1. finance
2. investing
3. funds
4. mutual funds

D4 Business |
2R
| SUNDAY, DECEMBER 21, 2014
MutualFunds
‘NEXT BIG THING’ GETS
OFF TO A SMALL START
State Street (STT) have
filed with the SEC trying to
get approval for nontrans­
Chuck Jaffe
parent active offerings.
Syndicated columnist
What makes the Eaton
The “next
Vance deal different is that
great invest­
unlike the other proposals,
ment prod­
it does not offer minute­by­
uct” finally
minute trading at the net
has passed
asset value of the fund.
muster with
Instead, market makers
the U.S.
will buy or sell shares based
Securities
on the “proxy price,” which
and Exchange Commission. represents the fund’s end­
The question now is wheth­ of­the­day net asset value,
er it will pass the sniff test of plus or minus a few pennies.
investors and advisers when Investors can execute a
it comes to market next
trade at, say, 11:24 a.m.,
year.
but their price will not quite
The SEC recently ap­
be the actual net asset value
proved an Eaton Vance
at that moment.
Asset Management request
Here’s the thing: The
to create “exchange­traded difference between an ETF
managed funds,” (ETMFs); and an ETMF is more than
in due time — likely the
one letter in the acronym.
middle of next year — this
It’s that ETMFs don’t trade
will lead to the creation of
at net asset value, aren’t
NextShares, a new brand of transparent, and aren’t
investment that will man­
expected to be quite as
age, market and sell the
low­cost or tax­efficient.
new investment types.
Eaton Vance officials
Eaton Vance currently
can’t say much about Next­
plans to introduce 18 fla­
Shares at the moment —
vors of the new ETMFs
they’re in a mandated quiet
when Next Shares rolls out. period with the approval
NextShares is interesting, having been granted — but
different and intriguing, but when they start talking and
it may not be what investors marketing the new issues,
were actually expecting
they’re going to have to
when they heard that ac­
educate the public as to why
tively managed exchange­
this form of fund is the one
traded funds were in the
to pick.
offing.
“Kudos to Eaton Vance to
This is a case where some­ getting this done, but look
thing that looks like a duck, closely and you realize that
walks like a duck and
this is not a mutual fund
quacks like a duck could be and it’s not an ETF,” said
a swan ... or a turkey.
Todd Rosenbluth, director
To see why, let’s consider of ETF & Mutual Fund Re­
what the SEC approved,
search at S&P Capital IQ.
and also what it turned
“Because it’s something
down.
new, it might get investor
While the public will see
interest, but it also has to
NextShares as if they are a
prove itself.”
“new type of ETF,” that’s not
Active management is a
quite true.
tough sell these days in
For starters, exchange­
general, as the bull market
traded funds are mutual
has made the Standard &
funds built to trade like
Poor’s 500 look fabulous
stocks, trading minute by
and virtually everything
minute instead of being
else look sad.
priced at the end of the day.
But the tide of sentiment
Typically, they’re based
also is running against ac­
on indexes, although there
tive management, so the
are a few actively managed idea that investors will rush
issues like PIMCO Total
to buy actively managed
Return (BOND), as well as
funds just because they
active­index and leveraged come in a new wrapper is
issues.
hard to believe.
ETFs make daily portfolio
Existing Eaton Vance
disclosures — meaning the
shareholders may be en­
investor knows what they
couraged if they believe
own — and typically have
they can get variations of
lower costs and are more
what they own now at a
tax­efficient than tradition­ lower­cost form, but if the
al funds.
company can’t deliver supe­
Eaton Vance (EV) is not
rior performance — to ei­
the first company to want to ther the competition from
start an active product; in
traditional funds or ETFs —
October, the agency shot
the form of the fund will
down applications by Pre­
prove irrelevant.
cidian ETFs Trust and
Meanwhile, the competi­
Spruce ETF Trust — the
tion is not going to stop
latter a unit of BlackRock
trying to get its take on an
(BLK) — to offer active ETFs active fund past regulators;
that were not transparent.
if regulators wind up ap­
Active fund managers are proving other active ETF­
reluctant to enter the ETF
like products, the competi­
space mostly because of the tion will work hard to play
transparency issue, worried catch­up and the public will
that market sharpies would ultimately sort out which, if
be able to develop algo­
any, of the new products are
rithms to predict what the
the next big thing in funds.
funds are likely to do next,
“This isn’t a victory where
and to then front­run those it’s ‘Game over,’ so much as
funds, buying or selling
permission for Eaton Vance
ahead in anticipation of the to get started,” said Rosen­
manager’s moves.
bluth.
