>> manager who has soundly beaten the market using a quant strategy,
Uh. BOGLX looks like a small-cap, so no wonder it has beaten SP500. It is a v good performer more recently, yes, since you can exclude its huge drop 08-09.
I mean, compare with GABSX and FLPSX for periods longer than 5y, like 7-8-9-10. Note the depth of that dip.

@vert, there are two separate points being mixed up here.
One being inside the box for Sharpe's mathematical guarantee. Obviously, bigger the box, the more difficult it is to find stocks outside it. Sharp's assertion is about ANY box. VTSMX is just one example of it. But his results have been used to claim the result for ANY index vs active fund in that category, for example, that large cap active funds cannot beat SP 500 index for mathematical reasons as outlined by Sharpe. This is incorrect. So, the violations of those inside-the-box assumptions should not be ignored.
The second point is that Sharpe's mathematical results are valid regardless of what the active managers do within that box. But this result is true only when the index to measure against is constructed in a way that is impossible to have a fund for in practice because of the required allocation. VTSMX (or any index fund in any box) is not it. If you use those then you get the paradox I have described above.
To understamd why, one has to understand Sharpe's argument for the result not just the abstract and summary talking points. Let me illustrate by a simple example.
Consider a box that contains only two stocks A and B equally priced to keep it simple. There are two active investors IA and IB each of whom own one share of A and B respectively. Let us say an index owns a share each of A and B. Sharpe's argument works like this:
Say A goes up 10% and B goes up 20% with IA and IB realizing the corresponding results. The index gains 15% from owning both. Sharpes' thesis is that IB overperformed by 5% but IA underperformed by 5%, so the average investor dollar didn't beat the index and will be worse after fees. This is the correct part.
But there is an implied assumption about that index that is critical. What if there was a third investor who also owned B? The average over all investors is then 16.67%, a 1.67% win over the index for the average. Or what if all the three owned only B? All of them beat that index by 5%! That is the paradox.
If you think about what happened here, Sharpe's formulation is correct ONLY when the index you consider contains the underlying stocks in the SAME proportion as the aggregate stock holdings from all active investors. There will be no paradox here.
The index cannot be market cap weighted, or equal weighted or ANY weighting unrelated to the actual share proportions held by investors. Not only is any index fund like VTSMX far away from this, it is not even possible in practice to create such a fund because it will have to continuously keep altering its allocation to match what investors are doing!
Again, this is all about the validity of the mathematical guarantee. Good theory but not very applicable in practice and incorrectly propagated by people who only understand the headlines.

Sure, its true but I think this is a simple throwaway statement. As an analogy, what if you and 5 friends make a pact using a coin that says when it is your birthday and if you hold the coin, someone else in the group will step forward and buy it from you for whatever price you name. Or maybe its a closed bid auction and everyone has to bid for the coin on your birthday. (OK, this may need some fleshing out) In any case, the coin changes hands, the group of 6 doesn't gain or lose any money overall but obviously someone could and would be a winner.
What I find interesting is the same folk that tell you that the world earns the market return are quick to tell you the average investor falls far short of that return (by as much as 50% of that return). Well then some other group must be earning what the average guy leaves behind, no?
As to Sharpe's paper, where is he drawing the box? His market is every intangible and tangible item on the globe. What if I sold stocks in 2008, and bought a restored 1970 Chevelle? Are my current gains weighed against those that bought my stocks and sold me that car? What if the guy who sold me the car bought machine tools and started business - how can Sharpe say its all in one box?

Is the information contained in William Sharpe's paper correct, which is essentially the identical information that Bogle talks about above, and has been talking about for decades?

