Quote:
Originally Posted by flamesfever
Yes, but these products or mutual funds, that the bank sells, have invested a significant portion back into the bank, so in effect when the bank makes money on the products, by pushing them, then a portion flows back to the person purchasing the product. Is that not correct?.
Also the mutual funds are managed by competent investors, backed by analysts, either with the bank or by a third party. Is that not correct?
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As Slava said, the profits from the fund sales are not going to have any kind of material impact on the performance of the fund. The drag from the fees is significant (2% for example), while the 'profit' from said funds will not move the needle on the stock significantly, and the stock is only one of many in the fund (less than 5% in a concentrated fund, and less than 1% in a whole-market fund). SO no, the profit from the fund for the managing company is not a positive for you. As Slava said, if the funds are so popular for the company, simply buy their stock.
"Mutual funds are managed by competent investors' is a huge can of worms. Even though I am a portfolio manager, I do not believe that funds can outperform enough to cover their fees - especially larger funds (targeted funds with very specific niches are a different story, however, they face dramatically higher fees - often between 5 and 10%, so the argument remains).
There is a massive amount of research and evidence that is pretty decisively damning for the managers - passive funds usually outperform over 80-90% of active funds over larger time periods. And the real killer is that the funds that
do manage to outperform, changes from period to period (i.e. it isn't the same funds outperforming). So, the smart decision is low-cost, passive whole-market funds.