The Blue Ocean Portfolios Blog

Missouri Pension Bonsuses Don't Add Up

noreply@blogger.com (Blue Ocean Portfolios) — Sat, 20 Jun 2009 00:24:00 +0000

Last year the global stock market was down 40% but according to the MOSERS website the Missouri State Pension plan “only lost 29.3%”. As a result the 14-member staff of the Missouri State Employees Retirement System was rewarded with almost $300,000 in bonuses even as the pension fund lost almost $1.8 billion!

The MOSERS website reports that its investment policy is to have 25% of the pension portfolio invested in “alternative investments” in the published annual report they are referred to as “limited partnerships”. Even though the balance sheet in the annual report uses the term “fair market value” assigned to these limited partnerships by definition there is no ready market for these investments. As citizens shouldn’t we be asking some tough questions?

With no market for these limited partnerships where do these fair market valuations come from? Does anyone on the payroll at MOSERS have the authority to determine these fair market values? How could the fair market value determination be anything but arbitrary? What would the margin of error be between fair market value and actual value? Should Missouri citizens pay for performance on something that can not be accurately measured? How can MOSERS or any party report investment performance to the first decimal point when there is no way to accurately value 25% of the entire portfolio?

On the MOSERS website the director says “What Gets Measured Gets Managed and What Gets Managed and Rewarded Gets Done”. Shouldn’t we be asking MOSERS exactly how they measure the value of these limited partnerships? One of these partnerships was called Silver Lake Partners – described as a fund of funds. The Post Dispatch reported this past January that buried inside Silver Lake Partners was an investment into Madoff’s hedge fund. MOSERS lost over $3.5 million because no one on their staff or their hired consultants was able to detect this fraud. Also last years the MOSERS staffed approved of investment fees of $2.9 million paid to Silver Lake partners. What other surprises are lurking for the Missouri citizens in these so called alternative investments? Aren’t we lucky to have these talented and dedicated managers working for us?

Now the MOSERS board wants to study its pay practices compared against other public pension plans. Does this make sense? All of the other states’ pension plans incurred big losses also. If these other states are stupid enough to pay bonuses on investments that can not be measured does that mean that Missouri should be just as stupid? Wouldn’t it be wonderful to get a job where you can bet others people money on unpredictable market behavior to earn a bonus on immeasurable outcomes and have no downside? Wouldn’t you be swinging for the fences all of the time? It’s no wonder they are being so protective about this murky pay scheme.

Should Investment Advisors Be Political?

noreply@blogger.com (Blue Ocean Portfolios) — Thu, 11 Jun 2009 16:54:00 +0000

Recently some of readers of this newsletter and blog have commented that they don’t want our political commentary – only our investment advice. Unfortunately how can we or any investment adviser ignore the weight that government now has on capital market activity? Who is the largest owner of General Motors? Where are over 90% of the new jobs coming from? The free market is still trying to work – unfortunately as unpleasant as it might be it is our role to remind investors of all types the significance that government now has in open market activities. This is not a criticism of our Democratic administration or the past Republican administration – it is only questioning whether or not our government has grown out of control when it takes over a major corporation and the central bank has overwhelming authority on credit policies. Should we citizens always be suspicious of government action of all sorts from all parties? Do you want your investment adviser to point out the political realities and risk that will directly impact the value of your portfolio?

noreply@blogger.com (Blue Ocean Portfolios) — Wed, 03 Jun 2009 14:59:00 +0000

Why Would Anyone Ever Buy a Corporate Bond Again?

Do you find it outrageous that the US Government can come into a Federal Bankruptcy proceeding and start re-organizing the priority claims of secured bond holders in order to save jobs? In the recent Chrysler Bankruptcy the Obama administration did just that! Claiming to save jobs and accusing secured debt holders of being "speculators" President Obama chose to ignore well established law that protects the property rights of the bond holders. But who were these so-called speculators? Would the State of Indiana Pension plan be a "speculator"? The State Treasurer of Indiana is filing a lawsuit calling for a trustee to be appointed in order to liquidate Chrysler so that the secured bond holders can be paid off. "We are simply seeking to enforce our bargained-for rights under well-settled law."- Richard Mourdock, Treasurer - State of Indiana.

