Morningstar, Inc., which describes itself as a "trusted source for insightful information on ...mutual funds..." has issued an illuminating report. It is entitled "The Morningstar Box Score Report" and it covers mutual fund performance through the first half of 2009.
Here's the bottom line:
For the three year period ending June 30, 2009, only 37% of active fund managers outperformed their respective indexes, after adjusting for risk, size and style.
Pretty dismal record for actively managed stock funds. How about bonds?
According to a report issued by Standard & Poor's, bond performance is worse.
With the exception of emerging market debt, a staggering 75% of actively managed bond funds failed to beat their benchmarks.
The next time your broker or advisor recommends an actively managed (I call them "hyperactively managed") stock or bond fund, the conversation should go like this:
Broker: I recommend this [hyperactively managed] stock [or bond] fund.
You: You get a commission if I follow your recommendation, right?
Broker: Of course.
You: Based on data from both Morningstar and S&P, your recommended fund is likely to underperform a low cost index fund of comparable risk, right?
You: Is this a farce or a con?
Then hang up.Dan Solin is the author of The Smartest Retirement Book You'll Ever Read.
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