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How Long Can A Good Fund Look Bad?

FYI: It’s only natural for someone invested in a poorly performing active equity mutual fund to wonder if it’s time to make a change. Should an investor sell a fund if it trails its benchmark for a year? Three years? Five years?

Turns out, active equity mutual funds that beat their benchmark over a 15-year period experience a whopping nine years of cumulative underperformance on average! Conversely, and perhaps even more surprising, funds that ultimately underperform their benchmark over the same 15-year period cumulatively outperform over 11 of those years on average.
Regards,
Ted
https://www.advisorperspectives.com/articles/2019/10/07/how-long-can-a-good-fund-look-bad

Comments

  • To answer the question, I finally lost patience with POGRX and sold out a few weeks ago. Normally I'm a patient guy when it comes to investing but recent underperformance coupled with well above average risk made my mind up. Surprisingly, Morningstar still rates this fund as Gold as of August!
  • I think we all feel the tide changing with active funds.
  • The article has solutions(see below) which I don't think are good ones:
    1) When a fund lags, you can't predict it will do well in the next 5-10, it can be an underperformer for years to come.
    2) Financial adviser? I can write 3 pages of why not
    3) What I have done for years is to invest in only 7-8 funds max (in the last several years 4-5) by looking at 1-3-12-36 months good risk/reward and then select the best ones with 1-3 momentum. That lead to holding some funds for months and some for weeks and the exceptions, like PIMIX, for years. Each of my funds must do well if not, it will be replaced. I call it my NBA team, I'm going to the playoff each year but winning the title isn't guaranteed. I have my core players and supporting player but even the biggest stars are not immune from sitting out.


    ============================
    From the article below
    What can we do?

    1) Have a predetermined investment process with a disciplined approach to buying, assessing and selling investments. To discourage myopic focus on a particular investment, build a portfolio of diverse strategies that perform in different ways and in different market conditions.
    2) Be willing to accept periods of underperformance. During tough times, take your eyes off performance with a qualitative assessment. Understand a manager’s investment strategy and process: How do they make investments? Are they staying true to their strategy? Are market conditions impacting their strategy?
    3) Work with a financial advisor who can help to maintain discipline, patience and a long-term focus.
  • We're all different, but this is exactly what most mutual fund investment return data shows to be why 'investor return' does not even come even close to 'fund actual performance'.
    3) ...by looking at 1-3-12-36 months good risk/reward and then select the best ones with 1-3 momentum. That lead to holding some funds for months and some for weeks and the exceptions, like PIMIX, for years. Each of my funds must do well if not, it will be replaced. I call it my NBA team, I'm going to the playoff each year but winning the title isn't guaranteed. I have my core players and supporting player but even the biggest stars are not immune from sitting out.
  • edited October 9
    How long can a bad fund look good? Consider HSGFX

    Inception July 2000

    “During the 2000-02 bear market the Hussman’s fund posted phenomenal performance by sidestepping most of the carnage and posting gains.”

    https://awealthofcommonsense.com/2014/02/curious-case-john-hussman-understanding-biases-process/
  • Hi Guys,

    Predicting the future is an impossible task. That’s especially true regarding investment projections. Current performance is no certain predictor of future success or failure. Good luck will exceed talent in most instances.

    One obvious and simple solution is to construct a portfolio of Index funds!!!

    No great returns, but simply market averages. That strategy will outdistance most market wizards. That’s enough for me and my modest requirements and expectations.

    Best Wishes
  • HSGFX is a terrible fund. I always start with best performers and then look for great risk attribute(SD,max draw,Sharpe,Sortino).
    That lead me to SGIIX,FAIRX,OAKBX) 2000-2008.
    In the last several years I have uses 1) USMV instead of the SP500 2) PRWCX for allocation 3) PIMIX for multisector until 2017 and since then IOFIX,JMSIX,JMUIX
    SPLV is doing better than USMV in the last year and both better than SPY.
    See PV(link)
    The above show that Sharpe+Sortino are much better for USMV than VFINX(SP500) and even PRWCX(allocation) is better because performance is close but SD and others are better.
  • What about fees and other misc costs, would surely cut out your long-term returns for sure... I can't stand seeing >1.5% fees rotten away every yr
  • edited October 10
    FD1000 said:

    HSGFX is a terrible fund. I always start with best performers and then look for great risk attribute(SD,max draw,Sharpe,Sortino).
    That lead me to SGIIX,FAIRX,OAKBX) 2000-2008.
    In the last several years I have uses 1) USMV instead of the SP500 2) PRWCX for allocation 3) PIMIX for multisector until 2017 and since then IOFIX,JMSIX,JMUIX

    You get moderated off the M* forum and end up here. You are great at posting after the fact of unsubstantiated trades. You have been offered over $1000 to provide just a year or two of monthly trading statements but refuse. You have been asked to post in real time the day of your trades not days and weeks afterwards but you refuse. IOFIX? You are been vociferous the past year on your dislike of this fund. What exactly are your present holdings and % of total portfolio as of this morning. That is not a difficult question. In my 50 plus years in the game from what I have seen over at M* you are the worst trader I have ever witnessed. And I have dealt with thousands of traders.

    Can’t you just post your analysis which many enjoy and leave out all the fiction of your after the fact trading exploits. I may have to dust off my Crooks Con Men, and Charlatans thread.

    Edit. Here is a thread today over ar M*. Read carefully the comments from Bazinga. A most accurate analysis of the Great Pretender

    https://community.morningstar.com/t5/Community-Feedback/Is-the-FD-on-Bonds-thread-locked/m-p/26018#M1312

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