Are you really saying the roughly 1400 stocks out of the total of 5000 US stocks not in VTSMX are all microcaps? Please clarify as to where you get this inference from.
Sharpe has a model within which his mathematical result is correct. The point is that the model assumptions don't fit reality because of ALL the factors mentioned in the comment above. So, you cannot generalize the results of that model to something that doesn't fit the assumptions of the model.
Think about why VISVX has beaten VTSMX over the long term even though VTSMX probably includes ALL the stocks in VISVX. If you have actually read Sharpe's paper, can you resolve the paradox mentioned above? :-)
Active managers have a lot of tools at their disposal - going to cash in overvaluation periods, modifying the allocation to be different from the index, going outside the index, etc and Sharpe's model doesn't model that reality in its assumptions.
Note that it doesn't mean that the active managers will necessarily beat the index from the above but that the mathematical results of Sharpe doesn't say apply to the reality when managers are able to violate the assumptions in reality.
You seem to be making the case that managers don't violate the above assumptions to make a difference in practice. I am not sure that position is justified given the entire universe of funds and the number of stocks outside the index. It can only be resolved with concrete data.

FYI: Of course he's a fan, he sell haystack funds.
Regards,
Ted
http://blogs.marketwatch.com/thetell/2014/05/22/charles-schwab-himself-is-a-big-fan-of-index-funds/tab/print/

Just a note.
http://online.wsj.com/article/BT-CO-20140522-710429.html#printMode
http://www.businessweek.com/printer/articles/736694?type=bloomberg
TIP LTPZ STPZ

>>>So you do this with mutual funds, which have min holding periods?<<<
Most certainly (it's just a $17 charge to exit before the three months) but rarely/never with a fund that has short term redemption fees.
>>>> PS. Doing 4.5 mile hill run just about every other day. On "off" days, long walks in local canons and beaches.<<<<
That's great Charles! Lucky guy having access to the beaches. In my case I am running less but hiking more than ever and out there about every day.

FYI:
Regards,
Ted
http://www.marketwatch.com/story/4-things-doom-and-gloomers-got-totally-wrong-2014-05-22/print?guid=E0A22414-E123-11E3-AEFD-00212803FAD6

Thanks for sharing Junkster.
I do struggle with setting right exit level: 3%? 6%? 9%? 6 mo MAXDD? On single equity holding. Depends on category volatility certainly, as Scott instructs. Where it is against 10-mo SMA. How much money it has made or lost me. Whether rationale for holding has changed.
It does seem that unless you have (or believe you have) a true edge, hard to justify hanging on watching a stock holding drop...regardless of investment horizon.
As for funds, however, I know you suggest the exit levels should be tighter. Here though I'm inclined to go with the PM. If I believe (ha!), I hang in regardless. If I don't, I exit. But I try to allocate such "buy and hold" plays accordingly in my portfolio.
Just me.
Hope all is well.
PS. Doing 4.5 mile hill run just about every other day. On "off" days, long walks in local canons and beaches.

Well. 5y sure is superior, 10y nothing to rave about if you compare with other v v good funds (FLPSX, PRBLX, YACKX). Note that 5y is sooo superior because their 09 dip is so horrific and the bounceback so long, 4y, unlike the others mentioned. In other words, one wonders what the so-called investor returns are. Who would not have bailed sometime 08-10?

There are about 5000 stocks currently listed in US stock markets (though this keeps varying). Fund managers don't need to own only the stocks outside the index.
For the "mathematical guarantee" of the zero sum game assumption to hold, you cannot have the fund managers owning ANY stock outside the index because the argument that the gains in any stocks held by the active manager is captured by the index itself and at the expense of another active manager doesn't hold.
If a manager strikes rich with an IPO allocation or a distressed company coming out of bankruptcy, then it is not necessarily at the expense of any other manager because new value is being created. In fact, in the latter case, in theory, the gains could have come out of the losses in the index funds before that company was thrown out after locking in the losses!
If a company held by an active manager is included in the index resulting in a pop in its price from the announcement, then the active manager realizes those gains not necessarily at the expense of any other manager nor is that gain captured by the index.
Finally, by definition, the active managers must be fully invested with no cash for the zero sum assumption to hold. Otherwise, if the active managers, in theory, market time perfectly, and go to cash before a crash with the loss in value from such sales captured by everybody including the index funds, then the active managers can ALL beat the indices by staying out of the marker for the crash. The mathematical guarantee of zero sum game doesn't hold in this case.
The point is that the theoretical framework in which this mathematical guarantee is provided doesn't model the real world but some theoretical unrealistic world with a lot of constraints on the managers and the definition of the market.
Note that all of these arguments have nothing to do with whether managers can achieve this in reality or whether they under or over perform as measured empirically in some period. They claim to "prove" the average active dollar underperformance mathematically. Only IF the assumptions above model reality. Without it, they make no assertions one way or the other.

