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March 27, 2018 at 04:35 PM
Patience. That’s what investing in actively managed funds requires, according to a new study from Morningstar.
The study, by Paul Kaplan, director of research and Maciej Kowara, senior analyst, looked at the returns of several thousand actively managed equity funds over a 15-year period, from Jan. 1, 2003 through Dec. 31, 2017, focusing on their longest underperformance periods (LUP) and longest outperformance periods (LOP) versus their benchmarks.
It found that even funds that outperformed over those 15 years underperformed well over half that time, and vice versa.
The funds in the study were based around the world — in the U.S., Canada, Europe and Asia, excluding Japan — and did not hedge their foreign currency exposure. The findings were based on only those funds that remained in existence for the full 15 years and, more specifically, on the performance of their oldest share classes.
Of the 5,500 funds studied, 3,790, or roughly two-thirds, beat their benchmark over the 15 years but on average underperformed their benchmarks nine to 11 years during that time.
“Investors who were hoping to hold outperforming funds over this 15-year period not only needed to pick the right funds but have the patience to endure periods of underperformance of nine to 11 years at some point within that period,” the study states.