That would make it hard­
Let the games begin.
er for the active managers
Chuck Jaffe is senior columnist for
MarketWatch. He can be reached
to get the best prices when
at cjaffe@marketwatch.com or at
they see opportunities.
P.O. Box 70,
Beyond Eaton Vance,
Cohasset, MA 02025­0070.
BlackRock and Precidian, T.
Copyright 2014, MarketWatch
Rowe Price (TROW) and
Your Funds
Many foreign­fund investors
prefer active management
The Associated Press
Stock pickers might as
well wear a scarlet “A.”
“Active management” is
becoming more of a taboo
when it comes to mutual
funds. Many investors are
abandoning actively man­
aged funds, wary of their
high fees and recently dis­
appointing performance.
Instead, they’re funneling
money into lower­cost
index funds, which aim to
match the stock market’s
returns rather than beat
them.
But stock pickers are still
getting a chance in at least
one area: Actively managed
foreign­stock funds contin­
ue to attract billions of dol­
lars in new investment.
Actively managed for­
eign­stock funds attracted
$68 billion over the last
year. To be sure, that’s only
about 75 percent of what
their index­fund counter­
parts received. But it stands
in stark contrast to the nine
straight months of with­
drawals from actively man­
aged U.S. stock funds.
One reason for the differ­
ence is that many investors
believe they have more
opportunities to capitalize
on mispriced stocks in for­
eign markets. Another pos­
sible reason: There can be a
wide discrepancy among
the performance of various
foreign markets, which
makes it even more worth­
while to stick with winners
and avoid losers.
The recent track record
for actively managed for­
eign­stock funds, though, is
spotty. Small­cap funds are
a bright spot.
Fund Tracker
Weekly spotlight on mutual fund performance
Winners and losers: A mutual­fund scorecard
Fund Wkly % YTD %
obj return return
Biggest funds
American Funds A AmcpA pe
American Funds A AMutlA px
American Funds A BalA p
American Funds A BondA p
American Funds A CapIBA p
American Funds A CapWGA p
American Funds A FdInvA p
American Funds A GwthA p
American Funds A IncoA p
American Funds A ICAA p
American Funds A N PerA p
American Funds A SmCpA p
American Funds A WshA px
Artisan Funds Intl
BlackRock Instl StrIncoOpp
BlackRock Instl EquityDv
BlackRock Instl GlbAlloc r
Dimensional Fds EmMCrEq
Dimensional Fds EmMktV
Dimensional Fds USLgVa
Dodge&Cox Balanced x
Dodge&Cox Income x
Dodge&Cox IntlStk x
Dodge&Cox Stock x
DoubleLine Funds TRBd I
FPA Funds FPACres
Fidelity Freedom FF2020K