Critics of Mourdock are quick to point out that he is a Republican doing this for "political purposes" only. If The State of Indiana is successful then over 4,000 Chrysler jobs will be lost in the liquidation. But isn't the primary purpose of a business to make money or should it be to create and maintain jobs? What is the purpose of your business or organization? If the property rights of these Chrysler bond holders are not secure in the United States then what other fundamental rights are we loosing? Is there anything more valuable than our property rights?

Ouch!

noreply@blogger.com (Blue Ocean Portfolios) — Mon, 15 Sep 2008 21:11:00 +0000

Today was a painful one for investors as well as those in the financial industry.

Lehman Brothers filed for bankruptcy.

Merrill Lynch was bought by Bank of America for a bargain basement price.

The downfall of these supposed financial industry stalwarts sent the markets worldwide plummeting.

There are plenty of lessons to be learned from days like this. The one we'd like to share it this:

Just because a company has been around 100 years, doesn't mean it's going to be around tomorrow.

As an investor, the best thing you can do to protect yourself is diversify.

WSJ Struggles to Find 401(k) Expenses

noreply@blogger.com (Blue Ocean Portfolios) — Wed, 10 Sep 2008 14:08:00 +0000

If a reporter from the Wall Street Journal has trouble figuring out what she's paying in 401(k) plan expenses, what chance do the rest of us have?

In an interesting article today, WSJ reporter Karen Blumenthal opened up the hood on her 401(k) account to take a look inside. She got some fee information from her plan provider's website, some from a "Summary Plan Description" from her company's HR department, and some from Morningstar. Even after going to three separate places, there was still one fund in her plan that she couldn't get information for.

Hopefully, the new DOL proposal requiring more fee and fund disclosure on 401(k) statements will help reduce, if not eliminate, all the legwork 401(k) plan participants have to do to get fee information.

A few other points of note from the article:

1. This paragraph toward the top of the article is about the relationship between fund expenses and performance.

"In almost every study we've run, expenses show up as a very significant predictor of future performance," says Christine Benz, director of personal finance at Morningstar Inc., the investment research firm. In other words, over time, funds with lower fees are likely to outperform those with higher fees in the same category. By contrast, says Ms. Benz, "our data indicates that past performance is a weak indicator" of future results.

2. The reporter's plan is better than most. Her employer covers many of the administrative expenses, there are index fund options, the expense ratio data (for most of the funds) was fairly easy to find, and the funds had no loads.

To read the entire article, click here.

A Financial Headline You'll Never See

noreply@blogger.com (Blue Ocean Portfolios) — Tue, 26 Aug 2008 17:58:00 +0000

Did you catch this story that made big news last week? The Yahoo! headline read:

"Ex-hedge fund manager ordered to pay $300 million."

It's about former hedge fund manager Paul Eustace who, according to the Commodity Futures Trading Commission, "cheated clients by sending out fake account statements." Evidently Eustace told clients that their portfolios were valued at over $230 million while he "fraudulently operated the funds and lost millions of dollars."

So what's the financial headline I bet you'll never see?

"Ex-index fund manager ordered to pay $300 million"

I wonder how many more millions of dollars Eustace's clients would have in their portfolios right now if they had just put all their money in a low cost index fund or ETF instead of a risky (and evidently fraudulent) hedge fund.

More 401(k) Problems?

noreply@blogger.com (Blue Ocean Portfolios) — Thu, 21 Aug 2008 16:42:00 +0000

Here's an article from IndexUniverse.com titled "Auditors Finding More 401(k) Problems".

The article talks about the IRS is finding a "substantial" increase in the number of compliance problems in 401(k) plans. Not surprisingly, the problem is especially troublesome for small businesses.

It's a short article, and worth a quick read. We especially agree with the sentiment in it's conclusion:

"So what does this all mean for index investors? It could be another sign that pressure is building to clamp down even more on the use of high-priced actively managed funds."

Some Disclosure on Disclosure

noreply@blogger.com (Blue Ocean Portfolios) — Wed, 13 Aug 2008 14:11:00 +0000

It seems many 401(k) plan sponsors aren't that sure that the fees associated with their plans have been fully disclosed. This according to a Planadviser.com article about a recent survey of 150 defined benefit plan sponsors.

