Daniel Wiener runs a museum of obsolete technology.
OK, full disclosure, it’s more of a large table than a museum. But it’s an impressive collection nonetheless, including a minidisk player, the first iPod and a laptop that once cost $4,000 but which now probably has less memory than your watch.
It’s both a testament to Wiener’s interest in technology and a reminder that the flavor of the month can quickly fade to irrelevance. It is also a convenient – if labored – metaphor for someone to use when searching for an introduction to an article about fund selection.
Wiener, you see, is a resolute cheerleader for active management – something that many believe could go the way of his timeworn trinkets, rendered pointless by pricing pressure and its own failure to perform.
Wiener does not quite see it like that though. He concedes that the average active manager has lagged in certain asset classes, but that’s not the kind of manager he’s interested in.
‘The average active manager has underperformed, but we don’t buy the average active manager,’ he says. ‘We are focused on eight or nine managers out of the 3,000 or so that make up the average. We work very hard to find those excellent managers. Give them their time and due, and they will perform for you.
‘The only advantage that index funds and ETFs have is being low-cost. That whole business about being diversified, you don’t see people talking about that anymore. The message is all about costs. But we can find excellent active managers with low costs.’
In this instance, ‘we’ refers to Wiener (left) and Jeff DeMaso (right), chairman and head of research respectively at Adviser Investments, the RIA that Wiener founded in 1993.
If his defense of active management risks making Wiener sound as if he is behind the times, his tech collection and career to date suggest otherwise. Together, they paint a picture of a shrewd trend spotter and an eager early adopter.
His résumé shows that he is nothing if not adaptable too, having gone from being a reporter to founding a popular newsletter, and from that to the RIA he runs today.
Wiener started out his professional life as a journalist, covering software firms and Wall Street for Fortune magazine. From there, he went on to US News & World Report, where he began writing about mutual funds.
He was enthused by his new beat and began producing some of the first lists ranking fund companies for their strategies’ performance, price and service.
‘I saw that the mutual fund industry was going to be much bigger than it looked to be in the late ’80s,’ he says.
One fund family in particular caught his eye. In 1991, he started writing his own newsletter about Vanguard, The Independent Adviser for Vanguard Investors. He initially devoted his evenings and weekends to this passion project, but within a year he had secured $30,000 of investment from friends and decided to quit his job to run the newsletter full-time.
Things went well initially, with the added backing helping to grow subscriptions to 2,000 within two years. But then Vanguard took notice and promptly sued.
‘It was a David versus Goliath story. [Vanguard founder and then CEO] Jack Bogle was unhappy that there was an independent voice talking about Vanguard. He wanted to be the only person,’ Wiener recalls. ‘But then they came back and said, “Can we settle this?” because the press around them doing this was all negative.’
The case was dropped, and Wiener quickly discovered that the furore had helped rather than hindered the newsletter.
‘Because of the way the press had run, we suddenly had 10,000 subscribers. It was fantastic. Them trying to sue me put me on the map,’ Wiener says.
Making the leap
Investors didn’t just want a newsletter about Vanguard funds though. They also wanted Wiener to pick the products and build portfolios for them. In 1994, he set up Adviser Investments, initially with one $140,000 client from Oregon.
In 1995, he sold the newsletter to avoid any blurred lines with his regulated advice business, but he remains subcontracted – now alongside DeMaso – to write and edit it every month.
It seems safe to say that the decision has proved to be a good one. The newsletter has grown from eight pages to 16, and subscribers now total 40,000. The RIA boasts 3,000 clients and 85 members of staff, including 25 client-facing advisors across offices in Newton, Massachusetts and Brooklyn, New York, with $5.5 billion in assets under management.
Some of that growth has come through acquisitions, including the 2011 purchase of Kobren Insight Management, which led to DeMaso coming on board.
As an economics graduate, DeMaso had interned at Massachusetts-based Kobren during school and then went on to land a full-time job in its research department.
Another key hire had come back in 1999, when now-CIO Jim Lowell joined the firm. Like Wiener, he had made his name as an investment newsletter writer, this time focused on Fidelity funds. As with the Vanguard paper, Lowell’s Fidelity Investor is still going strong today.
