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It probably won’t be too costly for you this year to
correct an investing mistake you made last year. But if
you made a mistake
10
years ago that you didn’t
quickly fix, you’ll be paying for it for a very long time.
That’s one clear lesson gleaned from our investor
returns data. We’ve updated our figures through
2015
, and they vividly illustrate how decisions made
a decade ago have an impact that compounds
powerfully over time.
What Are Investor Returns?
Investor returns are dollar-weighted returns, as
opposed to time-weighted returns, which are the
standard way of displaying an investment’s total
returns. We calculate investor returns for a single
fund by adjusting returns to reflect monthly flows
and their compounding effect over time. Generally,
investor returns fall short of a fund’s stated time-
weighted returns because, in the aggregate, people
tend to buy after a fund has gained value and
sell after it has lost value. Thus, they miss out on
a key part of the return stream.
That fact plays out for all types of investors—not just
fund investors. Studies show stock investors and
pension fund managers do the same thing. Who really
was there to buy
Apple
AAPL
at its low or sell Fannie
Mae at its high?
To aggregate fund investor return data, we roll up
the figures by asset-weighting them so that big
funds count for much more than little ones. Then, we
compare the asset-weighted number to the average
fund total return. Essentially, we are comparing the
average fund to the average investor experience.
The gap between the two figures tells us how well
investors timed their investments in the aggregate.
Exchange-traded funds were not included because it
is difficult to estimate flows into them.
How Are They Useful?
Generally, I find it more useful to look at the forest
than the trees when it comes to investor returns.
Taken as a whole, they tell us something interesting
about aggregate investor behavior. But individually,
it can get pretty noisy. While investor returns often
tell an interesting story of how a fund is used,
you have to be careful about reading too much into
an individual fund’s investor returns.
Take two similar funds launched at different times
and you may find very different investor returns. So,
when you see a fund’s investor returns, it’s a good
idea to find out why the fund was used poorly or well.
I find it helpful to look at that return gap and then
look at calendar-year performance for the fund. Usually
the answer can be found in the first two or three
years of the time period. Maybe a fund had a great
year that led investors to rush in too late, or, conversely,
a fund closed to new investors was able to hold on
to longtime shareholders through a difficult year, thus
enabling them to reap the benefits beyond that year.
Backing out to the forest view, we can test various
factors to see which ones have a link to better investor
returns and which ones don’t. These may be the
Mind the Gap 2016
Fund Reports
4
Becker Value Equity
Conestoga Small Cap
Janus Triton
Neuberger Berman Intl Equity
Morningstar Research
8
The New Fiduciary Rule and You
The Contrarian
10
Mind the Value Premium
Red Flags
11
Debt Watch
Market Overview
12
Leaders & Laggards
13
Manager Changes and News
14
Portfolio Matters
16
Managing Your Short-
Term Investments
Tracking Morningstar
18
Analyst Ratings
Income Strategist
20
New Rules for Bond Funds
Changes to the 500
22
FundInvestor 500 Spotlight
23
Follow Russ on Twitter
@RussKinnel
RusselKinnel, Director of
ManagerResearch and Editor
FundInvestor
May 2016
Vol. 24 No. 9
Research and recommendatio s for the s riou fund investo
SM
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