One item from the article that we're especially interested in is that more sponsors are implementing fee monitoring and benchmarking. Of them, 68% just started this process within the last year. It's clear the recent 401(k) lawsuits and proposed regulations in Congress and the Department of Labor are making employers pay attention to what their employees are paying in fees.

We're definitely happy to see that.

However, one thing to note about this survey is that 87% of the respondents were from companies that had 1000 or more employees. We wonder how much different the numbers would be if more smaller businesses had been included in the survey.

Here's a link to the full article on the lack of confidence in 401(k) fee disclosure.

Does the DOL 401(k) Fee Disclosure Proposal Go Far Enough?

noreply@blogger.com (Blue Ocean Portfolios) — Tue, 05 Aug 2008 14:38:00 +0000

The other week, we applauded the Department of Labor's proposed rules that would require that employers to disclose more information on the fees 401(k) participants and do so in a clearer format.

But do the rules go far enough?

No, says Rep. George Miller (D-CA). You may know that Rep. Miller has been pushing legislation in Congress that would require greater disclosure of fees to 401(k) plan participants. Unfortunately, that bill was defeated just a few months ago (though it will likely be brought back again next year).

Rep. Miller says that although the DOL proposal is a step in the right direction, it doesn't go far enough. He believes that under the DOL proposal, financial firms would still be able to hide many of the fees that 401(k) plan participants pay.

According to an article in Pensions and Investments, Rep. Miller's spokesman elaborated by saying that invesment management charges and trading commission charges would not have to be disclosed "in the most important document that workers see — their quarterly benefit statement.”

The spokesman went on to say that ". . . fees that could actually be the largest charge against a participant's account could still be hidden. Administrative charges can also be hidden if they are bundled as part of the management fee.”

Given their history, we have no doubt that financial firms will go do everything in their power to keep their excessive, hidden fees excessive and hidden. We just hope that rules like the DOL proposed and legislation like Rep. Miller is working on get implemented so it's more difficult for financial firms to get away with fleecing the retirement savings of American workers.

Emotions Harming 401(k) Returns?

noreply@blogger.com (Blue Ocean Portfolios) — Thu, 31 Jul 2008 15:54:00 +0000

401(k) investors are running for the hills. As they see the values of their 401(k) plans plummet, they are pulling their money out of equities (ie. stocks) and putting it into fixed income investments (ie. bonds/stable value). This according the the Hewitt 401(k) Index.

In most cases, this probably isn't the wisest decision. It's not easy watching your retirement funds, and the hopes and dreams they represent, as they seem to melt away. But the stock market is a roller coaster. It has it's ups and downs. Fortunately for investors, historically the ups have far outweighed the downs.

Unfortunately for investors, emotions take over when it comes to investing and their money. This usually makes investors buy when things are soaring and sell when things are tanking - the exact opposite of what they probably should be doing.

As Warren Buffett once pointed out, if you were going to buy a hamburger or a car, would you hope the prices of hamburgers or cars go up or down? Obviously, you'd want them to go down.

Same for stocks. The only people who should be hoping for higher stock prices are those want to sell them. Everyone else should enjoy the bargain the market is now giving them. When stocks go on sale, those who cast their emotions aside and buy can really pad their long term returns. These are the times savvy investors make their fortunes in the stock market.

As is often the case, no one has said it better than Buffet himself . . .

"Be fearful when others are greedy and greedy when others are fearful."

Will 401k Plan Participants Finally Get What They Deserve?

noreply@blogger.com (Blue Ocean Portfolios) — Tue, 22 Jul 2008 14:59:00 +0000

Could it be? Are 401k plan participants finally going to get the information they rightly deserve?

A few weeks ago Congress was unable to pass legislation that would provide more information on the fees 401k plan participants are paying. According to an article in USA Today, it looks like the Labor Department may be stepping up to help the 65 million Americans who are invested in 401k, and similar, plans.

The proposal would require employers to disclose more information about the fees in their plans and do so in a clearer format. From the article . . .

Employees would receive details about investment expenses and past performance in a chart or similar format to allow them to easily compare fund options. Retirement plans would also be required to compare funds' investment performance with a benchmark index, such as the S&P 500. Additionally, for the first time, the plan would have to disclose each quarter the dollar amount that each participant pays for administrative services such as accounting and recordkeeping.

