On Further Review...

Investment News carries an article indicating that one of the SEC commissioners that had opposed the money market fund reforms may be willing to support just the floating NAV part.  Well why didn't he say so in the first place?

Advisor Managed Portfolios Underperform?

Investment News reported on a study by Cerulli Associates that indicates that portfolios managed by advisors underperform alternative management arrangements.  Cerulli studied the 2010 to 2011 period and determined that advisor managed portfolios returned 4.3%, while programs packaged by broker-dealers had a return of 9.9% and a fixed 60% domestic equity, 10% international equity, and 30% bonds returned 15.9%.  On the face of it, very damning evidence.

However, the article does not mention how the advisor and b-d portfolios compare to the passive portfolio in terms of construction or risk exposure.  Indeed, no risk measure is given.  Nor does the article mention whether the returns are measured before or after management and administrative costs.  Sometimes, advisors take advantage of opportunities to reduce total costs to clients by taking management internal.  Besides which, two years is an awfully short tie period on which to be making judgements on out- or underperfomance.

Also missed is the customization that can take place when the client has direct access to the portfolio manager.  Tax sensitive trading can be executed, liquidity needs addressed   Even short term market risk can be addressed through a dollar cast averaging-like strategy.

Is there any value to e gleaned for the article?  A passive strategy still provides great value for many investors.  Even advisors managing money for the clients.

Credit Where Due

It is easy to be cynical when analyzing alternative investments packaged for retail distribution.  They tend to have high fee structures, lack liquidity, and be quite opaque in terms of structure and governance.  Investment and operating strategies tend to be driven by marketing considerations rather than sound business or investment fundamentals.

That said, I would like to publicly commend American Realty Capital Trust (ARCT) on engineering a liquidity event for investors and an exit for the entire transaction within eighteen months of the close of the offering.  And at prices ($10.50 and $12.20) in excess of the offering share price (as reported in Investment News).

There may be some questions raised about the exit coming so quickly on the heels of the listing.  Just read the Comments below the cited article.  The fact remains that investors received something like a 7% dividend during the holding period, and will recognize anywhere from 5% to a 22% capital appreciation.  All within 18 months of the close of the offering.

Kudos to American Realty Capital Trust and to Nick Schorsch and Wiliam Kahane for their efforts in achieving such a positive outcome for investors.