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Persistence of outperformance - another Rick Ferri note

David S Meyers CFP
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      12-12-2011, 12:30 AM

Thought this was a great quick read:


Former top mutual funds are falling behind their peer groups in record
numbers. Overall, only 42 percent of past winning US equity funds for
the five years ending in September 2006 stayed in the top half over
the next five-year period ending in September 2011. Another 44 percent
fell to the bottom half of the rankings and the remaining 14 percent
went out of business. This is according to the most recent Persistence
Scorecard on mutual fund performance published by Standard and Poor's.

Etc. Of course, Ferri's the author of books about ETFs and
passive investing, but he's also pretty careful with numbers
and research. Much of this blog entry of his cites S&P's
scorecard of indices vs. active funds which may be found

FWIW, I think one of the reasons to consider a *small* slice
of active management is for uncorrelated returns. And this is
not something he addresses, nor is it addressed by the research
he's citing. The vast majority, though, of actively managed
funds, are not there for this reason - they are there because
someone thinks he's going to beat an index, and do so by enough
to overcome his asset management fees. And very rarely is
that actually accomplished - and as Rick says, just because
someone's done that recently, it doesn't mean they are going
to do so again.


David S. Meyers, CFP(R)
disclaimer: for educational purposes only. This is not financial advice.

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