Schwab's Mutual Funds

The rush into ETFs has made mutual funds so retro that I doubt the younger generation even knows what they are, and especially not their history. But us “old hands” remember their horrors, like front or backs loads, mandatory holding-periods, very high investment-minimums, etc. However, the new crop of mutual funds has done away with most of those downsides, and I now find them very, very appealing.

E.g., Schwab offers a bunch of in-house mutual funds that have $1 mins and no ST redemption fees. (What’s not to like about that, especially if one is a beginning investor with a small account?) The next question to ask is, “Can one turn a profit using them?” The answer to that involves asking a further question, “How many of them are redundant to each other and can be ignored?” Here’s an example, curtesy of Asset Correlations.

I’m not going to grind through a discussion of that chart. You either know how to use the info it contains, or you don’t. Nor am I going to present correlation matrixes for the rest of Schwab’s mutual funds. (You know who you are and what your investing objectives are.) But I would suggestion this. Some of them should be tracked and traded, becase they offer an easy, low-risk means to participate in some of the major investment themes of our current market.

Do your Due Diligence.

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If you build a correlation matrix for the six funds that invest in large caps and then plot their annualized return against their daily StDevs, you get a chart like this. (where the X-axis is Daily StDev and Y-axis is annualized return).

Scatter plot 1

Again, the meaning or usefulness of that chart immediately jumps out at you, or not.

Spoiler Alert: only two of the six might be worth owning for being “efficient” in terms of how much ‘gain’ they offer for versus how much ‘worry’ they might cause. (There’s a proper term for that ratio. But it’s been so long since I’ve invested in mutual funds that I don’t remember what it is.)

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Worth looking at

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