency is sort of an animating principle for us. The firm has been built on and I and others here, we believe strongly in it. Having said all of that, I think that transparency is wonderful having that look through, being able to monitor. I mean, Hack, our team wouldn't be able to do the work that it does without the transparency it's afforded by managers and also through regulation, but it can hurt us too if we're too obsessive about looking at our portfolio and seeing how it's done over shorter periods of time. And this holds true not just for investors in the fund, but the PMs themselves. We've heard figures as estimables, Warren Buffett, kind of talk about this notion I'm paraphrasing here, that you should be prepared in making an investment.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“About managing your capacity, and you're going to shut the strategy off before a bloat sets in, which is not something that managers to this point have a really, truly impressive record of doing. Generally speaking, manager shut strategies when it's too late. And Bloat has already set in or soon will. That's one of the reasons why we see mean reversion amongst mutual funds. So I think if a performance-based fee can help managers can make them more disciplined about capacity management, that could be a big win for investors.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“One of the things that I would point out is, so I think that there are many things to quarrel with when it comes to hedge fund fee structures, which generally speaking are ridiculous. But I do like the fact that there's a pretty big performance-based component. Now, one would argue that when you're getting 2% per annum, come hell or high water, you're not going to have to worry too much about whether you get the other 20% of performance. But I would point out that when you do have a meaningful performance-based component, what it does do is I think make you a bit more thoughtful about your strategies capacity. And that gets back to sort of thoughtfully constructing a performance-based fee arrangement. If you do thoughtfully construct it and the performance of the strategy really is a meaningful input into how it is you're compensated ultimately as a firm or as a manager, then you're going to be a whole lot more thoughtful.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Term performance, and why is it? It's because the base portion of the fee, which is fixed, and generally speaking, you're going to get it within a certain range over time, that dwarfs the fulcrum amount that you're going to get. So it really does not act as much, I think, of a molder of behavior, so to speak. the concept of performance-based fee and getting away from the asset-based fee, I think that has to be a part of the future of investment management, especially if base fees, which I just quoted to you now, that 64, I should say 61 basis points asset weighted. If those are coming down as a managers are going to have to find another way to bring home the bacon, so to speak. And so I think a performance-based fee is an equitable way for them to do that. Incidentally, this is not, you know, I'm answering this with my characteristic lack of brevity here, Patrick.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, there is still a pretty big gap there, and we've seen investors are showing no signs of slowing their migration towards passive. So I think fees are coming down. The second part of your question, how is it that we square up incentives? How do we align those better? And I will tell you conceptually, if they feel like I've been a bit of a voice of the wilderness on this, but I am actually a big fan of performance-based fees when properly structured. Now, I want to caveat that in Fortiac mutual funds, the way you set up a performance-based fee, it's fairly prescribed to you. It has to be a fulcrum fee. So there's a base fee, and then there's a fulcrum that sort of flaps around at the top of that. And typically, I find that's pretty limited in terms of what you can do to really truly incentivize a manager to focus on, say, long.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Another great question. So maybe sort of stepping back, trend in fees, this is not a heroic forecast at all. Fees are coming down for active funds. I don't think there's any question about that. We talked earlier about what it is that might give active managers a tailwind they've been facing headwinds. That's not going to change the inexorable decline in fees. But we looked at fund fees earlier this year, the average active weighted fee, or I should say asset weighted fee for funds with 61 basis points on an equal weighted basis. It was 117 basis points. So if you focus on the top thousand share classes, it's around 64 basis points. And that top thousand share classes is where you see about 75% of the AUM. Compare that to the going rate for cheap equity market or cheap fixed income market beta.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“By sort of kind of run of the mill investment management standards, you take the three of them together, that's pretty powerful.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Very long term focus. They tie their incentives to longer term measures. So whereas I think it's typical in the industry to maybe look at a one, a three, maybe a five year number. With PrimeCap, they're looking much, much further out than that. So that's the first thing. The second thing is a number of the managers eat their own cooking. So there's a direct alignment with the shareholders. Very, very important, again. The third thing that they do is they actually have the analysts run a sleeve of the portfolio. And so this is actually, this is something that I think capital research has popularized to a certain degree. They do a similar sort of thing. But by allowing the analyst to run a sleeve of the portfolio alongside the PMs, they have some skin in the game that way. And also they take some ownership for what goes into the portfolio. So, you know, you take those three things together, which any one of them individually would be somewhat unusual.