Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Support MFO
Donate through PayPal
Who Routinely Trounces The Stock Market ? Try 2 Out Of 2,862 Funds
While the study's general conclusion is correct (few funds land in the top 25% every single year), it has from my perspective four serious problems.
1. The baseline period is March 2009 to 2010, which is to say they looked at the funds that had the greatest returns coming off a profound market bottom. The broad market return in those 12 months was 56%.
2. By picking a mid-year measurement period, they make it hard to test their conclusions since few public data sources allow you to screen for periods other than calendar years and trailing periods
3. There's no explanation for why the metric is reasonable. Few funds land in the top 25% every year, without exception. (a) Duh. (b) Who cares? If, hypothetically, a market is frothy and valuations stretched, do you really want a fund that's at the top of the heap? If you "win," by whatever standard you use with your portfolio, more often than you lose, does the "not every year" thing have any meaning?
4. S&P, author of the study and writer of indexes, uses the paper to justify investing in index funds. And so, we ask, how many index funds satisfied the researchers' criteria? That is, if the test is "top quarter every year," which of their preferred vehicles meet the standard? I suspect I can count the winners on the thumbs of one foot.
1. One can always find needles in the haystack. 2. David makes an excellent about S&P, their licensed S&P Indexes bring in a lot of revenue, therefore its in their economic interest to glorify indexes.
If you "win," by whatever standard you use with your portfolio, more often than you lose, does the "not every year" thing have any meaning?
I believe the meaning of the "not every year" thing would be somewhat contingent on how much you win when you win and on how much you lose when you lose. But since a belief is a religious feeling...........
Comments
1. The baseline period is March 2009 to 2010, which is to say they looked at the funds that had the greatest returns coming off a profound market bottom. The broad market return in those 12 months was 56%.
2. By picking a mid-year measurement period, they make it hard to test their conclusions since few public data sources allow you to screen for periods other than calendar years and trailing periods
3. There's no explanation for why the metric is reasonable. Few funds land in the top 25% every year, without exception. (a) Duh. (b) Who cares? If, hypothetically, a market is frothy and valuations stretched, do you really want a fund that's at the top of the heap? If you "win," by whatever standard you use with your portfolio, more often than you lose, does the "not every year" thing have any meaning?
4. S&P, author of the study and writer of indexes, uses the paper to justify investing in index funds. And so, we ask, how many index funds satisfied the researchers' criteria? That is, if the test is "top quarter every year," which of their preferred vehicles meet the standard? I suspect I can count the winners on the thumbs of one foot.
Just grumbling,
David
2. David makes an excellent about S&P, their licensed S&P Indexes bring in a lot of revenue, therefore its in their economic interest to glorify indexes.
[sarc]
@David_Snowball I believe the meaning of the "not every year" thing would be somewhat contingent on how much you win when you win and on how much you lose when you lose. But since a belief is a religious feeling...........