FYI: The importance of actively managed mutual funds in the financial sector has led to substantial research focused on their performance. The overwhelming evidence is that it’s very difficult, if not impossible, to identify ahead of time the shrinking percentage of active managers who will outperform in the future. Among the reasons for the difficult nature of this task is that so few managers succeed, and that it’s difficult to separate skill from luck.
Regards,
Ted
http://mutualfunds.com/expert-analysis/do-upside-downside-ratios-predict-mutual-fund-performance/
Comments
I should have spent couple more years and got a PhD. Searching once is nothing. Searching twice is "Re"search.
For those who have sizable domestic high quality bond allocation (60/40 allocation), their loss is limited to ~20%.
The upside/downside ratio are interesting statistics and backward looking. Thus they have little predictive value (in my humble opinion) in picking winning funds.
@tarashanta, In the last down cycle financials were especially hard hit (I recall a high number of bank failures and "shot-gun weddings" where the FDIC pressured troubled banks to merge with healthier ones). Unfortunately, Dodge and Cox was heavily into financials at the time.
I was in DODBX and was like you disappointed. However, it's recovered nicely for those who stayed the course. What I find personally interesting (as owner of some of their funds) is that several of Oppenheimer's supposedly "less risky funds" did even worse than DODBX during the '07-09 period. Their "Core Bond" fund lost around 40% during that period If memory serves me correctly - even more than the more aggressive DODBX. Same for their "Capital Income" fund, also off around 40%.
I've heard that history often rhymes, but doesn't exactly repeat. Next time the market swoons it will likely be started by some other sector. The experience with DODBX might possibly sway some to diversify more broadly rather than putting all their eggs in one basket. (But that's another issue.)