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Succeed. That was extremely valuable to me. So I owe a big debt of gratitude to the PrimeCap folks who were very generous with their time. That was a great, great experience for me as an analyst”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Also in the midst of a generational transfer all while carrying around tens of billions of dollars in assets. And I spent over a year with two of the partners there, Joel Freed and Al Mordecai. They couldn't have been more generous with their time. During that year plus, we spent a little bit of time talking about securities, but we spent much, much more time talking about the way the firm work, how they think about capacity, how they think about generational transfer, how it is they inculcate their younger analysts and their up-and-coming portfolio managers in their philosophy, incentives. It was just, you know, for a younger analyst who was more accustomed to trying to do holdings-based analysis and understand what performance attribution was sort of the more bricks and mortar of diligence, having this kind of much more sort of encompassing conversation about a firm and what makes”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm glad you asked that question. I was thinking about that just this morning as I was coming to the office. I would say that the most instructive experience that I ever had with a manager was it was a manager I alluded to before PrimeCap management. And so for those who are familiar with Vanguard PrimeCap, Vanguard Capital Opportunity, the PrimeCap Odyssey funds, that's prime cap management. They're Pasadena, California-based firm. They really got their start. They were an offshoot from Capital Research. Again, that's the advisor to the American funds. They split off some years ago, set up their own shop. I had the opportunity some years ago as a wet behind my years analyst to cover them. And it was actually a pretty pivotal moment for them. They had just set up their own proprietary family of funds. They were in the process of, I think, doing some renegotiating with Vanguard for whom they subadvised several funds.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Schism between them and advisors who perceive them as a threat in some ways. And not only have they overcome that, you know, now they have these advisors who are out there who are fully subscribing to what they do. It's quite remarkable. They've done a great job, as has iShares. iShares was sort of one of the first great success stories, I would say, in the ETF market. And they continue to do a great job of reaching advisors and other institutions that use their products. They've got a number of distributors, wholesalers, distribution partners who really seem to understand what makes them tick as a firm and what the value proposition is. So that's probably four or five examples of firms that I think do a particularly effective job of kind of wetting who they are as investors, as investment organizations, to how it is they present themselves at the point of sale.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“And then bring that out to the market in a way that ensures that expectations aren't misaligned. Now, they're not perfect. You can see there's some of their products like their emerging markets value fund, where the dollar weighted returns and the total return of that particular fund last time I looked sharply diverged. And that's an indication that perhaps it's been misused. But on the whole, I think they've done a heck of a job of putting investors in their funds in a responsible way. You know, and then I would also focus on, we haven't talked too much about the ETF firms. We've talked more about the mutual fund firms. But I think that Vanguard has done a phenomenal job of getting out and really building a following amongst advisors. They're really a phenomenon at this point within that market. I think it was Duff sledding at first. There was still a bit of.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, definitely. So I think that a firm, I mentioned them before, but I think that American funds has done a pretty effective job through the years. And they've been under some pressure, especially in the ETF passives age, really post-global financial crisis. They've been under some pressure and dealing with redemptions. But I think they've done a pretty good job of helping their customers who have been primarily advisors to understand who they are as investors, what the value proposition is. in really driving sort of that ethic through the way they introduce themselves to the market. So there are probably a good example of a firm that's leveraged their distribution in an effective way. I mentioned dimensional DFA before. I think that they've done a fantastic job of really sort of building this flock of advisors that really subscribe deeply, fervently to what they do.