A new report from Morningstar slams actively managed funds not only on performance but also on risk and style. The research firm found that only about 50% of funds have outperformed their benchmark indexes over the past three, five and 10 years and only 37% did so on a risk-, size- and style-adjusted basis.
“It’s not enough to beat an index in a way that [assumes more risk], “Travis Pascavis, director of equity indexes at Morningstar told Dow Jones. “The hurdle is higher for a more risky fund.”
Pascavis said it is important for investors to realize and to be comfortable with the level of risk they are assuming when buying a mutual fund, particularly since Morningstar data shows that the more risk a fund assumes, generally the lower its performance.
Russ Kinnel, director of research for Morningstar, concurred: “It’s generally better to be in a lower risk fund. There’s more consistency [of performance].”