Conference nyoss1::market_investing

re                       <<< Note 828.0 by WEORG::STUART >>>
                            -< Diversify Managers? >-

>    What is the common wisdom regarding diversifying in a mutual fund
>    manager?  What I mean is this -- if I intend to invest in a number
>    of funds, is it better to go with several different fund managers
>    (Fidelity, Vangaurd, Dreyfuss, let's say) or is it better to put
>    them all into one (say, Fidelity)?  Does the diversify "law" apply
>    to the managers too?  (Is "manager" the right word here?)
 
manager isn't the right word.  fidelity is a company that sells lots and lots
of MF's.  each of these MF's have fund mgrs that do the day-to-day trades,
etc.  Fido just acts as the company that employs those fund mgrs, etc.
so, your question is, should i diversity among different MF companies?

well, for me, i've done business with scudder, fido, dreyfus, t-rowe,
vanguard, and maybe a few others.  i mostly look at MF track record, mgmt
fees, loads, etc. to determine _where_ my money goes.  consider yourself
a shopper.  you wouldn't go out and buy a car from some salesmen who is
charging $1000.00 more for the same car as the guy down the street, agreed?
you really need to shop around.  get the WSJ... everyday they have a diff.
set of data on the MFs.

    Investing in different fund management companies (Fidelity,
    Vanguard, ...) will be of little difference if you choose funds with
    similar investment styles (aggressive growth, value, income generation,
    ...).  Most of the big fund companies have so many funds with different
    investment styles that you can probably do one stop shopping to obtain
    a diverse mix of investment styles.
    
    Diversification is used as a defensive measure to protect your
    investments.  If you invest in several funds with differing styles, you
    are apt not to lose much if any one perform poorly.  (Do you want all
    of your eggs in the same basket?)
    
    But just investing in different fund management companies will not
    ensure this diversification of investment styles.  For example, many
    fund management companies have an index fund that mimics the S&P 500
    stock index.  If you were to invest in two of these funds, you can
    expect to obtain about the same performance in each fund.  So, why
    bother with two funds that are essentially the same?
    
    You would probably be better off selecting a second fund with a totally
    different investment style.  By doing so you will probably see your
    overall investment grow in value in a more stable manner.
    
    - JH

    Yes, thanks for clarifying my terms.  I mean mutual fund companies.
    I see your point about getting the best deal.  But let's say I want
    to invest in two funds right now and both of them happen to be
    with Fidelity.  Let's also say that I've found a fund with Vanguard 
    that is *almost* as good a buy.  Does it make sense to invest in
    one Fidelity fund and one Vanguard fund (to diversify), even though
    Vanguard isn't as  good a buy to lessen the "risk" of investing in
    two funds from the same company?
    
    I guess what I'm driving at -- is this: all else being equal, is
    it considered risky to put your investments all with one mutual
    fund company (like it would be to invest all your money in one stock,
    say) or am I really pushing it to perceive this as a risk?
    
    I realize this probably isn't a "real life" situation.  I'm just
    trying to get the gist of how far the concept of diversifying extends.  

    Oops. .2 snuck in while I was writing .3.  
    
    I get the idea of using different fund styles for diversifying.
    Let me see if I can clarify my question a little more.  Let's
    say I've figured out what type of funds I want to invest in
    (some risky, some more conservative -- some in stocks, some in bonds,
     some in foreign markets, some in local markets and so on...)
    
    Assuming I've figured all of that out (Ha!) and have a great
    plan of diversification.  Do I worry if what I've worked out
    points towards me having everything in Fidelity (including my
    401K)?  What if Fidelity went belly up? Am I dead meat?  
    
    Maybe my real question is this: If I invest through a mutual fund
    company and that company goes belly-up - what happens to my
    investments? 

    
    	Suggest .0 diversify by fund focus and then balance that against
    risk (which is usually measured by the fund's "beta").
    
    	In short, if you are going to be 30% fixed income, 30% growth,
    30% balanced, and 10% foreign you would look for solid 10 year and
    then 5 year performance funds. Look at their turnover for  fund
    focus, etc.
    
    	I could go on forever, but most of the stuff is in here already.
    
    	Good luck.
    
    			the Greyhawk

    I think I understand your question a bit better.
    
    I believe that your concern is that if "something" were to happen to
    a fund management company in which you had invested all your money in
    various funds, that you might loose your investment.  Perhaps from a
    terrorist attack or earthquake?
    
    I do not think this should be a concern.  The fund management companies
    are largely data driven organizations.  If they have a reasonable
    disaster recovery plan, they should not cause any of their fund holders
    to suffer any loses.  (The exception being a massive nuclear war, but
    then who cares?)  Also keep in mind that these companies don't just
    keep all of the stocks and bonds used to back their funds in their
    basement.  Their assets are spread across many banks, brokerages, and
    other financial instituions.  Also, the SEC enforces some very stringent 
    accounting procedures to ensure that investors do not lose money due to 
    fraud.
    
    A fund company is more apt to "die" by providing poor customer service
    and offering funds with poor performance records.
    