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“But in the course of doing that, they built a following, they built a certain investing identity. And that's one of the ways they've been able to achieve a certain level of scale. So moving from sort of the most prosaic and measurable, that being scale and returns to scale, to sort of things that are more cultural and squishy, I think those are examples of how you can build a mode around an investment management business. Now, the other thing that we haven't talked about is distribution. And certainly there's a moat that you can build that's predicated on distribution and the reach that your organization has. I can think of some organizations like Franklin Resources, for instance, that have a true global footprint, and this gives them the ability to sell into a number of different markets and verticals around the world. And that's not something that you can easily replicate. And so there's something to that there is a moat to that. I think for me, though, that's become”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“DFA, as many know it, that's the shorthand that's used. And so you won't go down to their headquarters and find a literal motor around it. But what they've been able to do is sort of propagate this philosophy and really inculcate it amongst the advisors who make their products available to end clients. And they built a very durable franchise around it. I would also point to capital research as another example of a firm that I think has done a really good job of building a durable investment in research intensive franchise that puts the investor at the center of what they do. You know, they're not a particularly flashy firm in a lot of ways. The funds don't trade a lot. They can be a bit quirky in the way they're constituted. They don't rule out new products left, right, and center. They really stick to what they do.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“An active manager within your firm around research excellence, around commitment to the shareholder. And what you can do in the course of that is attract the right type of client. I know that in some of your recent podcast episodes, you've spoken at some length about Seth Claran, who in turn has written. I think at some length about the importance of having the right types of clients. Now, that's arguably a bit easier when you've got people that are maybe locked up a bit in an LP, whereas we're talking here about 40 Act daily liquidity vehicles and mutual funds. But we certainly have seen examples of firms that have been able to succeed by practicing what they preach, doing so through thick and thin, and really making sure that the philosophy infuses, permeates every single thing that they do. And probably the best example I can think of that is dimensional.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“That's a great question. So maybe we'll focus on the most sort of prosaic and measurable, which is scale and the benefit that it confers to investors, which is cost advantage. We haven't talked a lot about Vanguard to this point in the conversation, but they're really the quintessential example of returns to scale. They built a moat by virtue of the fact that they are organized. They're basically mutually owned by the funds and therefore the shareholders of those funds. It's an at cost model. It's very, very difficult to replicate that. So there's an example of a moat in investment management. Now, how about some of the squishier, more qualitative things that one can do? So I think that you can inculcate a certain culture.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“So it's a way for somebody to go in there and sort of on the fly if they want to know this fund versus that fund. You know, when I adjust for its active share, what does it cost me? This is a way they can do it for free online. I don't have any affiliation with it, but it's kind of a useful site for those who are interested in it.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“We think that's a useful way to look at it. We haven't built that into our products or our data points yet. We do have Active Share, but we don't have an expense ratio that's adjusted, as you described, for the level of activeness, if you will, within a portfolio. But I think that's a perfectly valid way to look at things and try to derive a sense of the value that you are accruing as an investor. One resource that I would point out, we've got a wealth of information, the various tools that we make available to investors, our website, Morningstar Direct and the like. There is a website called activeShare.info. I think you're probably familiar with it as well. One of the professors that popularized ActiveShare, I think, has developed this in partnership with an asset manager. And you can type in a ticker, and I believe at the bottom of the dashboard, it shows you is an active share adjusted expense measure.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so I think that they can be quite helpful in certain contexts. I would actually go back to our own star rating. So I think that many people are probably familiar with the star rating that we put out. The star rating is based on funds past risk and load-adjusted performance versus their category peers. And it's a quantitative data point. It's backwards looking. And so what we have repeatedly said is that it's a starting point for research. It's not start middle and end. It's not something that you should use exclusively. And I have the same sort of, I guess, outlook towards things like tracking error or active share. I think that they can be indicative, but they're not defining. And so I don't think that I would look at two funds, one with perhaps a high active share and another one with maybe a middling active share.