Thanks @charles
Your comments highlight the problem with meaningfully interpreting results of a search like this.
Shouldn't there be a primer somewhere on the site that explains how to use the data for fund selection or portfolio allocation? Otherwise, people may make inappropriate conclusions based on numbers and colors.
Information like what is the "margin of error" in these rankings (for example based on the day to day or month to month variability in returns that may rearrange the order any day you look at it)? Is risk group 4 or 5 to be avoided or a risk group 1 to be picked over any? If so why? Etc.
Perhaps there is such a document there already and I have missed it.
The only relevant data in those tables for the point of this thread is the potential drawdown in this category to make them unsuitable for a conservative portfolio and hence the short term high yield as an alternative category to look at for diversification.

Amazing 15, 10, 5, 3 year performance record.
The 5 year return has to be some sort of record for the record books.......
Who are these people?
Will need to look into this a bit

"So there is a large umiverse of stocks that are not in the index."
++++++++++++
I'd like to understand this better.
The Vanguard Total Stock Market Index Fund has 3,684 stocks in it.
By my estimation, it should contain the full universe of U.S. Mega caps, large caps, mid caps and small caps, and only be lacking some of the micro cap stocks in the market. It currently has 2.55% of it's stocks as microcap stocks, so I'm sure there are quite a few microcap stocks that it doesn't cover due to liquidity reasons and size constraints. But not a lot of mutual fund managers are purchasing stocks in the microcap universe.
If you are correct, that the active managers are buying stocks that are not in the total market's 3,684 stock universe, then certainly it is true that the math stated by William Sharpe and Bogle does not apply. But I'm not convinced that a significant amount of microcap stock is being purchased to invalidate their arguments.

@mrdarcey will provide his own rationale.
The problem I have with these "zero sum game" arguments is that they assume the index literally contains every stock in the category which is not true of any index or in the case of Sharpe, the market is defined by him as only those stocks that are in the index and the active manager in his framework is constrained to only buy from those stocks.
The reality is different as you can imagine. S&P 500 is only 500 stocks and the total stock market is only about 3000 and because of the selection criterion the latter overweights large caps in its composition. So there is a large umiverse of stocks that are not in the index. If the active manager buys stocks in his category (no style creep) that he believes are undervalued but not in the index at the time, the zero sum arithmetic argument assumptions don't apply. Sharpe has no results applicable to this case.
Note that these arguments including Sharpe state that their conclusions follow only from arithmetic (of zero sum game) and not from empirical results of performance studies. But for that to be true, the active manager HAS to buy only those stocks that are in the index. A theoretical argument, not of much value in practice.
Of course, indexologists explain away any over performance when an active manager overperforms with the equally fallacious argument that he picked stocks that were riskier (even if they are classified in the same category) than the index and therefore the index was not the right index for that fund!
In other words, the average active managed dollar (not any particular manager) cannot win by definition in these theoretical framrworks. :-)

Matthew 25 - Do unto others as you may them to do unto you. Something like that.
I have owned this fund off and on for the longest time. I have been lucky to buy it and sell it always with a profit and have used it repeatedly to offset losses on the books. I currently own a small position in the fund, the shortest I have ever held. I plan to add to this in market corrections.

