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| > Investing > Fund Times |
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| Numbers Not so Hot for Active Management |
| by
Morningstar Analysts
| 10-12-09 |
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Morningstar's Indexes team has released its "Box Score Report" for the first half of 2009. Among the findings:
* After accounting for risk, size, and style, only 37% of active funds beat the respective Morningstar Style Index over the past three years
* Top-performing funds have been less risky over the past three years than their underachieving peers
* Over the past three years, active funds holding more cash outperform their more fully invested counterparts
Check out the full report here.
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| October 13, 2009 01:31 pm |
Morningstar subscribers grasp on the issues is spot on. The question is much broader than active versus passive. Investors need to be very choosey regarding all investments, and in particular active funds. Having a process to cull the wheat from the chaff is essential and have the fortitude to stick with it through the inevitable difficult times.
There are many ways to determine the top funds. I looked at raw performance, Jensen's alpha and the Fama-French alpha. Using the Fama-French alpha accounts for the varying exposures that an active fund takes, such as the broad market, size and style. If alpha is postitive, the fund generated returns after accounting for these sensitivitities.
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| - Travis Pascavis, Chicago |
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| October 12, 2009 04:57 pm |
Don, re-read. This is nothing new as the AVERAGE active manager has difficulty beating the indexes. Just like betting on the favorites in the KY Derby each year, we use MS Principia Pro (like most advisers) to cull out the cream of the crop and then only use the top, all-star active managers. Over time, these top managers have waxed the index and ETF comparables quite handily.
Marcel, right-on. I cannot understand why MS continues to confuse the issue without putting a very large caveat with an article like this. They should also provide a comparison between index funds and an all-star portfolio consisting only of top funds that are filtered using the regular RIA adviser filters to select low-expense-ratio, not-too-large-asset-base, long-term-manager, top-quintile-performance-over-time, mutual fund line-ups. These comparisons to average are simply apples to oranges compared to what we do in reality.
Finally, the news about the death of style boxes is very premature. Picking managers with style purity means that you get a shop that focuses on their area of top expertise and we want them fully invested at all times. This puts the onus of active management and related hedging in bad markets squarely where it belongs: with us as the RIA.
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| - Active RIA, Cincinnati, OH |
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| October 12, 2009 01:01 pm |
| If Active Mangement can't beat their Indexes during periods of market turmoil, when presumably their clients need the to the most, when can they beat them? |
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| - Don VanLandingham, Chattanooga, TN |
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| October 12, 2009 11:32 am |
| It's funny how our fund of funds approach using active managers that we research using Morningstar software, common sense model building, and in person meetings with fund managers have crushed indexing in all periods. Style boxes are dead. |
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| - Marcel Dupré, Baton Rouge, LA |
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| October 12, 2009 10:22 am |
Wouldn't a saavy user of Morningstar products be able to seek out those active funds that do outperform the market over long periods of time. I thought that was why I subscribed.
A strictly passive investor really wouldn't need to subscribe, would they? |
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| - John Hogan, Milwaukee WI |
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| October 12, 2009 9:22 am |
| I think looking at results for just 09 is not that interesting. Also that more conservative funds look better in a recession is hardly a revelation. For our group as professional planners the question is how our funds and models are holding up in the combination of yet another extreme down and up. Where we prefer actively managed funds over index positions, how did these funds hold up this go round? How about for this dismal decade? I'd ask the same question of the Morningstar star system which we in part employ. We find that in general fund managers from all asset classes that do the best for us generally excercise a caution and care in what they will pay for a stock whether they be a growth, blend or value oriented manager. And that several of these managers have indeed kept themselves in that index beating 37% grouping. |
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| - Glenn Shaikun, Buffalo NY |
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