MEET WITH US
CLIENT LOGIN
ENFR
Jun 18, 2020

Episode 103: Picking an Active Manager, Raising the OAS Clawback Ceiling, and Trading Hertz

Welcome to another episode of the Rational Reminder Podcast! Today’s main topic is how to pick an actively managed fund to invest in despite funds of this type producing lower returns than passive ones! Before getting into that, we hear a few updates on Ben’s research into dollar-cost averaging versus lump-sum investing, discuss the factors that influence choice making found in an amazing new book by Sheena Iyengar, and touch on an OSC report on QuadrigaCX being a big Ponzi scheme! We get into our main topic next, introduced by the point that while Peter Lynch managed the Magellan Fund so well, none of its investors made any money out of it. We talk about the decrease in popularity of actively managed funds and Ben attempts to find out if it would be possible to sketch out a framework for picking one despite this. He does this by firstly defining active and passive investing and then tracing the evolution of the definition of Alpha (excess risk-adjusted returns) found in different key papers, where at each new contribution to the definition, the window for actually achieving Alpha gets smaller. Finally, we end with a framework but you’ll find out how it falls short of being able to narrow the definition of a sensible actively managed fund to invest in down beyond a certain point. From there, we get into some amazing OAS clawback retirement hacks that could earn you a lot of extra income and wrap up with a glance at the bizarre upsurge in Robinhood investors in now-bankrupt Hertz since the pandemic!

Key Points From This Episode:

  • Updates about Ben’s work, fans of RRP, and brilliant upcoming guests! [0:00:40.1]

  • Discussing The Art of Choosing and its meditations on factors that impact choice. [0:05:11.3]

  • Findings of an OSC report about QuadrigaCX being a Ponzi scheme. [0:11:00.6]

  • An article on Peter Lynch and why Active Fund Management doesn’t work. [0:14:53.4]

  • A framework for picking an active fund; defining active/passive investing and Alpha. [0:20:40.9]

  • An evolving definition of Alpha showing active fund management doesn’t often produce it. [0:24:11.3]

  • Findings of a 2017 Vanguard paper that help identify Alpha in actively managed funds. [0:36:20.3]

  • When an active fund is less bad: it is low fee, low turnover, and invested in small-cap value stocks. [0:43:43.3]

  • Adding a criterion to active funds to invest in: those that aren’t that big. [0:44:46.3]

  • The last piece to consider when finding an active fund: active share concerning your belief in the manager. [0:46:29.3]

 

Books From Today’s Episode:

The Four Pillars of Investing — https://amzn.to/2AJc0lO

Rational Expectations — https://amzn.to/2UTLuxg

The Intelligent Asset Allocator — https://amzn.to/30VW7Dl

Economics for Everyone — https://amzn.to/2URyk3u

The Art of Choosing — https://amzn.to/2UTvoUd

Links From Today’s Episode:

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.

Rational Reminder Website — https://rationalreminder.ca/

Shop Merch — https://shop.rationalreminder.ca/

Join the Community — https://community.rationalreminder.ca/

Follow us on Twitter — https://twitter.com/RationalRemind

Follow us on Instagram — @rationalreminder

Benjamin on Twitter — https://twitter.com/benjaminwfelix

Cameron on Twitter — https://twitter.com/CameronPassmore

‘QuadrigaCX Report by OSC’ — https://www.osc.gov.on.ca/quadrigacxreport/web/files/QuadrigaCX-A-Review-by-Staff-of-the-Ontario-Securities-Commission.pdf

‘One of the Most Successful Active Managers of All Time Shows Why Active Management Doesn’t Work’ — https://retirementresearcher.com/occams-razor-one-of-the-most-successful-active-managers-of-all-time-shows-why-active-management-doesnt-work/

‘Gerry Coleman, money manager of the decade’ — https://www.theglobeandmail.com/globe-investor/investment-ideas/gerry-coleman-money-manager-of-the-decade/article4304348/

‘Trimark chief did it his way’ — https://www.theglobeandmail.com/globe-investor/investment-ideas/trimark-chief-did-it-his-way/article767561/

‘The Performance of Mutual Funds in the Period 1945-1964’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=244153

‘The Cross-Section of Expected Stock Returns’ —  https://onlinelibrary.wiley.com/doi/full/10.1111/j.1540-6261.1992.tb04398.x

‘The relationship between return and market value of common stocks’ — https://www.sciencedirect.com/science/article/abs/pii/0304405X81900180

‘On Persistence in Mutual Fund Performance’ — https://www.jstor.org/stable/2329556?seq=1

‘The Arithmetic of Active Management’ — https://www.jstor.org/stable/4479386?seq=1

‘Scale and Skill in Active Management’ — https://www.nber.org/papers/w19891

‘OAS Secrets for the High Net Worth’ — https://www.tewealth.com/oas-clawback-secrets-for-the-high-net-worth/

About The Author
Cameron Passmore
Cameron Passmore

Cameron Passmore has been a leading advocate for evidence-based, systemic investing for over 20 years in the Ottawa area. Today, Cameron and his team serve a broad range of affluent clients across Canada.

Benjamin Felix
Benjamin Felix

Benjamin is co-host of the Rational Reminder Podcast and the host of a popular YouTube series.

Popular Insights

PWL Capital Acquires TCM Financial Studio

Episode 369: The Most Important Quotes in Investing

Financial Planning Assumptions (Factor Tilted Portfolio)

More Insights

You may also be interested in

Episode 369: The Most Important Quotes in Investing

Read More

Episode 368: Jim Rowley & Andy Maack – Implementing Index Funds at Vanguard

Read More

Episode 367: AMA #8 + Insurance Needs Analysis with Louai Bibi

Read More
More Insights

Meet With Us