Wiener explains how these hires have informed the firm’s investment proposition. ‘When we started out, we were Vanguard-only. When Jim came on board, we were what we called the “best of both,” in that we would build portfolios from Vanguard and Fidelity. In 2011 [when Jeff joined], we began expanding beyond the Vanguard and Fidelity families,’ he says.
Today, the firm offers a number of funds, but Wiener and DeMaso say that around 80% of assets are with about eight management teams. These include the Vanguard fixed income team, Artisan Partners high yield manager Bryan Krug, growth equity shop Primecap Odyssey Funds, and the Wellington Management Company healthcare team led by Jean Hynes.
Adviser Investments originally accessed the latter two teams through Vanguard funds which they subadvised. When these funds were closed to new investors, Wiener and DeMaso went straight to the source, or to the next best thing.
‘Vanguard closed all the Primecap funds it offered,’ Wiener says. ‘Primecap Odyssey Funds, which we have owned almost from day one, gave us access to the team and access to our new clients. Even though they have now closed one of their funds [Primecap Odyssey Aggressive Growth], we still have access to it because we have a long-standing relationship with them and quite a lot of money invested with them. We think they are some of the best managers in the market.’
DeMaso adds: ‘The Wellington Healthcare team that subadvises Vanguard Health Care also subadvises the Hartford Healthcare fund. That’s one way we can get access to them. Yes, it’s a little more expensive, but it’s a much smaller portfolio. They can access small- and mid-cap stocks and have a little more flexibility. But it’s the same managers, and we are buying the manager.’
That line is crucial to DeMaso and Wiener’s philosophy. ‘We think it’s really important to look at who the manager is, not the name of the fund,’ Wiener says.
Their other key tenet is ‘Time in the market, not timing the market.’ They are not prescriptive about advisors using certain managers, but the high concentration of assets with a relatively small number of teams suggests that advisors tend to buy into their picks.
While some of these manager selections come from historical expertise and relationships, DeMaso and his team of analysts are constantly on the lookout for new names. They run quantitative screens on Morningstar and carry out more than 100 calls and interviews with teams over the course of a year.
If they like a manager but have no use for them immediately, they may include the fund in an analyst portfolio – essentially their reserve bench. ‘The idea of these analyst portfolios is that we are turning over the rocks, doing our homework ahead of time and updating the team about these managers,’ DeMaso says. ‘It means that when we want to make a trade, say getting into emerging markets, we have already got the managers identified rather than everyone stopping what they are doing and spending three months on that.’
Although DeMaso and Wiener are certainly vocal advocates for active management, if they can’t find the best they will use an ETF or an index fund to gain exposure to an asset class when they want to shift allocations.
‘We will try and match up the same kind of risks and exposure that we are getting with active managers, but it’s not going to be perfect if those managers are buying good stocks,’ DeMaso says.
The key to explaining all this to clients is effective communication, Wiener says. This is where their second job as newspaper editors comes in.
‘Communicating is a huge part of our job, in terms of setting up client expectations, educating them so they understand how the market behaves, and preparing them well,’ DeMaso says.
Wiener adds that these two roles help them to focus their thoughts and to stick to a view. ‘One informs the other,’ he says. ‘Research we do for the firm may inform a story that we think would be relevant for Vanguard investors. [Writing the newsletter] forces us to commit. The talking heads on TV or radio, [their comments are] gone into the ether five seconds after they’ve said them. We write it all down, so it’s permanent.’
If the success of Adviser Investments has its roots in the newsletter, this in turn was sparked by Wiener’s first love: technology.
‘When I was at Fortune, I was covering the software industry. I saw the first desktop publishing software, and I thought I would love to publish a newsletter because the technology was so cool,’ Wiener says.
‘The fact that business journalism gave me the idea for the newsletter and then the newsletter spurred the development of Adviser Investments – well, who knew?’
Although desktop publishing software from the 1980s may seem obsolete to some, it’s perhaps not surprising that it has a well-earned place in Wiener’s heart and his burgeoning collection.