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Could Mutual Fund Sneakiness Be Costing You 4% Per Year?
It is no shock that mutual fund organizations work very hard to embellish their funds annual returns. One only wishes that these funds work equally hard at actually delivering superior returns to their loyal investor base. Hope springs eternal!
The referenced article identifies a handful of tricks and gimmicks that fund managers can deploy to nudge the returns needle in the slightly more positive direction. Yes, these devices do make an impact, but only at the margins. Additionally it is a futile effort because a simple performance measurement and a comparison standard are easily accessible to all investors: these are the annual returns and an appropriate benchmark. These two values integrate all the investment wisdom and investment decisions into simple numbers.
Most investors are most influenced by these two obvious metrics. I really don’t commit much precious time in identifying a funds specific portfolio holdings or their individual buy/sell records. That extra effort defeats one main reason for investing in mutual funds; allowing the fund manager to really manage his fund.
Mutual fund buyers are slowly recognizing the futility of active fund managers. Money is flowing away from active funds towards passive fund products and ETFs.
I doubt that active fund managers are robbing investors of 4% in returns because of unethical tactics. Yes, some tactics add to the cost structure, but insightful stock selections ameliorate their impact. The reference paper emphasizes the minor bushes and not the tall trees that dominate the forest. The referenced article is gilding the lilly.
Active funds annually underperform their passive benchmarks on average, sometimes by rather large margins. Here is a Link to a nice Morningstar paper that addresses this issue:
The paper certainly doesn’t make the case for the active mutual fund community. But exceptions do exist, and these exceptions have benefited their customers for long investment periods. Good for them, better for their clients. Indeed, hope springs eternal!
Comments
It is no shock that mutual fund organizations work very hard to embellish their funds annual returns. One only wishes that these funds work equally hard at actually delivering superior returns to their loyal investor base. Hope springs eternal!
The referenced article identifies a handful of tricks and gimmicks that fund managers can deploy to nudge the returns needle in the slightly more positive direction. Yes, these devices do make an impact, but only at the margins. Additionally it is a futile effort because a simple performance measurement and a comparison standard are easily accessible to all investors: these are the annual returns and an appropriate benchmark. These two values integrate all the investment wisdom and investment decisions into simple numbers.
Most investors are most influenced by these two obvious metrics. I really don’t commit much precious time in identifying a funds specific portfolio holdings or their individual buy/sell records. That extra effort defeats one main reason for investing in mutual funds; allowing the fund manager to really manage his fund.
Mutual fund buyers are slowly recognizing the futility of active fund managers. Money is flowing away from active funds towards passive fund products and ETFs.
I doubt that active fund managers are robbing investors of 4% in returns because of unethical tactics. Yes, some tactics add to the cost structure, but insightful stock selections ameliorate their impact. The reference paper emphasizes the minor bushes and not the tall trees that dominate the forest. The referenced article is gilding the lilly.
Active funds annually underperform their passive benchmarks on average, sometimes by rather large margins. Here is a Link to a nice Morningstar paper that addresses this issue:
http://corporate.morningstar.com/US/documents/ResearchPapers/MorningstarActive-PassiveBarometerJune2015.pdf
The paper certainly doesn’t make the case for the active mutual fund community. But exceptions do exist, and these exceptions have benefited their customers for long investment periods. Good for them, better for their clients. Indeed, hope springs eternal!
Best Wishes.