M* (Jeffrey Ptak) published key findings from their annual
'Mind the Gap' study.
The average annual dollar-weighted return for mutual funds/ETFs was estimated
to be 7.0% for the 10-year period ending Dec. 31, 2024.
The aggregate annual total return during this period was 8.2%—a "gap" of 1.2%
or 14.6% of the aggregate total return.
"There can be debate about what causes investor return gaps—some chalk it up to behavior,
but it appears to reflect a number of factors, including the context in which investors utilize funds.
Whatever the cause, it seems to be a rather persistent cost, not unlike fund expense ratios.""Investors have had more success capturing the total returns of all-in-one funds, like target-date funds.
Conversely, they’ve struggled with specialized funds like sector equity funds that are likelier to be used
in a stand-alone or nonstrategic way.""While there can be merit to active funds that go their own way, one potential trade-off investors face
is the degree to which they can capture the funds’ total returns.
These higher-tracking-error funds’ more idiosyncratic approaches can test resolve,
leading to mistimed purchases and sales, which could explain their wider investor return gaps.""The more investors traded, the less their average dollar made
when compared with the funds’ aggregate total returns.""More-volatile funds appear likelier to push investors’ buttons,
potentially leading to mistimed purchases and sales that dent dollar-weighted returns."https://www.morningstar.com/financial-advisors/volatility-bedevils-fund-investors
