Morningstar, a generally objective source of financial analysis, is out today with a study confirming the long known fact that actively managed mutual funds usually under perform a simple index of unmanaged stocks.  These repeated studies have fueled the massive movement of money into exchange traded funds and unmanaged closed end funds over the past twenty years.  But wait, there are exceptions, and it takes time to find them. I’m proud to report that while we are not a mutual fund we are very much an active money manager and our client’s as a composite of discretionary accounts, have significantly out performed the equities markets over the past quarter, the past year and the past five years. 

We will be providing specifics in our forthcoming newsletter, Trusted Advisor.  There are two aspects to the performance measurement provided by Morninstar’s study (you can read the article by clicking on the link below). Absolute returns, of course are the top line measurement. Only 35% of actively managed equity funds beat the indexes.  But importantly, the Morningstar study discusses risk adjusted returns. That is, how much risk was taken to achieve the results.  Here is where the bodies are buried. Sure, in a screaming bull market, like the Tech Bubble of the 1990’s, a leveraged fund with huge levels of volatility will, for a time, appear to be a standout.  When the music stops for a bull market, and it always does, such funds typically crash and burn, big time.  Just as typically, such funds attract a wave of new investors shortly before the implosion (novice investors tend to buy near the top).  Thus investor experience is even worse than a fund’s nominal performance history suggests. The greatest number of people, who failed to participate during months of big gains, get clobbered when the roof caves in. 

Not so with Trusted Financial’s management.  Out clients’ accounts typically have experienced less than half the stock markets’ downside volatility in poor markets, while capturing most of the upside when things turn around. If the reader would like a detailed, quarter by quarter performance history, dating  back to mid 2001, we are happy to provide the numbers.