By Scott Ronalds

Jonathan Chevreau’s article in Wednesday’s Financial Post highlights the latest book that bashes the mutual fund industry, The Investor’s Dilemma: How Mutual Funds are Betraying Your Trust and What to do About it, written by Louis Lowenstein.

It’s books like these that pushed us to create Steadyhand.  They often highlight the industry’s warts – high fees, bloated portfolios, poor alignment of interests, etc.  In fact, it was David Swensen’s book Unconventional Success that really gave Tom a kick in the ass to develop a better model than the status quo.  I should note that I haven’t yet read Lowenstein’s critique, but I have a good idea of where he’s going based on Chevreau’s synopsis.

Lowenstein concedes that despite the industry’s flaws, mutual funds are an “intrinsically attractive and flexible vehicle.”  He recommends that investors look for the following attributes when picking a fund:

• Small size (assets under management)
• Low turnover
• Evidence of solid performance and experienced managers
• Co-investment (the manager has a siginficant portion of their own wealth invested alongside yours)
• Signs that the manager isn’t afraid to invest in out of favour companies
• Keep it general (few constraints; let managers find value wherever they can)

We couldn’t have said it better.