This proposal definitely looks like a big step in the right direction. However, it's not a done deal. We'll keep an eye on how this progresses and keep you informed as more details and information about this proposal become available.

A Blue Ocean Plan for America’s Investors

noreply@blogger.com (Blue Ocean Portfolios) — Thu, 17 Jul 2008 21:36:00 +0000

Big news this week in our town. Our beloved Anheuser-Busch agreed to a buyout by Belgium brewer InBev.

Throughout the merger talks a lot of attention has been focused on AB’s so-called "Blue Ocean" plan which targets savings at the company of $1 billion dollars over the next three years.

We’d like to propose a similar Blue Ocean plan for American investors. It’s estimated that investors are currently shelling out around $100 billion dollars annually in fees to Wall Street. That’s about twice what InBev paid for our beloved AB. And as we've already discussed on this blog, investors are getting worse than nothing in return for this money.

It’s time for investors to get serious about doing some big cost cutting in their investment accounts. As you’re watching your portfolio’s value drop like the level of Bud in kegs at a frat party, take a close look at the fees you’re paying.

Think about what you’re getting in return.

Think about how those fees are further depleting your account balance.

Think about the studies that show the performance of low cost index funds beats 80% of actively managed funds in any given year.

Think about how much more money you could have in your retirement fund, 401(k) plan, endowment, foundation, or child’s education fund if you weren’t paying ridiculously high fees for suspect investment advice.

So investors, we urge you to follow the example of AB-InBev and do some significant cost cutting of your own.

And while the ultimate ramifications of AB’s Blue Ocean plan remain to be seen, we’re confident that implementing your own Blue Ocean plan in your investment portfolio could end up being one of the smartest decisions you ever make.

401(k) Fee Smoke and Mirror Show Continues

noreply@blogger.com (Blue Ocean Portfolios) — Mon, 07 Jul 2008 15:46:00 +0000

Score another one for those with the deep pockets.

Last month, with very little media attention, H.R. 3185, which would have required greater disclosure of 401(k) fees to plan participants, was defeated. Bill sponsor, Rep. George Miller, D-CA., announced that the bill would not be passed this year.

One of the main arguments from the 401(k) industry and the Department of Labor is that the bill would make disclosure of fees to plan participants more complex and expensive than it needs to be. So, in other words, they're saying it would cost more money to disclose the ridiculously high fees they are already charging (and legally hiding from) plan participants.

Well, the 401(k) industry may be right about this bill being more expensive, but only for them - not plan participants. We believe the bill would result in lower expenses overall for many plan participants. It would finally give participants easier access to the information they need to pressure employers to offer lower cost 401(k) options that don't unneccesarily erode their retirement savings.

We think H.R. 3185 is a very good step in the right direction. We hope the House will take it up again next year and that it will pass. 401(k) plan participants deserve to know exactly what their plans are costing them.

Focus on Fees: The 12b-1 Fee

noreply@blogger.com (Blue Ocean Portfolios) — Wed, 02 Jul 2008 16:22:00 +0000

The 12b-1 fee has been described as one of the darkest secrets of the mutual fund industry. While we think the industry has much darker secrets, the 12b-1 fee is one investors need to keep a close eye out for.

The 12b-1 fee is an annual fee that generally ranges from 0.25% - 1% and is included in the expense ratio of the fund. It is ostensibly used to cover the marketing and distribution expenses of the fund. In that vain it’s basically a way to collect an additional fee from investors to pay for the TV ads and glossy brochures they produce to attract new money to the fund. However, as we'll discuss in a moment, that's not the only thing mutual funds use this fee for.

The 12b-1 fee is an example of what can happen to the best of intentions. The SEC authorized the creation of this fee in 1980 thinking that it would help investors. The idea was that in marketing a mutual fund, the fund would increase its assets, which in turn would lead to lower annual operational expenses through economies of scale. Investors are still waiting for their lower expenses.

