Manager Underperformance - II

| June 19, 2018
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Morningstar has recently released a new white paper on manager underperformance.

In short, even the best managers will go through period of underperformance.

I know, I already told you that: here, here and here or search my blog for titles such as Death, Taxes & Manager Underperformance or Would You Fire!

However, their finding show this could last longer than most can withstand.

Here are their findings:

  • We investigate these measures empirically for a global set of active funds over the 15-year period starting January 2003 and ending December 2017.
  • We find that for funds that outperformed their benchmark trailed that benchmark for an average of nine to 12 years sometime during that period.
  • Conversely, we find that funds that ended up underperforming their benchmarks were ahead of those benchmarks for comparably long stretches.
  • The main implication of these findings is that standard performance-measurement periods, such as three, five, or even 10 years are far too short to evaluate a manager with confidence.
  • Investors who believe they picked a good fund must show more patience than is commonly assumed.
  • The implications of these findings for investors, consultants, and funds-of-funds managers are clear. The designers of asset management firms’ portfolio-manager evaluation systems will also need to consider incorporating longer time periods in their methodologies.

In short, like an athlete searching for mastery, any good capital allocator must ask themselves, “What is my or my clients capacity for pain?”

 

Stay Tuned, Disciplined & Patient! {TJM}

The Investor & Character Equation (ICE) | S + R = O

 

Disclosure
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Meyer Capital Group), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Meyer Capital Group. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Meyer Capital Group is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Meyer Capital Group’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

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