52 / 772
2
rate. Because about one third of funds were merged
away or liquidated over that five-year stretch, a
47%
success rate is actually quite good.
If we look at a risk-adjusted success rate, the story is
fairly similar. We found a risk-adjusted success rate of
28%
for managers with no investment compared with
39%
for those with
$1
million or more.
Looking at asset classes, the trend was pretty consis-
tent. In U.S. equities, funds with no investment
had a dismal
29%
success ratio versus
39%
for the
top rung. Attrition was higher in U.S. equities coming
out of the bear market. For international funds,
those with zero investment had a
32%
success ratio
versus
68%
for those with more than
$1
million
invested. Balanced funds had a
32%
success rate
on the bottom rung versus
85%
on the top rung.
Manager investment worked less well for sector funds
and taxable-bond funds, however. For sector funds,
the group with no investment had a
39%
success ratio
while the over
$1
million group had a
40%
success
ratio. The highest two rungs in sectors were pretty
sparsely represented as just
10
funds and
16
funds were
represented at the start of the period. So, it could
be that there just isn’t enough data. For taxable bonds,
the top performers were in the middle of the invest-
ment range. However, the number of funds in the top
two groups was fairly small again. If there’s more
going on than a lack of data, I don’t have an explana-
tion for why these two asset groups defy the manager
investment trend.
Municipal bonds showed a positive trend for moving
up in investment level, but like the figures for sector
funds and taxable-bond funds, the limited amount of
data leads me to avoid conclusions. Muni funds
in which managers invested more than
$1
million had
an
80%
success rate, but that comes from a mere
five funds.
Why the Predictive Power?
There are likely some direct and indirect effects going
on here. No one knows a fund better than its
managers and naturally they can evaluate it well for
their own needs. They can evaluate people and
process and are savvy investors when it comes to fees.
So they are more likely to buy low-cost funds as we
saw in previous studies. If a fund has high costs, they
might invest in some other vehicle such as a separate
Manager Investment Brings Better Results
Continued From Cover
Broad Group
Bucket
Success
Rate (
%
)
Success Rate
MRAR (
%
)
U.S. Equity
$0
28.99
23.63
$1–$10,000
28.74
26.44
$10,001–$50,000
29.65
23.26
$50,001–$100,000
33.52
25.14
$100,001–$500,000
36.52
29.97
$500,001–$1,000,000
31.86
27.43
$1,000,001 or greater
39.08
33.19
Intl Equity
$0
31.52
26.08
$1–$10,000
52.17
43.48
$10,001–$50,000
34.69
24.49
$50,001–$100,000
48.57
34.29
$100,001–$500,000
45.71
37.14
$500,001–$1,000,000
43.75
37.50
$1,000,001 or greater
67.86
50.00
Balanced
$0
31.65
28.06
$1–$10,000
21.43
21.43
$10,001–$50,000
52.63
47.37
$50,001–$100,000
76.92
61.54
$100,001–$500,000
50.00
47.37
$500,001–$1,000,000
64.29
42.86
$1,000,001 or greater
84.62
73.08
Taxable Bond
$0
41.67
37.59
$1–$10,000
35.29
23.53
$10,001–$50,000
40.24
30.49
$50,001–$100,000
56.86
43.14
$100,001–$500,000
55.45
35.64
$500,001–$1,000,000
47.06
35.29
$1,000,001 or greater
42.31
42.31
All Funds
$0
34.85
28.18
$1–$10,000
36.24
30.28
$10,001–$50,000
35.52
25.30
$50,001–$100,000
43.25
33.13
$100,001–$500,000
42.55
33.60
$500,001–$1,000,000
40.31
33.16
$1,000,001 or greater
46.74
39.16
Predictive Power of Manager Investment