Fidelity Freedom FF2030K
Fidelity Invest Balanc
Fidelity Invest Contra
Fidelity Invest GroCo
Fidelity Invest LowP r
Fidelity Invest Puritn
Fidelity Invest TotalBd e
Fidelity Spart Adv 500IdxAdv x
Fidelity Spart Adv TotMktAd rx
Frank/Temp Frnk A IncomA p
Frank/Tmp FrnkAdv GlbBdAdv
Harbor Funds CapApInst
Harbor Funds Intl rx
Loomis Sayles LSBondI
MFS Funds I ValueI
Metro West Fds TotRtBdI
Oakmark Funds I EqtyInc r
Oakmark Funds I Intl
Oakmark Funds I Oakmark
Oppenheimer Y DevMktY
PIMCO Instl PIMS AllAsset
PIMCO Instl PIMS TotRt
PIMCO Funds Instl Income
Price Funds BlChip
Price Funds CapApp
Price Funds EqInc
Price Funds EqIndex
Price Funds Growth
Price Funds MidCap
Price Funds N Horiz
Price Funds N Inc
Price Funds Ret2020 x
Price Funds Ret2030 x
Price Funds Value
Schwab Funds S&P Sel
Vanguard Admiral 500Adml
Vanguard Admiral GNMA Ad
Vanguard Admiral HlthCr
Vanguard Admiral ITAdml
Vanguard Admiral ITGrAdm
Vanguard Admiral LtdTrAd
Vanguard Admiral MCpAdml
Vanguard Admiral PrmCap r
Vanguard Admiral STIGrAd
Vanguard Admiral SmCAdm
Vanguard Admiral TtlBAdml
Vanguard Admiral WellslAdm
Vanguard Admiral WelltnAdm
Vanguard Admiral WdsrIIAd
Vanguard Fds TotIntBInv
Vanguard Fds DivdGro
Vanguard Fds STAR
Vanguard Fds TgtRe2015
Vanguard Fds TgRe2020
Vanguard Fds TgtRe2025
Vanguard Fds TgRe2030
Vanguard Fds TgtRe2035
Vanguard Fds TgtRe2040
Vanguard Fds TgtRe2045
Vanguard Idx Fds TotlIntl
XC
LV
BL
IB
BL
GL
LC
LG
BL
LC
GL
GL
LC
IL
GT
EI
MP
EM
EM
LV
BL
IB
IL
LV
MT
MP
MP
MP
BL
LG
XG
MC
BL
IB
SP
XC
BL
WB
LG
IL
GT
LC
IB
BL
IL
LC
EM
MP
IB
GT
LG
BL
EI
SP
LG
MG
SG
IB
MP
MP
LV
SP
SP
MT
HB
IM
IB
SM
MC
LC
SB
SC
IB
BL
BL
LV
WB
EI
BL
MP
MP
MP
MP
MP
MP
MP
IL
+3.0
+2.9
+1.9
­0.3
+1.8
+1.9
+3.0
+2.9
+2.4
+3.2
+1.9
+2.2
+3.0
+1.6
+0.1
+3.4
+1.5
+0.9
+1.1
+4.7
+2.0
­0.3
+2.0
+3.2
NA
+1.9
NA
NA
NA
+2.6
NA
+2.8
NA
NA
+3.4
+3.5
+3.0
+0.5
+2.9
NA
+0.3
+3.3
­0.2
+2.5
+1.4
+3.2
+1.4
NA
NA
NA
+2.6
+2.3
+3.9
+3.4
+2.7
+4.0
+3.6
­0.1
+1.9
+2.3
+3.6
+3.4
+3.4
­0.2
+2.5
­0.2
­0.5
­0.2
+3.7
+2.1
­0.3
+3.6
­0.3
+1.0
+2.0
+3.6
+0.2
+3.4
+1.7
+1.4
+1.7
+1.9
+2.2
+2.4
+2.6
+2.6
+1.8
+13.2
+12.9
+9.0
+5.4
+7.2
+5.0
+9.4
+10.0
+8.9
+13.5
+3.8
+1.4
+11.1
+0.2
+3.8
+9.5
+2.7
­1.9
­5.1
+10.1
+9.0
+5.3
+0.8
+10.7
NA
+6.7
NA
NA
NA
+10.4
NA
+7.4
NA
NA
+14.2
+12.8
+4.1
+1.9
+11.0
NA
+4.5
+11.0
+5.8
+6.8
­4.6
+11.6
­5.0
NA
NA
NA
+10.1
+12.6
+7.8
+14.0
+9.4
+13.5
+6.1
+5.7
+5.9
+6.3
+13.7
+14.1
+14.2
+6.6
+31.1
+7.1
+5.8
+1.8
+13.9
+20.3
+1.7
+6.9
+5.7
+8.3
+10.3
+11.9
+8.4
+12.5
+7.8
+6.7
+7.2
+7.4
+7.4
+7.5
+7.5
+7.5
­3.9
XC
SP
XC
