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Old 02-01-2013, 07:17 PM
 
2 posts, read 4,385 times
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Default Merrill Lynch high quality and dividend yield screen

Hello,

I am brand new to investing and know almost zero about it..

What are peoples opinion on Merrill Lynchs high quality and dividend yield screen portfolio (or algorithm?)

Here is a thread from a different forum some time ago:
Bogleheads • View topic - Merrill Lynch High Quality & Dividend Yield Screen

The opinions were quite negative. The thread originator didn’t include the performance results, which I will do. See end of thread for results. I apologize for the format, I cut it from the PDF Merrill Lynch provided and it isn’t too readable.


I should quickly describe what it is. It is essentially a portfolio that they maintain for you, they have a stock screener which has about 6 rules that it applies to select about 20 Stocks for you that they update once a month. They typically will swap out one or two stocks for ones that are now deemed "better" based upon thier screen criteria.


Below, the portfolio results are on the left, the S&P is on the right. There is a 1.5% advisory fee.

Since I know nothing about investing, all I can really go by is the performance results for as long as the fund or strategy has results.

This fund looks great to me on results, as it only went down 9.4% in 2008. Yet most years performed in line with the S&P (even accounting for the 1.5% fee)

The overall performance (around 9 years) is 159% compared to 51.5% for the S&P, it beats the S&P handily for the 3 and 5 year results, and also trounces it in 2008.

The only really bad performance for the algorithm was in 2005, when it seriously underperformed the
S&P.

So assuming that the PDF is reporting accurate results, doesn’t it seem that this is a really good fund ?

I of course know that past performance doesn’t guarantee future performance, but what does everyone think? It seems to good to be true. Especially the part about it only going down 10%.

Thanks,

Brian

Table 1: Returns since inception
HQ & DY
Screen Total
Return
S&P 500
Total
Return
Relative
(ppt)
2004* 13.7% 8.9%
2005 (2.3%) 4.9%
2006 18.6% 15.8%
2007 18.6% 5.5%
2008 (9.4%) (37.0%)
2009 26.1% 26.5%
2010 16.2% 15.1%
2011 8.9% 2.1%
2012 14.9% 16.0%

Dec 2012 0.8% 0.9%
3M 0.6% (0.4%)
6M 7.1% 6.0%
YTD 14.9% 16.0%
12M** 14.9% 16.0%
3 Years 45.4% 36.3%
5 Years 66.1% 8.6%
Overall 159.7% 51.5%
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Old 03-30-2013, 09:45 AM
 
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Brian,
I am a Merrill Lynch Financial Advisor and love this strategy for our clients. Two things to remember is that when the equity markets heat up, this strategy can underperform the S&P 500. Lower quality stocks do best when the "risk on" trade is occurring but the strategy seems to make it up when investors are looking for quality and lower volatility. Fee wise, it is up to the advisor. We charge 1.00% with an account minimum of $150,000 ($250,000 required in total at Merrill Lynch). Some of our very large clients use the strategy and invest substantially more in it. Assuming they are properly diversified, we lower our fee to 0.75% above $1,000,000 in the strategy. Hopefully this helps.
Tim Hines
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Old 03-30-2013, 04:24 PM
 
Location: Wouldn't you like to know?
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The thread content says it all. Paying 1.25% to try to beat an index is ridiculous.

Those people who commented on bogleheads are smart. But if you want to listen to a commissioned based salesman who doesn't have your financial best interests...go ahead.


He said the fund might underperform when equity markets 'heat up'. The only way to know when equity markets will do this is when you invest in the rear view mirror....

Stay away from them....
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Old 03-31-2013, 02:06 AM
 
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Old 04-01-2013, 08:20 AM
 
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The principal benefit of going with a financial adviser is to have emotional support in dire times. A person who was spooked by the 2008-2009 crisis and sold in March 2009, watching the rebound passively, and now wants to get 100% back in, in April 2013 – well, such a person might benefit from professional advice, even if it costs 1.5%/year. Comparison with robotic investment in an S&P500 index, however, is less favorable for the pros.
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Old 04-01-2013, 08:41 AM
 
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High quality stocks do underperform when the markets 'heat up'. at any rate, from my understanding of the criteria (you can google for a normal PDF), these are stocks that will never make you an overnight millionaire but will never blow you up either. the requirements use the S&P500 as a benchmark, and from there require:
1- return on equity to be greater than S&P500 (i assume this is in lieu of PE which imo, is a better indicator)
2- Debt to equity less than the S&P 500 - in other words, the businesses arent wildly leveraged and should perform solidly when there is a credit crisis... 2008...
3- Div yield greater than S&P 500. so these should be more 'value' stocks.
4- Free Cash flow to Dividend for the last 12 months, greater than 1.
5- S&P rates the common stock A- or better
6- ML rates them a buy or neutral.

all in all, it's a simple criteria, but isnt this kinda what we look for as investors? Responsible companies that are able to maintain a stable business model while being fiscally responsible?

As far as the comment about paying a commission based salesman... (for disclosure, i was an advisor at ML, but left).
Paying for a management fee of whatever % (you have to decide if it's reasonable), means that the advisor receives a fee no matter what you do. There is no commission in an advisory account such as the one tim mentioned - just an annual fee. so trade as often or as little as you wish... same price. Even if you go to etrade or fidelity or wherever, and put a portfolio of recommended mutual funds and etf's, youre still paying someone. Even if you dont have an advisor, someone is making money off of you.

