Minimizing investment-related expenses is a critical and controllable part of any investment plan. While future asset class returns are uncertain, the impact of every dollar paid in trading costs, management fees, and sales commissions & expense is crystal clear – its one dollar less you have working towards your financial goals and lowers your portfolio value.
Put another way, the more one pays to invest, the lower their returns will be.
Paying higher investment management fees – typically for the pursuit of superior managers – has not been a winning strategy. A 2010 Morningstar study found for every asset class analyzed over every time period, funds with the lowest expenses produced higher total returns than funds with the highest expenses.6
At Seabridge Wealth Management, we use low-cost, indexed strategies as core investment vehicles, which very effectively reduces our client’s overall investment-related expenses. Our extensive use of diversified-beta managed indexed strategies does not mean we believe all markets perfectly efficient. We believe markets are Mostly Efficient.7
The observed results for superior performing managers has been erratic over time. Very few managers have consistently exceeded the return of benchmark indices after the deduction of fees. However, some markets are inherently less efficient and are characterized by less readily available information, poorer information quality, plus less scrutiny by analysts – such as non-US small cap stocks.
We will focus our evaluation of actively managed strategies in those market segments we believe to be less informationally efficient coupled with those individual managers with a proven record of consistently superior results in that space.
6 Kinnel, Russel. 2010. “How Expense Ratios and Star Ratings Predict Success.” (August). Morningstar, Inc.
7 Jones, Robert C., and Russ Wermers. 2011. “Active Management in Mostly Efficient Markets.” Financial Analyst Journal, vol. 67, no. 6 (November/December): 29-45.