Survivorship of Mutual Funds Strikingly Low · 2019. 9. 10. · funds was strikingly low and that...
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De NEWS For immediate release Contact: Leslie Swid Impact Communications [email protected] 913-649-5009 Survivorship of Mutual Funds Strikingly Low Advisor Partners’ Research Study of Star Ratings Reveals Unexpected Results Walnut Creek, Calif., (Dec. 5, 2013) -- Daniel S. Kern, CFA, president and chief investment officer for Advisor Partners, today announced the findings from their “Safe Investor” research study, done in connection with the author of the soon-to-be published book, The Safe Investor: How to Make Your Money Grow in a Volatile Economy,Tim McCarthy. The objective of the study was to evaluate mutual fund performance and to answer questions including: • Will yesterday’s winners be tomorrow’s winners? • Do Morningstar star ratings predict future success? • Does performance persistence differ among different asset classes? “The performance findings, based on the original objectives were interesting, but offered little that was not expected,” said Kern. “However, we also identified an intriguing and unexpected set of issues. In reviewing several years of mutual fund data, we found that survivorship of mutual funds was strikingly low and that investors are likely to outlive many of their mutual funds. When this came to light, we extended the study and revised our objectives.” Ultimately, the research measured mutual fund survivorship rates, identified patterns and leading indicators, and provided constructive guidance about what to do with this information. For investments designed to be short-term in nature, the tendency of funds to close or merge is not a major consideration. But when investments are part of a long-term portfolio strategy, an ill-timed closure or merger may create unintended consequences. An analysis of historical data indicated the importance of four factors: • Size: Larger funds are more likely to stay in business, a simple matter of economics. • Performance: Funds with good performance track records are more likely to survive. • Star ratings: The star system is in many respects a stronger proxy measure for survivorship than it is for identifying future top performing funds. Daniel S. Kern, CFA
Transcript of Survivorship of Mutual Funds Strikingly Low · 2019. 9. 10. · funds was strikingly low and that...
De
NEWS For immediate release Contact: Leslie Swid Impact Communications [email protected] 913-649-5009
Survivorship of Mutual Funds Strikingly Low
Advisor Partners’ Research Study of Star Ratings Reveals Unexpected Results
Walnut Creek, Calif., (Dec. 5, 2013) -- Daniel S. Kern, CFA, president and chief investment officer for Advisor Partners, today announced the findings from their “Safe Investor” research study, done in connection with the author of the soon-to-be published book, The Safe Investor: How to Make Your Money Grow in a Volatile Economy,Tim McCarthy. The objective of the study was to evaluate mutual fund performance and to answer questions including:
• Will yesterday’s winners be tomorrow’s winners? • Do Morningstar star ratings predict future success? • Does performance persistence differ among different asset classes?
“The performance findings, based on the original objectives were interesting, but offered little that was not expected,” said Kern. “However, we also identified an intriguing and unexpected set of issues. In reviewing several years of mutual fund data, we found that survivorship of mutual funds was strikingly low and that investors are likely to outlive many of their mutual funds. When this came to light, we extended the study and revised our objectives.” Ultimately, the research measured mutual fund survivorship rates, identified patterns and leading indicators, and provided constructive guidance about what to do with this information. For investments designed to be short-term in nature, the tendency of funds to close or merge is not a major consideration. But when investments are part of a long-term portfolio strategy, an ill-timed closure or merger may create unintended consequences. An analysis of historical data indicated the importance of four factors:
• Size: Larger funds are more likely to stay in business, a simple matter of economics. • Performance: Funds with good performance track records are more likely to survive. • Star ratings: The star system is in many respects a stronger proxy measure for
survivorship than it is for identifying future top performing funds.
Daniel S. Kern, CFA
• Parent company stability: The fund’s parent company is an important, but harder to evaluate factor in survivorship.
“Advisors and their clients need to be aware of the impact of potential fund closures and mergers,” said Kern. “They are rarely positive for clients as they involve transition costs, portfolio management distraction and possible disruption to the investor’s asset allocation.” On December 4, 2013, Kern, along with book author Tim McCarthy, presented the research findings via the BrightTALK Thought Leader channel. To watch the webinar recording “on demand,” visit https://www.brighttalk.com/webcast/6867/93117. For the complete study, contact Kris McCabe, [email protected] or 925-444-1308. Click here to pre-order the book, which will be available in February. About Dan Kern and Advisor Partners Founded in 2001, Advisor Partners is an investment advisory firm providing a broad range of sophisticated investment solutions to a select group of independent advisors and financial institutions. Advisor Partners is a wholly owned subsidiary of Advisor Software (ASI), which acquired Advisor Partners in 2009. Dan Kern joined the firm as President and Chief Investment Officer in 2011. Andrew Rudd, Ph.D., founder and former chairman and CEO of Barra, Inc., serves as chairman of Advisor Partners’ investment committee. For more information, visit www.AdvisorPartners.com. About Tim McCarthy and The Safe Investor book Tim McCarthy, author of The Safe Investor: How to Make Your Money Grow in a Volatile Economy (Palgrave Macmillan, February 2014) is former chairman and CEO of Nikko Asset Management Co. He also served as President and COO of The Charles Schwab Corporation and President of the Fidelity Investment Advisor Group. For more information, visit www.TimMcCarthy.com.
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