Thursday 27 July 2017

And the No. 1 Stock Fund Is Not

Frequent readers will know my thoughts about passive Index funds versus actively managed funds, and my attention was drawn to a recent article in the Wall Street Journal proclaiming, and rather misleadingly:

And the No. 1 Stock Fund Is… Miller Opportunity Trust wins with a 48.55% gain for 12 months
That sounds quite impressive, but when you look a little deeper, it turns out that it's a bit like the end of season Most Improved Player Award, which is easier to win the worse you were the previous season.

You're still a crap player, but it's much easier to improve from a low starting point than from one of excellence. You may be Most Improved, but calling yourself No. 1 Player would be a stretch.

Going back over the past ten years, July 2007 to July 2017, and the Miller Opportunity Trust fund is up a total of 9.37%, which is less than 1% per year - 0.09% to be precise.

Contrast that with the S&P 500 benchmark index which is up a total of 70.27% over the same period, an annualised rate of 5.47%.

The "contest" seems a little flawed, in my opinion, an opportunity for undeserved awards and a few drinks to be handed out. Note that Index Funds are not eligible.
The quarterly Winners’ Circle contest is designed to identify which U.S. stock fund with at least $50 million in assets and a record of more than three years posted the best performance in the trailing 12 months. Index funds and exchange-traded funds don’t qualify because they aren’t actively managed

1 comment:

Eggmund said...

Looks like an award for building a volatile portfolio, not one that will necessarily perform in the long run. Not a particularly meaningful award, apart from telling you which managers will give you the most exciting rollercoaster ride!

I wouldn't expect an index tracker to win this award even if eligible as they should track the market rather than massively out/underperform it. That's not to criticise index trackers; they have a different purpose.