America On-Line (AOL) Message Board

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Technology Stocks : America On-Line (AOL)

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To: 1SFG who wrote (758)	1/1/1999 7:00:00 PM
From: sam	Read Replies (1) of 41369

These guys are paid based on a small percentage of the total amount of funds they manage. .025% of 5 billion dollars -- lets say for the sake of argument -- is $1.25 million. Are we in agreement, so far? Now, theoretically, if the S&P 500 tanks and the Russell 2000 is taking off -- theoretically mind you -- Mr. and Mrs. Jones will transfer their retirement funds from the S&P 500 index (where it is now) to the Russell index to get the better returns. If enough Mr and Mrs Smiths do this then...the fella running the S&P 500 index will be managing less funds (on top of the loss he already sustained because the S&P 500 has tanked). Right? So the assets go down to -- lets say -- 3 billion. .025 of that amount is $.75 million. Even if MR and Mrs Smith DON'T take their money out -- the total assets can still go down. Meaning less for the fund manager. Now if he is able to raise more cash, that's another thing. But if people are getting better returns elsewhere (in other 'safe' index funds,for example) why would they give their money to him? Now, as for fund managers "playing games" to make their results better, let's just agree to disagree. ;)

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