Want Consistent Market Outperformance? You May Want to Think Again

By Justin J. Carbonneau (@jjcarbonneau) —  We run over 40 quantitative models at Validea. They run the gamut of investing styles. Any time we can find a model from a respected source that uses factors and shows long-term outperformance, we will track it and add it to our arsenal. Our models range from deep value to growth to momentum. As we have studied these models over the years, one commonality has become very clear. And… Read More

Sometimes Investing Success Means Riding Rough Road

Hedge fund manager and author Joel Greenblatt says that the majority of top mutual fund managers spent at least three years lagging well behind others, says a CNBC article by Validea CEO John Reese. This, however, is something short-term investors tend to run from, Reese writes. An unfortunate move, since over the long-term these same managers tend to outperform. He argues, “Reaching for returns that beat the benchmark requires the emotional discipline to stick with… Read More

When Choosing Fund Managers, Maybe Less is More

It may pay to go for mediocre rather than stellar when selecting fund managers, according to last week’s post in Enterprising Investor by Joachim Klement, CFA. While studies have shown that investors gravitate toward funds that have performed well versus their peers, Klement suggests that more sophisticated investors (such as pension funds) might be expected to apply more complex analysis. This isn’t always the case, however. According to Klement, expert fund selectors such as those… Read More

Does a Manager’s Track Record Matter?

While it may be logical to assume that a more experienced fund manager would have a better performance record, it isn’t necessarily so. This according to a recent study from the Cass Business School in London, the results of which are reported in Chief Investment Officer this month. Andrew Clare, a professor of asset management at Cass, says that while the study’s analysis of 357 U.S. equity fund managers’ performance reflected a nearly 50 basis… Read More

Active Share is not a Predictor of Fund Performance

At a time when fund expenses are increasingly under scrutiny, some have turned to active share (the level of correlation between an index fund and its benchmark) as a predictor of fund performance and a means of justifying hefty management expenses. A higher active share (on a scale of 0 to 100) means a fund bears less resemblance to its benchmark. Some would argue that this indicates a higher level of active management, a higher… Read More

Morningstar Study: Long-term Outperformance Not Predictive of Future Outperformance

The AAII Journal reports on a recent Moringstar study that found no link between long-term performance and future performance. The study (which is available here), as AAII Journal reports, “looked at the returns of actively managed funds as of the end of 2014 to determine if there is any persistence in the mutual fund returns” by grouping funds “into one of five quintiles based on one-, two-, three-, four-, five-, and 10-year performance.” In five… Read More