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Those qualities. But I think that there's a greater likelihood that you're going to find some of those traits in them. Because, again, they approach the investment process with a certain sense of irrevocability, that what they're putting in the portfolio is something that's going to have to stay in the portfolio for four, five years on end. And if that's the mindset that they have, they're going to be that much more careful from there, right? That's when you're going to start to dive in and you're going to pick a name out of the portfolio and you're going to ask them, why did you add this? What are some of the other things that you were looking for in it that gave it its moat? Those sorts of questions that you would ask in order to sort of, you know, kind of put together a fundamental thesis that describes the manager strategy. But turnover rate is to me something that's quite, quite important that I often go to when I'm looking at a manager.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure thing. So I think that one of the most important things to me is demonstration of resolve. And maybe I'll go back to one of the earlier quantitative data points that I ticked off in that short list, which was turnover rate. So turnover rate in and of itself doesn't mean a whole lot. I think it's really taking the turnover rate and placing it into the broader context of the strategy to understand why a manager trades so infrequently. That's what really can yield some insights into how it is they think about markets and opportunities. You know, when we think of some of the most fabled investors, one of the lessons that they've tried to inculcate, and those of us who follow them is that it's not action that's important. In many cases, it's inaction, right? It's really acting with resolve, avoiding making big mistakes. And when you see your opportunity, you seize it. And I'm not saying that a low turnover manager, a manager who trades infrequently exemplifies.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Real good question. I think given the fact that success rates are as low as they are, and I'm a believer in mean reversion, I would probably take that second bet, which is to find five quality actively invested funds, equity funds, and go with them. I think this has been a great run for passive funds, particularly U.S. large cap, index funds in recent years. And I do think there's an opportunity for active managers, quality active managers that don't charge too much, that don't overtrade, that apply prudent strategy to make hay. And so that's how I would commit my capital.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“What it really forces you to do, I think, if you're making some active investing decisions, you have to act with a great deal of forethought. You've got to do your homework up front, you know, knowing that I wouldn't say that it's an irrevocable decision that you're making, but it's going to be enforced for some time and you're going to have to live with that. And so it's going to make you take it all the more seriously to begin with. So I tell my kids, if you're not going to do the work index, and if you are intent on doing it, make sure that you can live with that decision for years on end so you don't have to trade, which is something that ultimately can hurt you.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“I would tell them unless they're willing to do the work, which is not insubstantial, as you know, they should index. And I think this holds for a pretty broad swath of investors, and this is a message that I've tried to hammer home in my own writings. If you're not really willing to do the work to research up the funds, and also if you don't feel like you've got the resolve that you're going to need to stick with funds in what can be some very uncomfortable, unnerving situations, then you're better off indexing. You're likely to achieve a better outcome. That's the first thing that I would tell them. The second thing that I would tell them is sort of hands off. I think the fewer actions you take, you know, trades you make, the better off, generally speaking, you tend to be. And certainly that's the way I invest. I trade very, very seldom.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Dates are one type. I think the part of it is situational. It's context. It's where they're offered, right? It's a more controlled environment, a defined contribution plan. Perhaps it's part of a broader advisory solution. Maybe you're getting some advice. Maybe you don't have the benefit of choice. Perhaps it's regimented, right? You're auto contributing. It's set as a default. You don't really have to think about it. I think those are among the reasons.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so maybe we'll start with target date funds, which I think are a success story in that regard, with target date funds, one of the things that we've observed is positive gaps, believe it or not. And I would caution people not to read too much into it. I don't think that with Target Date funds, that there's something sort of inherently virtuous about them where people end up earning higher internal rates of return than the funds themselves, the quirk here is that we had people that were steadily contributing sums to target date funds that were tilted towards equities in the midst of an equity bull market. And generally speaking, those are good facts. That's going to help you to generate a higher internal rate of return. You're going to earn more of the funds stated return. Why does this happen, though, generally speaking? Why do we see these smaller gaps with asset allocation products, let's call them, of which target?”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Their benchmark over an extended period of time, they spent many, many years looking up at their benchmarks. 