I was cleaning up and going through some old stuff and I found a list of old mutual funds from 1993.
After looking into mutual funds a lot recently I realized that some of these funds no longer exist that were around in 1993.
When I used mutual fund screens I noticed that very very few funds showed a loss after 10 years. At first I thought that was because it's very likely that what they were invested in went up in that amount of time.
But now I'm wondering if some of the funds that did bad no longer exist. I can't find any info on some of the funds that are no longer around that were around in 1993.
I just wanted to see if anyone knew what happens to these funds that no longer exist. And if that explains what so very few funds seem to show losses over 10 years...maybe the ones that do bad just get canceled or something.
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Ah, survivorship bias at its best. Yes, usually the MF's that do terrible are either closed or merged into another fund. It nicely erases the poor performance history.
If you post the names of the funds i'm sure someone can find out what happened to them.
Ah, survivorship bias at its best. Yes, usually the MF's that do terrible are either closed or merged into another fund. It nicely erases the poor performance history.
I am trying to locate an article on this issue that I read in the past couple weeks. The jist of the article was that this is a marketing ploy intentionally pursued by many mutual fund families. (It was a good article and, in light of summer2007's insight, I wish to re-read... more carefully.)
In my search, I did come across this:
I recently sifted through the most prominent fund-picking books from 1996 to see how the 10-year numbers stacked up as of June 30, 2005.
I had four books to work from:
1996 Buyer's Guide to Mutual Funds, by Gordon Pape
World of Mutual Funds, by Ranga Chand
Smart Funds 1996, by Jonathan Chevreau with Steve Kangas and John Platt
Top Funds 1996, by Duff Young and Riley Moynes
So, just how insightful were these guys?
The results were stunning. The majority of funds lagged their benchmarks over the 10-year time horizon. In fact, many of the funds recommended weren't even good enough to survive the period in question. The recommended funds had a collective performance that could only be described as awful.
I'm pretty sure that the fund survivorship bias is a major factor in Burton G. Malkiel's Random Walk Down Main Street - and almost every book I've come across on index funds.
It's amazing to see how many funds just get folded in, thus keeping the survivors' rate of success at a hugely inflated number.
I'm pretty sure that the fund survivorship bias is a major factor in Burton G. Malkiel's Random Walk Down Main Street - and almost every book I've come across on index funds.
It's amazing to see how many funds just get folded in, thus keeping the survivors' rate of success at a hugely inflated number.
Check out Table in Carhart's On the persistence in mutual fund performance from 1997. From 1/1962 - 12/1993, one-third of diversified US equity funds [excluding sector, int'l, and balanced funds] ceased operations.
Which leads me to say to myself yet one more time, "Bogle's got it right." At least for me.
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Which leads me to say to myself yet one more time, "Bogle's got it right." At least for me.
Yep. You can bury a fund, but you can't bury an asset class that underperforms. Thus the indexes or by extension index funds' performance is 'clean' -- free of survivorship bias.
btw, I'm guessing for all those funds that were closed, in virtually none of those cases did the money get sent back -- "sorry, we're such terrible managers we thought we'd better send your money back and let you reinvest it with someone competent." I'm sure it all ends up getting folded into the next hot fund that the fund company is running...
Yep. You can bury a fund, but you can't bury an asset class that underperforms. Thus the indexes or by extension index funds' performance is 'clean' -- free of survivorship bias.
I think this is not quite right. Underperforming asset classes can also be buried (or at least, de-emphasized). If you were an investor reading about foreign asset classes in 1950, you'd probably be reading about Britain and France. You might see a bit about the possible resurgence of Japan or Germany (I'm not sure when things really got going again there). You probably wouldn't have seen too much emphasis on Russian imperial bonds. (My exact facts/references/implications about specific asset classes and timeframes here may be wrong, but hopefully you get my general point.)
New indexes are created all the time, as are new index funds. There seems to have been an explosion of these in the last few years. I would venture that a significant number of current index funds will not be around in 10 years, and that the ones that disappear will disproportionately be in asset classes that underperform on a relative basis.
Yeah, you're probably on to something... but index funds aren't always a 1:1 mapping to asset classes. So agreed, there are so many indexes flying around these days they surely won't all survive. But while 'foreign stocks' probably used to mean UK and Japan or somesuch, the asset class itself isn't likely to go away, but just keep getting a little broader. But things like GNMA might end up looking a little dated a few decades hence. And I'm guessing every 10 years or so, evil data mining backtesters will probably find some new asset class or two that become must-haves for the well-dressed portfolio of the 2020s... It'll probably be just dancing around those last 3 or 5%, though, so may not be a big shift from a typical Asset Allocation style portfolio of today.
Originally Posted by ESRBob Yep. You can bury a fund, but you can't bury an asset class that underperforms. Thus the indexes or by extension index funds' performance is 'clean' -- free of survivorship bias.
Huh?? What about the little index known as the Dow Jones Industrial Average? Percentage-wise, what index has changed more than that one?...not to mention the constant changes in the S&P 500.
Originally Posted by ESRBob Yep. You can bury a fund, but you can't bury an asset class that underperforms. Thus the indexes or by extension index funds' performance is 'clean' -- free of survivorship bias.
Huh?? What about the little index known as the Dow Jones Industrial Average? Percentage-wise, what index has changed more than that one?...not to mention the constant changes in the S&P 500.
Art,
Yikes! Goods point -- was having a brain phart or something... Yeah, these indexes are morphing all the time. Probably worse with a small index like the dj.
Quote:
I'm sure it all ends up getting folded into the next hot fund that the fund company is running...
will probably find some new asset class or two that become must-haves for the well-dressed portfolio of the 2020s... It'll probably be just dancing around those last 3 or 5%, though, so may not be a big shift from a typical Asset Allocation style portfolio of today.
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