Practice makes perfect, and mutual fund management is no exception, according to Bloomberg columnist Chet Currier.
Based on a recent Standard & Poor's report touting "consistency of mutual find performance," Currier suggests that, research aside, experience matters.
Academics argue that the only consistent element of investment performance is that it is random from one period to the next. The S&P report supports that, showing that no one manager can reliably maintain above average results.
Yet Currier challenges this faith in market efficiency. The S&P report also shows that funds that did perform well for the longest sustained periods also had "experienced management teams with tenure higher than their peers," according to Rosanne Pane, an S&P mutual fund strategist.
The report also showed the best-performing funds had other things in common too, namely below average expenses, and slugged it out through the bear market with the mildest losses.
Currier claims that market efficiency has been disproved over time.
"If markets were totally efficient, and if investors were as rational as the efficient-marketeers suggest, nobody would be bothering with active management anymore," Currier wrote.
Using Bloomberg data, Currier argues that the top performing growth, value and growth-and-income funds in the past five years, by-and-large, have well-seasoned managers.
The Fidelity low-priced stock fund has the same management since 1989, the FPA Capital Fund has not changed horses since 1983, and the Hodges Fund has had the same manager since 1992. Each of these funds beat the 0.4% return delivered by the S&P 500 index, with 5-year returns ranging from 16% to 21%.
Currier is careful not to misconstrue his comments of endorsements of these funds, but to illustrate his style of choice. "What can be asserted is that investing can never be written off as a crap-shoot. If it is a game, it is a game of luck, in which experience can be a very important factor," he wrote.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.