Tags: S&P | mutual | fund | return

S&P Study: Most Mutual Funds Don't Stay at the Top for Long

By    |   Monday, 14 July 2014 02:53 PM

Does it really make sense to chase mutual fund performance? A new study by S&P Dow Jones Indices shows that only a small proportion of mutual funds maintain their top rankings for two-year and five-year periods.

Specifically, of the 687 funds that were in the top quartile as of March 2012, only 3.78 percent managed to stay there by the end of March 2014, and only a minuscule 0.28 percent of the top quartile were able to keep their top quartile ranking for as long as five years in the study that covered the period from March 2010 to March 2014.

"Very few funds can consistently stay at the top," S&P noted.

Editor’s Note:
Dow Predicted Will Hit 60,000 — Buy These 4 Stocks Now


"It is worth noting that no large-cap or mid-cap funds managed to remain in the top quartile at the end of the five-year measurement period. The figures paint a poor picture of the lack of long-term persistence in mutual fund returns."

Not surprisingly, some portfolio managers said the S&P study ignores the importance of long-term track records and plays into the hands of proponents of index-based investing.

Tom Scherrer, director of research and a portfolio manager for Smead Capital Management, told Investment News that it is not possible for fund managers to generate alpha every year, and that longer-term performance is more important for investors in any event.

"If you have always put yourself into the camp of passive — if you're an ideologue on the fact that active management can't work or doesn't work, this is great reading," he explains.

"If you're a long-time horizon manager, of which there aren't many these days, you're looking to create wealth," Scherrer said. "I don't know what the value is in understanding the consistency of a manager to stay in the very top of the game in every 12-month rolling period. I don't know if that has any merit."

Aye Soe, director of global research and design for S&P Dow Jones Indices and author of the study, also downplayed the importance of short-term results.

"The phrase 'past performance is not an indicator of future outcomes' (or some variation thereof) can be found in the fine print of most mutual fund literature," Soe said.

"Yet due to either force of habit or conviction, investors and advisors consider past performance and related metrics to be important factors in fund selection."

For the record, most mutual funds made profits in the second quarter of 2014 just ended, The Associated Press reported.

"Of the 105 fund categories that Morningstar tracks, 99 posted gains in the second quarter. And the handful that lost money are generally niche funds that rarely play more than a supporting role in an investor's portfolio," the AP noted.

Editor’s Note: Dow Predicted Will Hit 60,000 — Buy These 4 Stocks Now

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Does it really make sense to chase mutual fund performance? A new study by S&P Dow Jones Indices shows that only a small proportion of mutual funds maintain their top rankings for two-year and five-year periods.
S&P, mutual, fund, return
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2014-53-14
Monday, 14 July 2014 02:53 PM
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