1st Source

The Small Pool Theory 44 minutes ago | Post #2840319 According to Petro, there is a small pool of funds that an active fund proponent should choose from... "The thread underscores the fact that those of us that use actively managed funds choose those funds from a small pool.  (for example, I look at only Vanguard funds.)" Before I go any further, let me say that I agree with Petro that there are only a small number of funds that an investor in active funds should choose from. I would like to propose that we use this thread to determine what funds belong in that pool.  I thought about starting this thread in the Mutual Fund forum, however, in creating rules about which funds to include and which to exclude, I thought it might be interesting to get feedback from indexers. Hopefully, this will be instructional to us all but I am sure there will be a lot of hot debate. To get the ball rolling, how about we start with US large cap value? It seems from other threads that most of us agree that a fund has a greater chance of outperforming its index (which should be what, indexers?) if it has low cost.  With that in mind, I went to the Mstar mutual fund quickrank tool and screened for lowest cost 5 star funds in US LCV category.  The average ER for the category is 1.31%.  How about an ER of less than 1.00% as a hurdle? That gives us 10 funds, however, several were institutional class which I didnt think we should include and, also, I think we should have at least, AT LEAST, 5 years of management experience.  That narrows the field to 3 funds:  Yacktman (YACKX), Becker Value (BVEFX) and Amer Cent Equity Inc (TWEIX).  I noticed several very good funds that didnt meet our ER criteria including Wasatch 1st Source Inc Equity (FMIEX), Amana Trust Income (AMANX) and Auxier Focus (AUXFX).  Should they be included? Is style purity important?  AMANX has 21% foreign and 13% cash.  I left Robeco All Cap Value out because it had 27% mid and 11% small (also 250k minimum). Would anyone like to propose other individual funds they think we should consider?  Other methods?  Should we look at 4 star funds? Anyone interested? ________________________________________________ I started this thread on the Boglehead forum as an offshoot of the active vs passive debate but decided it probably make more sense to post here. The idea of doing this for every category and subcategory of investment seems rather daunting but even if we just do it with one category, such as US large cap value, it seems to me that it could be very instructive. Further, I dont think the goal is to find the one perfect fund for a category but rather a small number of funds, maybe 5 or 10, that have the characteristics most of us would deem important, i.e. manager tenure, cost, consistency, etc.  seh