Betting on that level of growth, for almost any company, is risky businessI assess ETFs and mutual funds based on the quality of their holdings, first and foremost, because holdings determine the performance of the fund, not just the costs or the past performance of the fund.
Javier Gil-Bazo and Pablo Ruiz-Verdu studied the relationship between mutual fund performance, management fees, commissions and flow of funds in The Relation between Price and Performance in the Mutual Fund Industry.
Costs matter because they can handicap performance of a fund, but the quality of holdings is paramount because no matter how cheap the fund, the performance will be bad if the holdings are bad.
All these have a survivorship bias: investments mentioned at dinner parties, stocks charted in Value Line, entrepreneurs featured in FORBES, stock market histories (does your data set include the --100% compound annual return on Russia over the past century?), available hedge fund performance numbers and every mutual fund ad.
While fund performance is tough to predict, fund expenses aren't.
The bulk of the 2010 loss was posted in December, when the performance of Fund I, which is 63% invested in private holdings, dropped by an estimated 26.9%, suggesting a significant mark-to-market adjustment while the stock market was zooming higher.
FORBES: New Jersey Hedge Fund Posts Its First Down Year In A Decade
As he shows repeatedly in the book, both fund and industry performance suffers with growth in size (he calculates the correlation between hedge fund size and performance as -0.42).
Ever since we started rating mutual fund performance half a century ago, FORBES has shone a spotlight on fund costs.
That has included lobbying against disclosing after-tax fund performance and the cost in dollars of owning funds, as well as how fund firms vote proxies.
Their competence and duty to advise seemingly encompasses anything a fund may encounter- asset allocation, manager and fund performance, personnel turnover at managers, real estate, private equity, international and emerging markets, hedge funds, fund of funds, brokerage-everything but consultant-related issues.
FORBES: The Duty To Investigate Pension Consultant Conflicts (September 1, 2001)
In summary, there is strong evidence that investors ignore selection biases in fund performance advertisements.
FORBES: How Selective Advertising by Mutual Funds Misleads Investors
And they understand that mutual fund performance rarely beats an index they can purchase.
FORBES: Pensions Funds: Funding Unsavory Practices of Venture Capitalists (May 1, 2000)
More likely, the real motivation for holding on to shares is to boost fund performance.
The money-tracking firm found no persistent link between past equity-fund performance and future returns.
Mutual fund portfolio managers personally profiting by front-running client orders and thereby diluting fund performance.
Are 10-year fund performance numbers typically better for the low-expense funds in your 401(k)?
Tragically, neither the investment performance of the fund nor its level of funding will improve.
Nor does he analyse how hedge-fund performance compares with other asset classes, such as private equity.
Did you know that it would have some (even marginal) negative impact on the performance on the fund?
FORBES: TIAA-CREF Suddenly Drops Micro-Cap Stocks from Large Cap Funds
Significantly, past investment performance of the fund was not provided to the client.
FORBES: Many Madoff Victims Still Don't Know They Were Investors
Our report on 2002 mutual fund performance can help you make investment decisions.
Besides its great long-term performance, the fund is also doing well this year.
Hedge fund performance fees can be 15 to 20 percent of profits and venture capital funds are often 30 percent.
Then again, as Rompotis notes, if their regular fund performance is any indication of active ETF performance, I doubt it.
The pension fund performance reports we reviewed all showed the same ugly results: horrendous underperformance and extensive self-dealing involving consultants.
FORBES: The Long Overdue Florida Public Pension Clean-Up (November 21, 2007 )
Given the exceptional performance of this fund in our portfolios, we were surprised that Morningstar only gives ARGFX two stars.
FORBES: Still Happy To Be Swimming In Outperformance With Ariel
Since consultants recommend asset allocations and money managers (and frequently push specific managers), consultants have tremendous influence regarding overall fund performance.
FORBES: Public Pension Shortfalls and Consultant Conflicts (September 1, 2002 )
Yet the abysmal performance of Magellan Fund in the interim is mute testimony to the impossibility of picking winners in advance.
FORBES: Playing With Active Money Managment Is A Losing Game
That is, if the adviser benefits when the fund goes up, so too must he suffer when the fund performance goes down.
FORBES: Pensions Funds: Funding Unsavory Practices of Venture Capitalists (May 1, 2000)
Fund holdings can affect fund performance more than fees or past performance.
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