Early bird catches the worm. ;)
http://www.mutualfundobserver.com/discuss/discussion/13596/josh-brown-on-seasonality-sell-in-may-and-go-away#latest

Hi cman.
I took a closer look at funds in the High Yield Muni category since HYD inception.
There are 31 funds that have been around 61 months or more through this March. HYD is the only EtF in the bunch. The few other EtFs in this category are younger.
Many of the funds are loaded and/or impose early redemption fees.
Honestly, most have done pretty well and rather small values (versus say equities) can move the risk adjusted return rankings.
Here is summary sorted by annualized return...all metrics, including risk and return rankings based on performance since Mar '09.

Here's same list sorted by Martin:

Hi Guys,
I too believe that the referenced article undervalues the likelihood of a market meltdown. How quickly we forget 2008.
I particularly disliked the article’s assertion that Bear markets are “relatively rare” events; it is especially at odds with the historical data. The referenced work is utterly devoid of supportive statistics. It reflects a probability blindness. Where is their data to backstop this flamboyant claim?
We need probabilities. In golf, what is the likelihood of making a hole-in-one? What is the probability of marrying a millionaire? What are the odds that shape a market meltdown?
The answers to the first two questions can be found in Gregory Baer’s book “Life: The Odds”. It is an excellent fun and informative summertime read that often illustrates that we folks are terrible at guesstimating life’s odds. That’s especially so when estimating the odds and the payoffs of low probability events.
For a PGA professional, the hole-in-one odds are roughly 2,500 to 1. For those of us in the amateur ranks, the odds vary greatly from 10,000 to 1 to about 15,000 to 1, depending on hole distance. The professionals have improved their odds over time.
The marry a millionaire odds are approximately 215 to 1. Baer provides guidelines on how to improve those odds. With that tease as a motivating factor, you’ll have to read the book to get more information.
To rectify the market meltdown statistical deficiency, I defaulted to Sam Stovall’s recent Las Vegas MoneyShow presentation. In that presentation, he included relevant market overall crash stats.
Of special interest is the historical frequency at two levels of market disruptions: a 10% to 20% Correction and a Bear market loss greater than 20%. Stovall’s S&P 500 data from 1945 recorded 19 and 12 downturns for these categories, respectively. Since the data set incorporated 68 annual returns, the likelihood of a Correction is 28 %, and the probability of a Bear market is slightly over 17 %. This is not rocket science, but I don’t rate these probabilities in the “relatively rare” happenings group. These are scary numbers and demand attention.
The average negative downward thrust for the Correction and for the Bear markets were about -14% and -28%, also respectively. That’s not peanuts and must be worrisome for most investors.
For the Correction markets, the crash duration was 5 months followed by a 4 month recovery period. Overall, the complete cycle was 9 months. That’s bad enough, but likely manageable from an emotional perspective.
For the full Bear market category, the S&P 500 tailspin duration was 14 months with an elongated 25 month recovery phase. That’s a stomach churning and patience testing total of 39 months; wow, over three years of anxious agonizing. That’s a draining experience both from an emotional and from a portfolio wealth depleting perspective.
Indeed No! Bear markets are surely not “relatively rare” happenings. Defensive portfolio diversification, and some careful watching of those market and economic signals that potentially foretell a Bear market must be continually monitored. InvesTech’s Jim Stack and others do a good, but imperfect, job at providing candidate signals. Investing is never without risk.
The developing behavioral finance science has made measured progress at establishing and explaining our mental deficiencies in properly assessing stressful life and investing scenarios.
For example, the 911 disaster killed about 3,000 folks. Because of the manner in which the terrorism was executed, people abandoned air travel in favor of auto travel, even though air travel is statistically far safer than car trips. During the following one year when this fear persisted, it is estimated that the extra auto travel killed an additional 1,500 folks. We do not make rationale decisions for uncertain, low probability events. Typically, we overrate the frequency of occurrence and also the final impact of the event.
The referenced article summarized the development of what Daniel Kahneman called our fast-acting System 1 brain component (the Gut instinct), which was necessary for survival eons ago, but not so efficient for today’s market investment decision making. In contrast, the slow-acting reflective System 2 brain component (the Head instinct) should be more fully exploited in our decision making process. When investing in mutual funds, speed is not an essential element.
Best Regards.