    In summary, don't worry about just using one fund company.  Worrying
    about a "disaster" happening that would wipe out the one fund company
    you happen to be in is not very probable.  Your time can be better
    spent on analyzing things like loads, 12b-1 fees, the fund manager's
    investment philosophy, the fund's investment limitations (or lack
    thereof) in the prospectus, etc...
     
    - JH
    
    

    .6 Thanks!  Yes, you seemed to understand my question the best.
    
    Actually, I didn't fear the fund management company being nuked so
    much as being involved in some financial problem where they 
    just plain go under.  The company dies for financial reasons or
    due to some big scandal or whatever.  
    
    In other words, suppose Fidelity has a fund that invests in GE,
    IBM and The Body Shop.  GE, IBM and The Body Shop stock is in great
    shape and increasing in value.  Fidelity is involved in some scandal,
    and goes out of business.  What happens to my money that was
    invested by Fidelity (on my behalf) in GE, IBM, and the Body Shop?
    
    

    
    	Considering that the Mutual Fund industry "owns" assets equal to
    roughly $2-trillion dollars, or 1/2 of the entire market capitalization
    in the US of $4-trillion, this would make Mexico look like a bounced
    check.
    
    	Your senario isn't something I'd worry about, quite frankly. If
    Fidelity went under, it would be the equivalent of 3 Mexicos. As long
    as the Fund family is $10-billion or larger, I wouldn't worry one
    iota. And remember, the funds are owned by the stockholders, not the
    fund company, who is just the manager.
    
    		the Greyhawk

    .8 
    
    This is the answer I was looking for.  I had a feeling that my
    concern was unfounded.  But I just wanted to make sure. It sounds
    like my concern is equivalent to being concerned that I'd be 
    struck by lightening on a clear day. 
    
    Okay, so all else being equal, I'm not gonna worry if I end up
    putting a significant part of my money into funds managed by
    one company.
    
    Mucho thanks to everyone who responded. 
                                           

    so if there's no need for concern, why do most investment offices have
    a little SIPC sign in the window, and some even insure over the SIPC
    amount?  What's being insured?
    
    Mark

    Well I've been unabashed about revealing my ignorance so far,
    so I'll reveal some more -- What is SIPC? (Kinda like FDIC?)  

    I believe it's the Security Industry or Insurance Protection Corp.
    
    I believe it's a private insurance company or consortium between
    the investment companies.
    
    /jeff
    

    While I can't elaborate on the SIPC question, I'd like to say that it
    may be worthwhile to pick up a copy of Barron's Dictionary of Business
    terms in a bookstore.  I picked one up a few years ago ... I think it
    was about $8 ... and found it to be a very handy reference.  There's
    also a Barron's Dictionary of Insurance Terms (blue color ... the
    business one has a read cover).

    Opps ... meant to say Barron's Dictionary of Business Terms has a RED
    cover.

    The SPIC is a goverment agency somthing like the FIDC.  When you buy
    stocks from a broker, the firm put into the SPIC.  If a mutual fund
    goes under, the SPIC does not help you.  Only if a brokage frim goes
    under are you protected.  You are covered for up to $500,000.  $100,000
    in cash and $400,000 in stock protection.  Most firms will also buy
    additional insurance to cover you up to 5 or 10 million.
    
    If for some reason a fund does go under, the everything is sold off and
    divided up among the stockholders in the fund.
    
    

    re: .15
    
    > The SPIC is a goverment agency somthing like the FIDC.  
    
    SIPC (not SPIC) is a _private_ insurance scheme, ala RISDIC. What's
    RISDIC? If you have any Rhode Island friends who banked at a
    state-chartered credit union, ask them. Some of those unfortunate
    people lost ACCESS to their money for 1+ years.
    
    SIPC sounds good, but the likelihood is that when you need the
    protection of SIPC, the problem will be too large for SIPC to handle.
    SIPC, like RISDIC, doesn't have access to the US Treasury. (FSLIC did.
    FDIC does. So does NCUA.)
    
    re: .0
    
    You raise an interesting question: "As a Fund shareholder, what is the
    impact to my investment if the Fund's investment advisor (Fidelity
    Management Company, for example) goes Chapter 11." 
    
    The Advisor is often also the Transfer Agent and Dividend-Disbursing
    Agent, and usually controls the Distributor/Underwriter of the Fund.
    
    Of course, the likelihood of this happening is _extremely_ small,
    especially for a fund family with assets exceeding $1 billion. However,
    up until last week, no one thought Britain's oldest merchant bank could
    be wiped out over a weekend, either. (Reserves of $2 billion? Poof!)
    
    If a Fund Advisor did go under, you would likely lose ACCESS to your
    investment for some period of time. Depending on whether a buyer was
    found, this time period might be a day, a month, TWO YEARS. Also, your
    assets might not generate investment earnings during the period of no
    ACCESS.
    
    Depending on the amount involved, and whether you have other sources of
    income to tide you over, this type of event could range from a minor
    annoyance to a major problem.
    
    Again, this type of default risk is tiny. However, it is very cheap
    insurance to split your IRA holdings over two fund families. I do.
    
           

    I wondered if people would have a different opinion of this question
    after what happend in Britain!  I must be psychic.....time to use
    those powers to pick a fund.