As for the dark secrets about the 12b-1 fee:

Very little of the 12b-1 fee typically goes toward marketing expenses. It’s more commonly used as a hidden way to pay brokers for using the fund in their clients’ portfolios.
There are closed funds (funds that no longer are taking money from new investors) that still charge 12b-1 fees. Why would a fund that isn’t accepting new money need to market itself? Good question. However, a closed fund would sure want to keep paying the brokers who’ve invested their clients’ money in the fund happy!
Some no-load funds charge 12b-1 fees. The fee can be a way of implementing a hidden load that drains money from investors’ returns. There’s a good illustration of how this works here: http://mutualfunds.about.com/od/fundfees/l/bl12b1fees.htm

Where to find information about 12b-1 fees

In our last few posts in this series we’ve sent you to Google Finance to see the fees associated with mutual funds. Google Finance, however, does not have information on 12b-1 fees. Morningstar.com does, however. Here’s the fee information on a Franklin Templeton Fund. On the right side of the table, the very first fee listed is the 12b-1 fee. You can see for this fund it is 1%.

This information is also available in a fund’s prospectus.

The Bottom Line

Whether it’s used to market a fund and/or pay a commission to brokers, the 12b-1 fee does nothing good for investors who pay this expense. There are plenty of funds out there that don’t charge this fee. And with no evidence funds that charge 12b-1 fees outperform those that don’t, investors are better off avoiding these fees.

"401(k): Hidden Fees" Investigative Report on Bloomberg TV

noreply@blogger.com (Blue Ocean Portfolios) — Wed, 18 Jun 2008 17:28:00 +0000

An investigative report on hidden fees in 401(k) plans premiers on Bloomberg TV tomorrow night (Thursday, June 19 at 7PM and 9PM EST).

The report will cover how fees are eating away at 401(k) balances without plan participants even realizing it and how even financial experts have trouble uncovering these fees. If you have a 401(k) plan, and especially if you sponsor one, be sure to tune into what we're sure will be a truly enlightening report.

To get more information go to Bloomberg TV and look for 401(k): Hidden Fees - What's hiding in the fine print of your 401(k).

Focus On Fees: The Sales Load

noreply@blogger.com (Blue Ocean Portfolios) — Thu, 12 Jun 2008 15:32:00 +0000

When it comes to mutual funds, a load is another name for a sales fee that investors may pay to a mutual fund company for buying or selling shares of a fund. Think of it as a commission that the fund company gives to brokers who sell the fund to investors.

A load mutual fund charges this fee to investors, a no-load fund does not.

Loads usually cost between 4% - 8% which comes directly out of investors’ assets. The Financial Industry Regulatory Authority (FINRA) has capped sales loads for mutual funds at 8.5%.

There are two main types of loads:

Front-end loads are paid when you purchase shares in the fund. If you invest $100,000 in a fund with a 6% front-end load, you will pay $6,000. That means only $94,000 of your money will actually get invested in shares of the mutual fund.

Back-end, or deferred loads, are paid when you sell or redeem shares of a fund. Back-end loads are usually based on either the amount of your initial investment or the value of the investment when you sell shares – whichever is lower. If you invest $100,000 in a fund with a 6% back-end load, the full $100,000 gets invested in the fund. When you sell, however, you will pay $6,000 as long as the value of your investment is still $100,000 or more. If the value of your investment has dropped to $90,000 when you sell, the sales charge will be $5400. This is not always the case, however. You could end up paying a deferred load on the full amount of your investment if it increases in value.

One last note on back-end loads. The amount of the load may be affected by how long you own the fund. For example, the load could be 6% if you sell within the first year then drop to 5% if you sell in the second year and go away completely after some timeframe. To find out how the deferred loads are calculated check a fund’s prospectus. (Or, better yet, just stick with no-load funds so you don’t have to worry about this.)

There is a third, less common type of load - the constant load fund. Constant load funds charge an annual sales fee to investors. The loads on these funds tend to be lower than those of front-end and back-end mutual funds. To offset these “lower” fees, however, these funds will usually have higher expense ratios than those with front or back end loads.

As is the case with expense ratios, it’s pretty easy for investors to find out what the load is for a mutual fund. You can find it in the fund’s prospectus or on your favorite finance site.

Let’s look at the page for the Vanguard Small Cap Index fund on Google Finance. On the right side of the page under “Key Statistics” there is a line item for “Front load” and “Deferred load.” In the case of this fund, there are no sales charges so it is considered a no-load fund.

Next, let’s look at the page for the Fidelity Advisor Small Cap Value A fund. Notice that next to “Front load” in the Key Statistics section this fund has a load of 5.75%.

