Tags: Barrons | Active | Funds | Indexes

Barron’s: Active Funds Take a Beating vs. Indexes

Monday, 19 March 2012 12:35 PM

Is your actively managed mutual fund a market-beater? Almost certainly not, at least according to one objective view of the numbers.

And even if your favorite manager or asset class recently outperformed, don’t expect that to continue, according to Barron’s.

Citing data from Standard & Poor’s, the investment weekly points out that 84 percent of actively managed funds failed to beat their benchmarks, the worst showing in a decade.

Over three years, the result was 57 percent and over five years 62 percent. There was no real premium, either, for having chosen asset classes typically considered outperformers — small and mid-cap funds.

If your fund did beat the index, be even more wary, Barron’s reports.

Managers in the top 25 percent of their category over five years rarely repeat that showing: Just 12.2 percent of large-caps, 3 percent of mid-caps, and 20.2 percent of small-cap funds in the most recent S&P review.

If the results were simply random, one would expect a repeat rate of 25 percent, Barron’s asserts. Essentially, managers did worse than flipping coins when it came to sustaining winning streaks.

"There's no evidence of persistence of performance beyond what would be randomly expected," Larry Swedroe, principal and director of research for Buckingham Asset Management, told Barron’s.

"Now, this doesn't tell you that there's no skill in any manager's stock-picking ability. But how do you find those managers? And even if you find them, that outperformance can't last indefinitely," Swedroe said.

Perhaps the greatest investor of the century faces his own succession problems. Eighty-one year old Warren Buffett has publicly announced that a successor to himself has bee chosen at Berkshire Hathaway, but the firm has not disclosed the person’s name.

Buffett recently assured investors in his holding company that plans were solidly in place to maintain the corporate culture he built, one that turned the insurer into a massive money churn for its investors over the decades.

The Berkshire board was working to make sure that its companies have a pipeline of management talent, Buffett wrote, and that “the next generation of leaders is identified and ready to take over tomorrow.”

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Monday, 19 March 2012 12:35 PM
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