http://news.morningstar.com/articlenet/article.aspx?id=659713#cpage=0I found this article interesting as it suggests if you find a manager who outperforms his/her peers when their sector bets are working against them, then you'll find a manager who outperforms his/her peers in the future. Maybe this shouldn't be terribly surprising but I'd not thought about it in this context before.
Unfortunately, and even more unfortunately this seems far too common at M*, I'm not aware they share how they attribute a fund manager's performance to his stock-picking vs. sector bets. They're more than happy to let me search for the best performing funds in whatever category over many different time periods at the same time they, and everyone else for that matter, tell you that chasing the hot performers will lump you in with the rest of the "irrational" investing public, but they won't make it possible to do more thoughtful research based on the teaser articles they publish.
It made me think of the discussion about Mr. Snowball's monthly commentary. One of David's comments, paraphrasing, was that he's always thinking about how he can make things even better. In this regard, I think this site does a great job of providing information that's useful to thoughtful investors trying to make good decisions. I would encourage you to continue to add information, such as you've done with active share or the ulcer index, that helps people understand what they're really paying that 1-2% expense ratio for.
Comments
For those invested in model portfolios, these findings are critical. "What the active share research has revealed," said Prahl, "is that managers relying on market timing are less likely, on average, to add value than managers who engage in stock picking." For those opting for passive portfolios, "stock picking is a lot to give up," he added. "That's what the active share literature shows."
Ibbotson's critique of the 90% rule—combined with active share research showing that diversified, highly active stock pickers have consistently added alpha—means that investors should no longer rely strictly on strategic allocation for their long-run returns.
Lord Abbett Study:
asset-allocation-and-the-90-percent-rule
This chart, from the study, attributes fund performance to:
"The fund is bottom-up, meaning management focuses on company fundamentals rather than market prospects."
One example of a Bottom up Fund:
valley-forge-fund/vafgx
What are some of yours?
In some basic way its not terribly difficult to assess whether the funds I own have managers that are good stock-pickers and its not too difficult to assess a lot of valuable factors for the 20 or so funds I own. The more difficult part is trying to figure out whether there are even better opportunities amongst the thousands of possible choices. Luckily I've discovered a handful of interesting ideas I had never even heard of on these discussion boards as well as in David's commentary. Thank you all!
One example of a Bottom up Fund:
valley-forge-fund/vafgx
Very concentrated ,very little info on new manager in May 2013. Any info?Intrigued by Canadian holdings.http://portfolios.morningstar.com/fund/holdings?t=VAFGX®ion=usa&culture=en-US Managed by Brian Boyle
05/28/2013
http://www.boylecapital.com/
Info about the fund's 3rd largest holding from the Vancouver Sun:
There are no takeover premiums built into Montney stocks, partly because no LNG proponent has made a final decision to proceed, Birchcliff CEO Jeffery Tonken said in an interview. Birchcliff’s pitch to investors currently is that it is a low-cost producer with big production growth from consistent drilling, he said.
“We believe that down the road someone’s going to try to buy the resource, no doubt,” Tonken said. “But a person who invests in our company should make money just because the business is good.”
Read more: http://bbccanada.dev.canada.com/Montney+firms+buyers+developments+take+shape/10095575/story.html#ixzz39m1rvcEx