Lastly, we’ll look at the page for the Fidelity Advisor Small Cap Value B fund. This is a back-end loaded fund, as seen by the 5% listed by “Deferred load” in the statistics.

(Quick side note: funds that are designated as having Class A shares usually have a front-end load, Class B shares usually indicates a fund with a back-end load. In the case of the Fidelity funds above, they are basically the same funds containing the same investments. The only difference is when they charge the load to investors.)

The most important lesson for investors when it comes to loads can be illustrated by looking at this chart. It compares the returns for the funds we looked at above. As you can see, the no-load Vanguard index fund greatly outperformed the two loaded Fidelity funds. In fact, over the past 5 years, if you had invested in the Vanguard fund, you’d have over 3 times as much money in your account than if you owned either of the Fidelity funds.

In all fairness, there are probably some loaded small cap value mutual funds that have outperformed the Vanguard index fund. However, while Wall Street and money managers would like you to believe otherwise, paying a sales load for a mutual fund does not guarantee a higher return. There is no evidence that load funds can outperform no-load funds.

Paying a load does guarantee two things:

1. Your broker will make more money than if you bought a no-load fund.

2. The fund will have to outperform the market – and then some – in order for you to just match the returns of an index fund.

When it comes to sales loads on mutual funds, it’s best to follow the advice most commonly given by everyone except those who sell loaded mutual funds: avoid them and stick to no-load funds.

Warren Buffett Big Bet Against Hedge Funds

noreply@blogger.com (Blue Ocean Portfolios) — Tue, 10 Jun 2008 17:21:00 +0000

An interesting wager between Warren Buffett and Protégé Partners LLC, a money management firm that runs funds of hedge funds, became public recently.

Buffett has long held that the best investment for most investors in the simple index fund. He believes, as do we at Blue Ocean Portfolios, most investors will achieve better returns over the long haul by NOT paying money managers to actively manage an investment portfolio.

Protégé disagrees.

So Buffett and Protégé each put up about $320,000 on a wager over whether Vanguard's S&P500 index fund will outperform five funds of hedge funds selected by Protégé over the next 10 years. The winner will be decided based on total average returns net of all fees, expenses, and costs. Proceeds of the bet go to the charity of the winner's choice.

The question for you as an investor is: Would you bet against Warren Buffett?

For more details on the wager see the CNN Money article here.

Focus on Fees: The Expense Ratio

noreply@blogger.com (Blue Ocean Portfolios) — Mon, 02 Jun 2008 18:49:00 +0000

To kick off our “Focus on Fees” series, we’ll take a look at one of the most common fees investors will encounter: the expense ratio.

If you own a mutual fund, you are paying this fee. It’s basically your cost of owning a mutual fund (however, as we’ll see, it doesn’t tell the whole story when it comes to expenses for a mutual fund). The expense ratio reflects the percentage of a fund’s assets that go toward its operating expenses (ie. management fees, distribution fees, etc.).

For example, if a fund’s annual expenses are $1.5 million and its assets under management (all the money that investors have invested in the fund) are $100 million, the fund’s expense ratio is 1.5%.

Expense ratios are taken directly out of the investor’s pocket. Since they eat into your returns, it’s important to know what the expense ratios are for the funds you own. It’s also important to understand that expense ratios can vary widely between funds.

The average mutual fund’s expense ratio is around 1.5%. However they can range from under 0.20% for low cost Vanguard index funds to well over 3% for some actively managed funds.

You might assume that if you pay more, you’ll get better returns. That would be a bad assumption. In fact, in any given year, about 80% of actively managed mutual funds fail to beat their benchmark.

Unlike many fees which can be hidden and difficult for investors to find, it’s easy to find the expense ratio for any mutual fund. Simply go to your favorite finance website and type in the fund’s ticker symbol.

In Google Finance, for example, at the very top of the screen you’ll find an area called “Key Statistics.” The expense ratio for your fund will be listed there. Here’s a link to the Google Finance page for the Vanguard Total Stock Market Fund. You can see that the expense ratio for this fund is a very low 0.19%.

That does it for the basics you need to know about expense ratios. As we mentioned, however, they don’t tell the whole story of what your costs are for owning a mutual fund. More on those costs in future “Focus on Fees” installments.