Average mutual fund expense ratio is between .75 and 1.25% for a no-load (Most etf's are less, but have different pro's/con's). The high quality & dividend yield screen is all stocks, so there is no fee other than the advisory fee, and it has out performed the S&P because it's slow and steady. It's a list of Value stocks, and if it were a mutual fund, would be a Value fund. So now, you're paying 1% (out the door) for a mutual fund that has a history of doing pretty well, with very transparent criteria, and one that would allow you to add stocks in you want, or remove ones you dont. Not many Mutual funds do that. So, you pick the mutual funds, you're paying roughly 1%. You own the stocks, and you're paying 1%. seems fair. Of course, most advisors, even etrade and scottrade will put you in mutual funds and maybe even a managed platform (could be for even less of a fee! like .25 or .5!) SO, if you own a basket of mutual funds and have a .25% advisory fee, now you're paying somewhere between 1.25 and 1.5% to invest even though the discount guy said you were paying .25%! I'm not saying a major wirehouse (ML, MS, UBS) advisor is the way to go. I'm just saying that this particular screen is actually a pretty reasonable deal for the more risk adverse investor. my last piece of advice... never buy a loaded share, and certainly avoid buying a no-load inside an advisory account. Buy individual stocks, individual bonds, keep your expenses down, know what you own, and sleep happy. If you would have done these things in 08, do you think you would have cried as badly? nope. because when you own coke, you know it's gonna be there. when you own p&g, you also know that will be there. and when you own good bonds, you can own them to maturity (cant do that with a bond fund).

best of luck to you though.
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Old 04-01-2013, 08:48 AM
 
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Quote:
Originally Posted by ohio_peasant View Post
The principal benefit of going with a financial adviser is to have emotional support in dire times. A person who was spooked by the 2008-2009 crisis and sold in March 2009, watching the rebound passively, and now wants to get 100% back in, in April 2013 – well, such a person might benefit from professional advice, even if it costs 1.5%/year.
yes but most advisors suck and aren't worth .5%. for clients, it should be a very gruelling interview process that involves understanding the advisors decision and investment making process.

if it evens smells like he's buying that day's wholesaler lunch... run. far. and fast.
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Old 04-01-2013, 09:15 AM
 
Location: Wouldn't you like to know?
8,365 posts, read 10,011,587 times
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Quote:
Originally Posted by want2modmygt View Post
yes but most advisors suck and aren't worth .5%. for clients, it should be a very gruelling interview process that involves understanding the advisors decision and investment making process.

if it evens smells like he's buying that day's wholesaler lunch... run. far. and fast.
Most advisors try to beat their benchmarks, however most fail after taking into account fees..


Also, we do not have a time machine, so you cannot tell me which few will outperform in the future...


The smart/prudent thing to do, if you do not want to be hands on is for a nominal fee, have a money manager invest in low cost diversified portfolio of market funds to a person's puker factor (if one does not want to do it themselves..)

Does that Merrill Lynch advisor use low cost passive funds? Probably not because he is paid to use product for his company...

Its simplistic, will outperform a majority of investors, and frees up your time to do other things in life.
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Old 04-01-2013, 09:40 AM
 
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We use Merrill Lynch to manage our retirement money which is invested in a 'moderately conservative' portfolio. Last year the portfolio did 7.8%.
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Old 04-02-2013, 08:34 AM
 
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Quote:
Originally Posted by CouponJack View Post
Most advisors try to beat their benchmarks, however most fail after taking into account fees..
They dont fail because of account fees alone. more like, the asset allocation mix. You gotta use an apporpriate benchmark.

Quote:
Originally Posted by CouponJack View Post
Also, we do not have a time machine, so you cannot tell me which few will outperform in the future...
Agreed

Quote:
Originally Posted by CouponJack View Post
The smart/prudent thing to do, if you do not want to be hands on is for a nominal fee, have a money manager invest in low cost diversified portfolio of market funds to a person's puker factor (if one does not want to do it themselves..)
Most mutual funds that you say charge a 'nominal fee' charge about as much as an advisor at ML, or Edward Jones or any of the wirehouses... except ETF's. How do you think money managers get paid?


Quote:
Originally Posted by CouponJack View Post
Does that Merrill Lynch advisor use low cost passive funds? Probably not because he is paid to use product for his company...
False, and a very ignorant statement. I personally know plenty of Merrill Advisors who use low cost ETF models in order to keep the costs down for the client. I even know some who are able to charge their clients less than an ETF or other passive indexed fund. The breakdown occurs because advisors are paid to bring in assets, not make sure the clients they have keep/grow theirs. The ones that do the former generally do well. The ones that do the latter may find themselves looking for a new line of work.

Quote:
Originally Posted by CouponJack View Post
Its simplistic, will outperform a majority of investors, and frees up your time to do other things in life.
True.


As this post relates to the High Quality & dividend yield list, it's probably the simplest and best, most risk adverse way to invest in the equity markets that I've found. I haven't found an ETF that can replicate the model, and believe me, I look. I'm one of the few people I know who read a fund's prospectus.

Good luck with your vanguard, dimension, whoever, index funds. The volatility in the stock index, international index, and bond index would render me unable to sleep if i were retiring.
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