Vanguard Idx Fds TotStk
Vanguard Instl Fds InstIdx
Vanguard Instl Fds InsTStPlus
5­yr %
return
+15.7
+14.0
+12.3
+4.4
+9.2
+9.6
+13.8
+14.0
+11.5
+13.8
+11.0
+12.0
+15.0
+9.5
+5.8
+13.2
+6.9
+3.2
+0.6
+17.3
+12.9
+5.0
+8.5
+15.7
NS
+10.6
NA
NA
NA
+15.5
NA
+16.0
NA
NA
+15.8
+16.0
+9.5
+6.2
+15.2
NA
+8.5
+14.7
+6.8
+10.0
+10.2
+16.5
+6.1
NA
NA
NA
+17.4
+13.4
+13.6
+15.5
+16.5
+17.9
+21.9
+4.3
+10.5
+11.8
+16.4
+15.7
+15.8
+4.1
+20.8
+4.5
+6.1
+2.0
+17.5
+17.0
+2.9
+17.2
+4.1
+9.6
+11.5
+14.4
NS
+15.0
+10.4
+9.1
+9.8
+10.4
+11.0
+11.6
+11.9
+11.9
+4.9
Best performers
Direxion Fds NatRBull2X
Rydex Investor EnrgySer
Invesco Funds A Energy p
Direxion Fds LatAmBull
BlackRock A Eng&ResA
Baron Funds Energy
Rydex Investor Energy
Fidelity Selects NtGas x
Fidelity Selects EngSv
BlackRock A ACEngRsA
Frank/Temp Frnk A NatResA p
Voya Funds Cl A GlbNatRs
Fidelity Selects Enrgy x
Waddell & Reed Adv EnergyA t
Guinness Atkinson GlbEnrgy r
ICON Fds Energy S
BlackRock A NatRsTA p
Ivy Funds EnergyA t
Vanguard Admiral Energy
Fidelity Selects NatRes rx
Ivy Funds GlNatRsA p
Integrity Viking WillBasA p
Turner Funds MedLS Inst
Price Funds New Era
Rydex Dynamic S&P5 2xH p
Columbia Class Z GblEnrgy
Litman Gregory Fds SmallCos I
Putnam Funds A GlNtRs p
Jacob Funds USSmCG I
Baron Funds Partners
Worst performers
+3.5 +12.8 +15.9
+3.4 +14.2 +15.8
+3.5 +13.0 +16.2
Fund Wkly % YTD %
obj return return
SE
NR
NR
SQ
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
SQ
NR
SQ
NR
SC
NR
SG
MG
+21.1
+12.6
+12.3
+11.8
+11.7
+11.3
+11.1
+10.9
+10.4
+10.3
+10.2
+10.0
+9.6
+9.6
+9.5
+9.5
+9.4
+9.2
+9.1
+9.1
+8.6
+8.1
+7.2
+7.2
+6.9
+6.6
+6.4
+6.4
+6.3
+6.1
5­yr %
return
­20.6
­26.5
­14.4
­30.9
­23.7
­12.8
­16.4
­11.0
­21.9
­9.9
­18.4
­10.6
­11.1
­9.1
­18.2
­20.2
­19.7
­9.0
­12.1
­10.9
­12.1
­10.2
+9.7
­6.5
+26.1
­10.6
­4.1
­11.6
­0.4
+10.3
+0.4
+1.4
+2.3
­17.5
­3.2
NS
+4.0
+2.4
+3.1
+1.4
­0.1
+1.8
+5.8
+5.5
+1.9
+3.6
+0.9
+5.5
+4.1
+4.2
­2.3
+13.2
NS
+3.4
+27.3
+2.0
+14.2
+2.0
+0.6
+18.9
Fund Wkly % YTD %
obj return return
5­yr %
return
Alger Funds A CapApr
LG
Value Line Fd LrgCo x
LG
Dimensional Fds EnUSLg
LC
Rydex Dynamic InvSP5St H
SQ
Prudential Fds A UtilityA
UT
Rydex Dynamic InvNasdSt H
SQ
Northeast Investors Trust
MP
Leuthold Funds GrizzlyShrt
SQ
Rydex H Class InvRusSt
SQ
Comstock Partners CapVlA
SQ
Rydex Investor InvS&P5St
SQ
Voya Funds Cl A RussiaA p
EM
Frank/Tmp Frnk Adv TFrMkAd EM
Federated Instl FPruBearIS
SQ
Aberdeen Funds IntlEqA x
IL
GAMCO Funds MathrAAA
SQ
Aberdeen Funds IntEqIIA tx
IL
Matthews Asian IndiaInv r
