How investors can avoid an overlooked pitfall of investment management
WEEKLY MARKET COMMENTARY |
In “The next chapter in the active versus passive management debate,” a white paper published in 2015, DiMeo Schneider & Associates evaluated the persistency of top quartile mutual funds in 17 categories during the 10-year period ended Dec. 31, 2014. The results would have been eye opening had it not been for previous research from 2007, 2010 and 2012. Despite the vastly different market environments during the prior periods, the advisement has been consistent. Some statistics from the report included:
- 92 percent: The percentage of top quartile mutual funds unable to avoid the bottom half of their peer groups at least one three-year period between 2005 and 2014.
- 56 percent: The percentage of top quartile mutual funds unable to avoid the bottom half during a five-year period between 2005 and 2014.
When allocating capital to active managers within your investment portfolio, the question is not what to do if your manager underperforms but when. The failure to address this is key to what John West, CFA at Research Affiliates calls “the biggest failure in investment management,” the negative gap between fund total returns and investor returns. Read our full commentary for more.