Focus on Fees: What Are Your Investments Really Costing You?

noreply@blogger.com (Blue Ocean Portfolios) — Thu, 15 May 2008 19:22:00 +0000

We talk a lot about fees at the Blue Ocean Portfolios blog. However, most investors still have no idea what the true fees and expenses associated with their investments are.

In an effort to educate investors and help them make more informed investment decisions, we're starting a series of blog posts we're calling "Focus on Fees." We'll examine some fees and expenses many of you may be familiar with such as expense ratios. We'll also examine some that you may have never heard of before like M&E and wrap fees.

We do not recommend making investment decisions solely on the basis of fees and expenses. There are many factors that you should take into account when building your portfolio (or working with an advisor to do so).

However, fees do matter. And they are arguably the one aspect of your investments that you have the most control over. We hope this series will educate and enlighten so that you can make the most informed investment decisions and make the most of your money.

It’s Not Just the Size Of the Fees In Your 401(k) Plan, But the Funds It Uses

noreply@blogger.com (Blue Ocean Portfolios) — Thu, 08 May 2008 17:45:00 +0000

Add Wal-Mart to the list of companies being sued by employees for breach of fiduciary duties of their company 401(k) plan.

One of the interesting things about the Wal-Mart suit is that employees are not just suing over the alleged unreasonable fees charged by the plan. The suit also claims that participants’ returns were adversely affected because most of the funds offered in Wal-Mart’s 401(k) plan were actively managed funds. An article from Pensions and Investments describes why employees added this to their suit (emphasis ours):

The suit against Wal-Mart alleged the basic fees weren't the only factor that adversely affected workers' 401(k) savings. It stated that most 401(k) plan fund options are actively managed funds, which carry higher management fees. The Wal-Mart plan's actively managed funds, which cost more because they aim to garner better returns than market indexes, often did not meet or exceed their investment benchmarks, according to the suit. This underperformance compounded the effect of the fees, as participants paid more for lower returns, the suit said.

The suit breaks down the fees on many of the actively managed funds in the Wal-Mart 401(k) plan and measures them against funds from Vanguard Group, known for offering relatively low-cost mutual funds. In one example, the suit compares the AIM International Growth Fund — an actively managed retail fund in the Wal-Mart 401(k) plan that has an expense ratio of 1.59% of assets — with Vanguard's International Growth Fund, also an actively managed retail fund with a fee of 0.55% of assets. The difference for Wal-Mart plan participants: $2.8 million less in fees over a six-year period with the Vanguard offering.

We’ve been beating this drum for a long time now. It’s not just the fees that can eat into your 401(k) returns but active management risk (aka the fallacy that fund managers can consistently outperform the market). A 401(k) plan that only uses actively managed funds is doing a huge disservice to plan participants who will often do much better sticking with index funds.

It looks like more 401(k) plan participants (and lawyers) are starting to take notice.

You can see the full version of the P&I article here.

Want to Know Warren Buffet's Single Best Investment Idea?

noreply@blogger.com (Blue Ocean Portfolios) — Mon, 05 May 2008 19:53:00 +0000

Last weekend Berkshire Hathaway shareholders made their annual pilgrimage to the company’s annual meeting to hear the Oracle of Omaha and his partner, Charlie Munger, share their wisdom on investing.

One shareholder asked what is the single best specific investment idea that Mr. Buffet would recommend to an investor in their 30s.

The answer?

“I would just have it all in a very low-cost index fund from a reputable firm, maybe Vanguard. Unless I bought in a very strong bull market, I would feel confident that I would outperform . . . and I could just go back and get on with work.”

Wall Street has spent billions of dollars trying to convince investors that their money managers have special skills, powers or magical abilities that enable them to regularly outperform the market.

And here, the man widely regarded as the Greatest Investor Who Ever Lived, says the low-cost index fund is his best investment idea. Not only that, but he thinks investors who use index funds will “outperform.”

So you have:

• “Low cost”
• “Outperform”
• A strategy that lets you “go back and get on with work” or whatever else you want to do (ie. peace of mind)

So tell me again why investors paying money managers around $100 billion a year to try to beat the market?

Save the 401(k)! What’s Really At Stake For Plan Participants

noreply@blogger.com (Blue Ocean Portfolios) — Fri, 02 May 2008 19:47:00 +0000

The other day we blogged about the House Education and Labor Committee passing H.R. 3185. This is a bill that would require full disclosure of 401(k) fees by plan providers to plan participants.