PR
Price Funds EmEurop
EM
Hussman Funds StrGrowth
SQ
Credit Suisse Comm ComRet t
SE
GMO Trust Taiwan
PR
Fidelity Invest SCmdtyStrt
SE
Hussman Funds StrIntlEq
IL
EPChinaA p
PR
Eaton Vance A GrIndia t
PR
Eaton Vance A AsianSCo t
PR
Neubrgr&Berm FdsRskCmdtyA SE
Forum Funds MrHrdCur
WB
Laudus Funds IntGvFxInst
WB
­10.9
­9.3
­9.2
­7.0
­6.8
­4.3
­4.2
­4.1
­3.8
­3.6
­3.5
­3.1
­3.1
­3.0
­2.2
­2.1
­2.1
­2.0
­1.9
­1.9
­1.7
­1.6
­1.6
­1.6
­1.6
­1.5
­1.4
­1.2
­1.2
­1.2
­1.2
+0.4
+0.2
­27.2
+7.6
­35.7
­5.9
­10.9
­8.1
­16.8
­14.5
­39.0
­19.2
­14.6
­9.0
­7.7
­8.4
+59.2
­34.7
­8.2
­13.4
+3.5
­14.0
­7.0
­3.3
+37.2
­11.7
­15.4
­8.0
­3.4
+12.5
+11.5
+13.1
­32.2
+14.1
­37.8
+6.8
­17.6
­19.4
­18.8
­16.8
­7.4
+3.1
­16.2
0.0
­7.5
+0.5
+11.5
­4.9
­6.0
­4.2
+7.1
­4.9
NS
+3.4
+4.1
+2.6
NS
­0.5
­0.4
Footnotes: e: Ex capital­gains distribution. f: Previous day{rsquo}s
quote. n or nl: No upfront sales charge. p: Fund assets are used to
pay for distribution costs. r: redemption fee or contingent deferred
sales load may apply. s: Stock dividend or split. t: Both p and r. x: Ex
cash dividend. NE: Data in question. NS: Fund did not exist at the
start date. NA: No information available.
Key to abbreviations and footnotes:
Fund objectives: AB: Long­term top­grade corporate and govern­
ment bonds. AU: Gold oriented. BL: Balanced. EI: Equity income.
EM: Emerging markets. EU: European region. GL: Global (includes
U.S.). GM: General municipal bond. GT: General taxable bond. HB:
Health and biotech. HC: High­yield taxable bond. HM: High­yield
municipal bond. IB: Intermediate­term investment­grade corporate
bond. IG: Intermediate­term Treasury/government debt. IL:
International (outside U.S.). IM: Intermediate­term municipal bond.
LC: Large­cap core. LG: Large­cap growth. LT: Latin American. LU:
Long­term Treasury/government debt. LV: Large­cap value. MC:
Mid­cap core. MG: Mid­cap growth. MP: Mixed portfolio (stocks and
bonds). MT: Mortgage. MV: Mid­cap value. NM: Insured municipal
bond. NR: Natural resources. PR: Pacific region. SB: Short­term
investment­grade corporate bond. SC: Small­cap core. SE: Sector
(specific industries). SG: Small­cap growth. SM: Short­term munici­
pal debt. SP: S&P 500. SQ: Specialty diversified equity. SS: Single­
state municipal debt. SU: Short­term Treasury/government debt.
SV: Small­cap value. TK: Science and technology. UN: Unclassified.
UT: Utility. WB: World bond. XC: Multi­cap core. XG: Multi­cap
growth. XV: Multi­cap value
5­year % return: Annualized performance over the past five years.