10 plus year periods, it was not uncommon for that to happen. And so, which brings us back to Sequoia, which is a fund that we recommend not quite as strongly as we did before. It ran into some of its recent problems with Valiant. But I think that's a firm that has a very ingrained discipline, a very research-intensive culture, and extremely committed and motivated group of managers, a very knowledgeable group of managers of that. I don't count them out. And certainly the fact that they've had the difficult run that they've had in the last 10, 15 years, I don't think is disqualifying necessarily. It's among the reasons why we continue to recommend them. And I think there's perhaps a lesson that lesson is that we have to be very, very patient as investors in many cases and act with a great deal of resolve to have success and fun.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so I did a bit of research. This is some months back. And really, the impetus for this was a conversation that I had with a friend of mine who I much admire who's in the business. And his point was using Sequoia as an example. If a fund has languished as long as that fund has languished, they clearly have lost the touch. There's a problem there. And so what I did was I delved in and I looked at funds which were quite old, had decades of track record under their belt and had distinguished themselves. They actually had generated, I think, positive excess returns cumulatively versus their benchmark. And I took a look to see how much time they had underperformed their benchmark in amassing that sort of success. And what you commonly find is these funds that you would ordinarily say, hey, these are success stories.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“I still admire that firm in a lot of ways, but it's quite clear with the benefit of hindsight that when Marty Whitman, who was this legendary investor, still invests, to my knowledge, when he handed that off to his proteges, it didn't go off well. They weren't able to sort of carry the torch. And obviously that firm has run into significant struggle in recent years.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“I think that that's one of the paradoxes that you face, right? Because by the time that you can establish that a manager is skillful, he or she may be in the process of making plans for retirement. And so I think that that can speak to the advantages of team management. We've seen some firms, you know, Dodge and Cox comes to mind, capital research comes to mind, prime cap management comes to mind where it's really more of a team motif. And so I think that mitigates some of the pressure of relying as much on a single investor. Perhaps is now long enough tenured that he or she is going to have to hand the baton off to a less senior, a less pedigree manager. And we've seen that sometimes that can be really messy. I mean, I think that probably the quintessential recent example of that is Third Avenue, you know, a very storied investment firm.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Agnostic. So, what you would find if you went through our ratings is that we heartily recommend funds from very large, diverse firms. And we just as heartily recommend funds from boutiques. There are different models. Each one has its own set of sort of challenges that attend to it. For instance, with a boutique, it's more difficult to attain scale, generational transfer, depth, breadth, continuity of a team.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Account in which perhaps they have an investment. In other cases, perhaps they're in a jurisdiction where they invest the money but they don't invest it in the jurisdiction in which it's being offered to you. And then another case is they don't care enough to invest their money in it. Maybe the fees are too high. Maybe there's another strategy that they run in-house that they believe more in. In many cases, it boils down, unfortunately, to that. And so that's why we think it's important for managers to have some skin in the game to show it.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure thing. So we will follow what's reported in the public filings and the top rung that's disclosed, and I'm going from memory here, is I believe a million or more that's invested in a given fund. And to us, that's the sense the strongest signal. We want to see managers that are making that sort of gesture, sort of statement of confidence in their strategy. how many managers do this. I can get you specific numbers. It's a clear minority of managers of funds that have managers that are investing at that level. So we're talking well below 50% of managers, of funds have a manager that is invested at that level. And why don't we see it more often? I would say there's a number of sort of business and other sort of more humdrum reasons why we don't see it. In some cases, the manager maybe is running a pot of money in a separately managed.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source
“Diversified financial services firm that has a lot of different irons in the fire, you know, in which case the asset management division is just it falls underneath some big tent, right? With all the attendant risks and concerns, either model can work, but I would say that there's probably a bit more complexity and challenge involved with the second model. Those are four things that I would probably focus on in getting started and looking at a particular actively managed strategy, let's say.”
2016-12-20 · Invest Like the Best · Jeff Ptak – The Prospects for Active Management - [Invest Like the Best, EP.16] · IDENTIFIED FROM THE TRANSCRIPT · source