There are no buzzer beaters in the mutual fund industry. Theoretically, a trade completed at 3:59:59 may be considered a last-second shot, but it lacks the emotion and drama of, say, North Carolina State's last-second dunk to nip Houston in the 1983 national championship contest.
But Morningstar analyst Kunal Kapoor contends that when it comes to picking funds and picking teams in an office pool, the similarities are striking. Kapoor, who admits to still being bitter about having picked long-gone favorites Gonzaga and Stanford to go to the final four, says watching the tournament has taught him some unforgettable lessons.
A team like Gonzaga, which has previously complained about receiving a lower seeding in the tournament because it plays in the low-profile, weaker-teamed West Coast Conference, is a lot like a small-cap value fund. Both, while sporting an exceptional absolute return, pale when matched up against their peers.
Anybody can pick the T. Rowe Price Equity-Income fund and not "wow anyone at a cocktail party," Kapoor writes. He compares it to picking Duke, a safe bet to make the final four, that, yes, did make the final four this season.
Kapoor's last point is perhaps his most poignant. Just because a team starts a winning streak right before the tournament does not mean it is a sure bet to make it all the way to the season's last weekend. Maryland, Kapoor writes, won its conference tournament, only to lose to lower-ranked Syracuse early in the 2004 tournament. That compares to people who bought the red-hot growth fund in the late 1990s. "All hot streaks must come to an end," Kapoor writes.
Who said there are no parallels between sports and mutual funds?