BOB MARKMAN, PRESIDENT OF MARKMAN MULTIFUNDS
Bob Markman is a fan of the "fund of funds" mutual fund style and of large cap stocks. But when it comes to commonly preached strategies such as asset allocation and diversification, this money manager has a mind of his own.
Markman, president of Markman Multifunds, (800-707-2771), a Minneapolis, Minnesota-based money management firm, made a name for himself in 1995 when he introduced his own brand of fund of funds. (A fund of funds is a mutual fund that invests its assets not into individual stocks or bonds but into other existing mutual funds.)
With four multifund portfolios now in the marketplace--one income oriented and the other three conservative, moderate, and aggressive stock portfolios---he's speaking out about the pitfalls of money management techniques like asset allocation. And diversification.
"People need to start asking questions about these conventional wisdom's and the degree to which they actually work," says Markman.
Markman thinks that asset allocation is appropriate when first divvying up your money. That is, making sure it gets spread out among the three asset classes---stocks, bonds and cash. Where he figures the concept "implodes" is when financial advisors, brokers, money managers, etc., try to slice and dice different sectors within the equity category. "Investing in multiple equity classes---large cap, small cap, growth, value, international, emerging market, real estate and all that kind of stuff is where asset allocation becomes a bogus concept." he says. It may be more likely to produce portfolio overdose than portfolio profits.
The same is true for diversification: In it's purest sense, the d-word it's a concept he believes in but one that has its limits.
"I don't want you to have your life savings in two stocks. But I don't believe in diversifying among different asset classes on a global basis. So what we're talking about is two legitimate concepts that the investing industry has taken to absurd levels," he says.
John Markese, president of the American Association of Individual Investors, understands his point of view. "All of the products that have come out of the fund industry certainly give you a more diversified universe to select from, but a lot of those are marketing driven and may or may not make any financial sense," he says.
Morningstar senior analyst Scott Cooley said that Morningstar research shows people tend to chase returns. They pile money into the investment categories with the best recent performance returns then exit those funds as quickly as they entered once their returns head south.
"So to the extent that diversification stops people from making those kinds of errors, and makes them stick to a disciplined investment plan, I think diversification a good thing," says Cooley.
No matter what your take on diversification or asset allocation are, the reason folks invest in a variety of mutual funds is to make money. Figuring out which ones will make you the fattest cat on the block, however, is the 64 billion dollar question.
Cooley says you can have a diversified portfolio with six or seven funds. Or, if you want to go the index route, with as little as three funds; a large cap fund, an EAFE like international fund and a bond fund.
Markese also thinks a few funds can provide you with a diversified portfolio. His suggestions are a large cap fund, a small cap fund, an international fund and a fixed income fund. "And in each of the funds look for well diversified rather than concentrated holdings," he adds.
As for Markman, he's thinks that it's the large-cap stocks that will continue to hold the performance edge going forward. Since he sees his job as identifying the broad trends and then finding the fund managers who will maximize those trends, the three industries he figures will be the large-cap leaders are technology, health care/pharmaceuticals and financial services.
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