As a matter of fact, there was a study made of star performers (mutual funds), and the finding was that those funds with the highest returns for the one year period were also the ones that subsequently would underperform the next year. Think that was reported in Random Walk Down Wall Street. And also, those ads typically represent dates/periods selected for the specific marketing purpose of making that fund look good so as to attract investment dollars from the public. Those managers don't get performance fees, but instead make their money on a percentage based on the fund's total assets, so growing the fund via marketing for new accounts or investment dollars, rather than by equity growth, is how they make a livelihood.Quote from vladiator:
Actually, what that means is that the peformance is pretty much like a coin toss for many of those advertisers - yes, they had a few heads in a row and encourage you to give them the money, but let's face it, the probability of the next coin toss being a head is still 50%.
proof...
- Thread starter dgmodel
- Start date
Yep, I could cite you a dozen academic papers showing that the only performance persistence in mutual funds is on the downside - the losers keep losing. Hardly any solid evidence of "hot hands" for winners. As for your second remark, a friend of mine whose also about to finish his PhD used to work for a big mutual fund doing just what you describe - trying to find some index they did beat, so they can brag about it in the ad materials
Good Luck to all.