Top 5 mutual funds by objective, year­to­date % return
Emerging markets
InstAX­fd r
AME Fd
EmergAs r
EAsiaA t
EmMktI
Price Funds
Price Funds
Fidelity Invest
Fidelity Advisor A
Virtus Funds I
Equity income
Utilities p
ParnEqty
ValLdrs
DivInco Y
EqInc
Invesco Funds A
Parnassus Funds
Paydenfunds
BMO Funds
JPMorgan Sel Cls
Health | biotech
Biotch
BioDisA p
Biotech
HlthSciA
Health e
Fidelity Selects
Frank/TempFrnk A
Rydex Investor
Prudential Fds A
Fidelity Selects
Global
Lazard Instl
Vanguard Fds
Cohen & Steers
USAA Group
Virtus Funds A
GblInfra I
GblMnV Inv
GblInfra I
CapGr
GlbInfraA p
International
Guggenheim Funds
Fidelity Invest
Virtus Funds I
Fidelity Advisor T
Principal Inv
WldEqIncA
AggIntl
ForOppI
IntCAT p
Intl I Inst
Large­cap core
Vanguard Admiral
Vanguard Fds
JPMorgan R Cl
PNC Funds
Vanguard InstlFds
PrmCap r
PrmcpCor
IntrepAm x
LCCrEqI p
StlCPlus
YTD %
return
Mid­cap core
+8.5
+7.1
+5.9
+5.4
+4.8
FPA Funds
JPMorgan Sel Cls
Davenport Funds
Dreyfus
Vanguard Admiral
Peren
IntpdMCp x
EqtyOpps
ActMidA
MCpAdml
YTD %
return
Small­cap core
+15.9
+15.2
+14.8
+14.2
+14.2
Hennessy Funds
Forum Funds
Lazard Instl
Vanguard Fds
JPMorgan Sel Cls
YTD %
return
Natural resources
+40.0
+39.3
+39.0
+39.0
+36.0
Invest Managers
Invest Managers
Center Coast
Oppenheimer A
Oppenheimer Y
YTD %
return
Pacific region
+17.5
+13.4
+11.8
+10.6
+9.3
Matthews Asian
Frnk/TempFrnkA
Eaton Vance A
Neubrgr&BermFds
Hennessy Funds
YTD %
return
Science | technology
+5.2
+3.1
+2.9
+2.5
+2.3
Fidelity Selects
Fidelity Advisor I
Columbia Class A
Columbia Class A
Price Funds
YTD %
return
Gold oriented
+20.3
+20.2
+17.1
+17.0
+16.7
First Eagle
GAMCO Funds
Tocqueville Fds
OCM Funds
Wells Fargo Adv A
YTD %
return
Sector
+16.3
+15.2
+14.8
+14.6
+13.9
Fidelity Selects
Fidelity Selects
ICON Fds
Fidelity Selects
Fidelity Selects
YTD %
return
Balanced
CorGrow O +12.0
GoldenSCC +11.2
USSmMid I +10.8
StrSCEqInv +9.0
MExpEnhI x +8.9
MLP&Engy
MLP&EnI I
MLPFoc I
StlpthAlpha
Alpha Y
IndiaInv r
IndiaGrA p
GrIndia t
GtChinEq I
Japan Inv
Electr
Electronic x
SelComm A
GlobTech
GlbTech
SGenGld p
GoldAAA
Gold t
GoldInv t
PrecMtlA
YTD %
return
Trans x
Air x
ConsStapl
ConStap x
CstHo x
YTD %
return
IdxAstAll A
DivCapBldr
CapApp
Eq&Inc Inv
ClassBalA
Wells FargoAdv A
Wells FargoAdv A
Price Funds
Hennessy Funds
Pioneer Funds A
YTD %
return
Intermediate bond
+11.9
+11.5
+6.7
+6.5
+5.9
Invest Managers
Dimensional Fds
MorganStanleyInst
Western Asset
Guggenheim Funds
YTD %
return
Long­term bond
+59.2
+40.4
+37.2
+16.2
+8.1
Vanguard Idx Fds
Vanguard Admiral
GuideStone Funds
Del Inv Instl
Price Funds
YTD %
return
Long­term U.S.
