For the throng of financial advisors attending the Morningstar Investment Conference, the event is a chance to learn practice-building techniques, soak in investment ideas, network with colleagues and, who knows, maybe explore practice mergers and new job prospects.
Scheduled speakers at the 29th annual conference, which starts Wednesday, include Charles Pohl, chairman and chief investment officer of Dodge & Cox; Dan Ivascyn, who succeeded Pimco co-founder Bill Gross as Pimco group chief investment officer and who co-manages a number of funds, including $79 billion Pimco Income Fund (PONAX); and Michael Lewis, author of "Liar's Poker," "Moneyball" and most recently "The Undoing Project."
Other speakers that the estimated 1,230 financial advisors in attendance will have a chance to see include Vanguard founder John Bogle, Morningstar (MORN) CEO Kunal Kapoor and BlackRock (BLK) Chairman Larry Fink.
The conference agenda is available online. Updates will be available via Twitter and at IBD's Investors.com.
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First Full Day
Michael Kitces, a financial planner and personal-finance commentator, is scheduled to kick off the conference's first full day, Thursday, with a post-breakfast general session presentation, "Future of Financial Planning in the Digital Age."
Kitces told IBD before the conference that he will make the case that robo-advisors will soon become a tool for human financial advisors, not a competitive threat to them. Robo-advisors will enable human advisors to cut the cost of providing many investment services, Kitces said, especially to younger clients with fewer assets and simpler planning needs.
By harnessing robo-advisor platforms, human advisors will be able to expand their marketing beyond their local geographic area, Kitces said.
Bogle — who is about to turn 88 years of age and who told IBD he does not enjoy airline travel — plans to provide a prerecorded video that will be shown on Thursday. His question-and-answer session is slated to be live from his office in Valley Forge, Pa.
Much of his presentation will center on the benefits of low-cost index mutual funds.
The popularity of index-oriented investing poses a challenge to active fund managers. Active mutual funds and ETFs excluding money market funds suffered $310 billion in net redemptions during the 12 months ended March 31, according to Morningstar Inc. A tsunami of $638 billion flooded into passive mutual funds and ETFs in those 12 months.
But clients and financial advisors still want outperformance. Where can they seek it?
"Passive funds guarantee underperformance," Matt Fruhan, an active manager of several Fidelity Investments funds, including $7.2 billion Growth & Income (FGRIX), told IBD before the conference. "Their returns are the underlying index's return minus the fund's fees. So the only way shareholders can get outperformance is through an actively managed fund."
Fruhan is on tap to participate in a Thursday panel discussion titled, "The Active Equity Challenge." One of Fruhan's points will be that active-fund shareholders should take heart in the fact that just because passive mutual funds as a group have underperformed in certain periods, that does not mean that all active mutual funds lag. And many active managers fare better on average over longer periods than short periods. "People should use mutual funds as long-term instruments anyway," Fruhan told IBD.
One benefit of a long-term approach: a mutual fund that holds stocks many years should have lower transaction costs and should end up paying a lower capital-gains tax rate, Fruhan says.
Fruhan also plans to cite Fidelity research that found that actively run mutual funds with low fees from large fund families on average outperformed their passive peer group from 1992 to 2016. Those atypically low fees cut an active fund's headwind in competing against its benchmark.
"And fund families that are large have more resources and scale to apply to (reduce) trading costs and to invest in stock research," Fruhan said.
'Absolutely Fabulous or Absolute Rubbish?'
One of the conference's final panels will be "Absolute Return Funds: Absolutely Fabulous or Absolute Rubbish?"
Absolute return mutual funds typically aim for a positive return in any kind of market. They appeal to shareholders who abhor volatility. They tend to pursue their return goal by tracking a benchmark that almost always gains ground over something like rolling five-year periods, such as Treasury bills or the Libor interest rate. Their usual procedure is to offer a return that is some fixed amount, such as 3 percentage points, higher than the underlying index's return. Libor is an interest rate that many banks charge each other for short-term loans.
A knock on absolute return funds is that many make heavy use of derivatives, shorting and borrowing, which help make them hard for retail investors to understand, and many charge high fees.
Panelist Suzanne Hutchins told IBD that the fund she helps manage, $1.4 billion Dreyfus Global Real Return (DRRIX), aims for a return of Libor plus 4 percentage points over rolling five-year periods. The fund has a modest 0.88% annual expense ratio. "This provides a nice alternative to government bonds," she said. "We are very much a sleep-at-night portfolio. This is not a core strategy for individuals who want a lot of growth. For a young person who has more appetite for risk, this would not be the core of their portfolio."
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