This is a short and entertaining read. At least it would be entertaining if people didn’t actually listen to it and make decisions with their most valuable financial instrument – their IRA. Morningstar puts out something like this every year after it crowns the winners of the returns game played by over 90% of mutual funds and nearly the same percentage of misinformed investors. Give the full article a read here – or just skip below to my highlights. (Emphasis mine throughout.)
Even the author bio will make you laugh . . .
“Russel Kinnel is Morningstar’s director of mutual fund research. He is also the editor of Morningstar FundInvestor, a monthly newsletter dedicated to helping investors pick great mutual funds, build winning portfolios, and monitor their funds for greater gains.”
. . . unless you take “helping investor own last year’s winners” to mean “winning portfolios.” It’s likely that Russel hasn’t seen the numbers on a manager’s ability to repeat performance. Nearly 0%, Russell.
The writer actually has the ability to use the word “right” in this heading. Isn’t that the biggest “No S%#T” you’ve ever heard. Isn’t stock picking defined as picking “the right” stocks in certain categories? Come on, people. Let’s raise the standard to at least the common-sense level.
Winner: Funds With the Right Financials
It wasn’t a bad year to own financials. Fidelity Mid Cap Value FSMVX had a number of winners including Allstate ALL, AmTrust Financial Services AFSI, and NavientNAVI.
Oh yeah, in case you missed it up there, just try to remember to not pick the wrong ones. And as always, who’s surprised that the high turnover crowd were actually losers in the returns game?
Loser: Funds With Astronomical Turnover
Birmiwal Oasis BIRMX has turnover of 2,000% and lost 22% in the year to date. The fund with the next highest turnover, Quantified All-Cap Equity QACFX, lost 3% with a sluggish turnover rate of 1,327%.
Let me paint a picture for you. A fund with this kind of turnover is likely making north of 4000 trades per year. That comes to over 10 trades during every open trading day. So, the fund lost 22% while US small companies made 4%. Ask yourself this – who did get paid last year? Right – the fund manager, and he made bank! I’m on a roll now. While you’re laughing hysterically, check out this funny pair.
Winner: Growth Funds That Like Health Care
Primecap’s growth funds are all fond of health care, including biotech, and they produced returns between 15% and 20%, all topping nearly all of their peers. ClearBridge Aggressive Growth SHRAX and Amana Growth AMAGX also rode health care to a big year.
Loser: Growth Funds That Love Twitter and Hate Health Care
Dennis Lynch’s team at Morgan Stanley made a mint with the Twitters and Groupons of the world in 2013, but in 2014 they gave some back as the market decided that Twitter’s shares had gotten a little frothy. Morgan Stanley Institutional Small GrowthMSSGX shed 14% in the year to date. Mid Growth MPEGX was down 1.3% and Growth MSEQX gained 5%, which was still bottom quartile.
Next year, you like totally need to try to like buy Facebook and stuff and then hate Twitter – you know? Try getting out in front of picks like this enough years out of 10 to make a difference. And this drivel is sold to you as advice.
CRITICAL MINDSET MOMENT…
All sarcasm aside, a critical mindset for successful investors is to fight the urge to buy last year’s winners of the returns game. Mutual fund managers who beat the market in one period have little or no likelihood of beating it again in the next period. Don’t buy their overpriced junk funds.
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