+37.4
+36.7
+26.2
+24.7
+24.1
VanguardInstlFds
Wasatch
Vanguard Admiral
Fidelity Spartan
Price Funds
YTD %
return
Mortgage
­2.6
­2.7
­3.0
­5.2
­7.2
ManagedAcctSrs
VanguardAdmiral
Frnk/TempFrnk A
AMG Managers
SEI Portfolios
+31.7
+25.1
+15.2
+15.0
+13.6
CutwSelInc
ITExQual
CorPlsFxI
CorePlus I
USIntrBdA
LTBnd
LTGrAdml
ExtDrGS4 x
ExtDurI
CorpInc
ExDurTreas
USTryFd
LTsyAdml
SpLTTrAd r
USTLg
+17.8
+14.3
+12.6
+11.5
+11.1
YTD %
return
+8.3
+8.0
+7.8
+7.4
+7.3
YTD %
return
+19.2
+17.8
+16.6
+15.3
+7.9
YTD %
return
+45.1
+31.8
+25.2
+25.1
+23.4
YTD %
return
US MrtgInst
GNMA Ad
StrMPrt
IntDurGv
GNMA A
+7.7
+6.6
+6.5
+6.5
+6.5
BUY A
DUPLEX,
DOUBLE
YOUR FUN
Investing
Scott Burns
Syndicated columnist
The first
home I
bought
cost far
more than I
could af­
ford.
Worse, it
needed
renovation from top to
bottom. Despite that, own­
ing it was a comfortable
experience.
The monthly expense of
living there was stable for
the 20 years it was home.
How could that be possi­
ble?
Simple. It was a lovely
Georgian town house in
the Boston area. The two
small apartments that I
built provided rental in­
come.
It was enough to pay all
monthly expenses except
the mortgage.
The rental income
turned my shelter cost into
a fixed expense.
Lots of people have done
this. You can find duplexes
in urban areas all over
America.
If you own one of these
houses and pay off the
mortgage before retiring,
the rental income can be a
big part of your retirement
plan.
You can understand how
by considering the eco­
nomics of a duplex. These
are houses that have two
complete living units.
Since you are buying
what amounts to two
houses instead of one,
you’ll be paying about
twice as much as you can
reasonably afford. But the
rental income from one
side should pay half of all
expenses.
The mortgage is one big
expense.
But the real­estate taxes,
insurance, services and
maintenance mount up,
too.
You’ll also find that the
annual cost of the mort­
gage will be larger than the
annual cost of the operat­
ing expenses.
Pay off the mortgage,
and the rental income will
pay all the operating ex­
penses for both units,
perhaps more.
Yes, you read that right:
Rental income can cover
your shelter expenses for
life.
Here’s an example. Sup­
pose you buy a duplex for
$500,000 with a 20 per­
cent down payment.
A $400,000 30­year
mortgage at 4.5 percent
will set you back $24,320 a
year.
Now let’s assume some
expenses: a tax bill about 2
percent of home value;
insurance and service bills
at 1/2 percent of value
each; and maintenance/
repair expenses of 1 per­
cent.
So the annual operating
expenses will be about 4
percent of value —
$20,000. (Note: The Cen­
ter for Retirement Re­
search at Boston College
suggests a lower figure,
3.25 percent of value.)
Bottom line: If rent cov­
ers one­half the total costs,
it will cover all operating
costs. Maybe more.
There are lots of varia­
tions on this.
In Seattle and elsewhere
you can find town houses
with small “in­law” apart­
ments on the first floor.
These won’t cover half
the costs, but they will
make ownership easier.
Should everyone do
this?
Sorry, this option isn’t
open if your working ca­
reer calls for frequent
moves.
Also, collecting rent isn’t
for everyone. A single
Tenant From Hell can
make a real mess of your
life.
And don’t even try it if
you think fixing things is
something other people
do.
Questions:
scott@scottburns.com
Copyright 2014,
Universal Press Syndicate