A recent article in Morningstar examines many of the factors surrounding the legislation and the problems with the current 401(k) plan landscape. Among the topics the article covers:

The disconnect in the current retirement system where ERISA requires plan sponsors (employers) to fulfill their fiduciary duties by disclosing all fees to plan participants while the plan providers (mainly insurance and mutual fund companies) don’t (won’t?) take fiduciary responsibility for the plans they provide and don’t (won’t) disclose the plans’ expenses.

A solution proposed by Independent Fiduciary, Matthew Hutcheson, that bridges this disconnect in the current system.

How the huge profits of the insurance and mutual fund industries rely, in part, to making it as difficult and confusing as possible to figure out exactly what they are charging in fees to 401(k) plan participants.

What’s at stake: Whether billions of dollars of retirement savings end up in the hands of American workers or those in the financial services industry.

If you are a plan participant or plan sponsor this information is simply too important to ignore. You can read the entire article here.

401(k) Fair Disclosure for Retirement Security Act Passes US House Labor Committee

noreply@blogger.com (Blue Ocean Portfolios) — Tue, 29 Apr 2008 21:38:00 +0000

We are pleased to see that H.R. 3185, the 401(k) Fair Disclosure for Retirement Security Act, was recently passed by the House Education and Labor Committee. We think that plan participants have a right to know exactly how much they are paying in fees to the financial services companies that manage and administer their 401(k) plans.

Says Rep. George Miller, chairman of the Committee, "For too long, companies in the financial services industry have maintained a stranglehold on retirement savings that they didn't earn and that don't belong to them. The purpose of this legislation is to take these hard-earned savings away from the special interests and return them to their rightful place – the retirement accounts of American workers. Workers are entitled to clear and complete information about their own savings."

We couldn't agree more.

Are You Building Your Own Nest Egg?

noreply@blogger.com (Blue Ocean Portfolios) — Wed, 23 Apr 2008 15:07:00 +0000

Blue Ocean 401(k) Receives Unsolicited Endorsement from Independent Pension Fiduciary

noreply@blogger.com (Blue Ocean Portfolios) — Wed, 16 Apr 2008 19:33:00 +0000

St. Louis, MO April 16, 2008 --Independent Pension Fiduciary, Matthew D. Hutcheson, officially endorsed the retirement plan services offered by St. Louis-based Blue Ocean 401(k). Blue Ocean is the only firm in Missouri, and one of eight firms nationwide, to receive such an endorsement.

Says Hutcheson, “Over the past few years, a few very special firms have embraced a ‘participant first’ approach to delivering retirement plan services. Such firms are managed by responsible parties, who gladly accept fiduciary responsibility, with the goal of serving the best interests of nearly fifty million individual plan participants.”

“Blue Ocean 401(k) is one of those firms,” adds Hutcheson.

Matthew Hutcheson is recognized as one of the leading advocates of investor and retirement plan participant rights. He has worked with hundreds of plan fiduciaries and conducted many fiduciary and economic plan audits and reviews. He is also a Congressional Expert who has testified before Congress and worked with other regulatory bodies to protect the retirement income security of American workers.

Blue Ocean 401(k) provides full service 401(k) plans that use low cost index mutual funds to develop diversified portfolios for plan participants. The average total participant cost is well under 1.00% annually, including the expense ratios of the underlying index funds, making it one of the lower cost 401(k) platforms available.

“Mr. Hutcheson’s endorsement independently confirms that our innovative 401(k) service is consistent with public policy and Department of Labor initiatives. The American worker deserves a more efficient savings vehicle” says Blue Ocean principal Jim Winkelmann. “It is a wonderful validation of the principles that we practice and so deeply believe in.”

More information about Blue Ocean 401(k) is available at www.BlueOcean401k.com.

About Blue Ocean Portfolios

Blue Ocean Portfolios is an Innovation of Huntleigh Capital Management, Inc., an SEC registered Investment Advisor managing both institutional and individual assets. Blue Ocean Portfolios was developed as a means to share an accumulated wealth of knowledge with clients all over the world and provide these investors with the optimal risk adjusted portfolios, utilizing index funds, Exchange Traded Funds and US Government Bonds.