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NYT: Tips for Evaluating Mutual Fund Managers

By    |   Monday, 10 March 2014 09:24 AM

With stocks passing the fifth anniversary of their bull market March 9, the five-year performance record of mutual funds has turned less useful for investors, because it doesn't include a bear market period.

Paul Sullivan of The New York Times offers several suggestions for getting a better handle on a fund's performance.

First, look at a fund's record in a period that includes a bull and a bear market. "I think five-year trailing returns are only appropriate if you had a full bear and bull market," Steven Krawick, president of West Chester Capital Advisors, tells The Times.

Editor’s Note:
These 38 Dates Are Key to Bagging $313,038

"If you're not looking at a complete market cycle, you're only looking at one side of a manager's ability."

Many mutual funds are less than five years old, so there's no long-term track record to examine.

Some financial advisers recommend looking at just one year — a year where stocks went both up and down, such as 2011, The Times reports.

That year "was a great year to study because we experienced outsized intra-year volatility and performance was essentially flat on the S&P 500," Daniel Jacoby, chief investment officer of Stratos Wealth Partners, told the paper.

"Understanding how fund managers were positioned in this type of market will shed a lot of light on how they view and manage risk."

Meanwhile, Charlie Bilello, director of research at Pension Partners, writes in U.S. News & World Report that retail investors have four advantages relative to professional investors.

• "You have time." You often don't have to worry about your short-term performance. "History has shown us that the longer your time horizon, the higher your odds of achieving a positive return," Bilello explains.

• "You have patience," he notes, adding that "many professional investors lack patience, as they are not afforded this luxury by their investors."

• "You can be a contrarian." For institutional investors, "the career risk from deviating from the crowd and being wrong can mean the end of one’s career, even if it is the correct decision in the long run."

• "You're unconstrained." Retail investors don't face any restrictions in their investment style.

Editor’s Note: These 38 Dates Are Key to Bagging $313,038

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With stocks passing the fifth anniversary of their bull market March 9, the five-year performance record of mutual funds has turned less useful for investors, because it doesn't include a bear market period.
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2014-24-10
Monday, 10 March 2014 09:24 AM
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