I found a Growth Mutual Fund that has beat its peers for 90% of the last 20 years- Wh

[Digital Nomad]

I have been doing a lot of research into Growth Mutual Funds. I found one fund offered by a large financial company that has done just great during the last 20 years, (except in 2002-2003 and 2008- of course.)

I have spent hours evaluating the results of this Growth Mutual Fund against its peers (other Large Growth Mutual Funds) and over 90% of the time it beats the competition year after year.

I know past performance does not guarantee future results and history is in the past but if investors in this fund used this philosophy each of the last 20 years they would be disappointed. This Fund just does better than its peers year after year after year after year!

Maybe history is an indicator of the future and certain financial companies and fund managers are just better than others in picking stocks. So if a Mutual Fund did better than its peers year after year after year, would you assume that there is a better than 50/50 chance it will continue to beat most of its peers in 2022?

[pb4uski]

No. Since there is no such thing as a free lunch, especially over a 20 year period, I would be skeptical and would suspect that the subject fund is taking a little more risk than its peers and that risk is the cause of the better returns.

How does this fund's standard deviation, Sharpe ratio and Sortino ratio and market correlation compare to it's peer group?

[Dtail]

Quote:

Originally Posted by pb4uski No. Since there is no such thing as a free lunch, especially over a 20 year period, I would be skeptical and would suspect that the subject fund is taking a little more risk than its peers and that risk is the cause of the better returns. How does this fund's standard deviation, Sharpe ratio and Sortino ratio and market correlation compare to it's peer group?

Spot on questions.

[yakers]

I'ts only my intuition, nothing scientific, but after a fund or stock has risen for a good bit higher than the market I kind of expecting it to underperform in the future.

[Sojourner]

Quote:

Originally Posted by Digital Nomad At this stage, I would prefer not to state the name of this Mutual Fund because it would conflict from the larger question I am asking.

Sorry, this kind of statement undermines your credibility as a neutral, objective observer. Why withhold the name of the MF? I honestly can't imagine any legitimate reason why you'd want to play cloak and dagger in this way. Color me very, very skeptical.

[MRG]

Quote:

Originally Posted by Sojourner Sorry, this kind of statement undermines your credibility as a neutral, objective observer. Why withhold the name of the MF? I honestly can't imagine any legitimate reason why you'd want to play cloak and dagger in this way. Color me very, very skeptical.

Likely it's distribution channel. I'm betting it costs 6% to buy in.

[OldShooter]

It's a lot easier for a fund to beat its peers than for it to beat its benchmark. Sharpe on fund arithmetic: https://web.stanford.edu/~wfsharpe/a...ive/active.htm

Also, are you comparing total return or just sticker price? Total return is harder to do but is the only credible way to determine performance.

Re "last 20 years" is that an actual bucks in the market record or just a backtest?

It's not impossible for a fund to have a good track record for a long time, but no one knows how to predict that in advance. Ken French on picking a manager: https://famafrench.dimensional.com/v...-managers.aspx

I'm as greedy as the next guy. What's the ticker?

[easysurfer]

"I have been doing a lot of research ..." Yeah.. right .

[SecondCor521]

If you're sincere, the question is really whether the persistence of superior performance is due to skill, luck, or taking outsized risks.

I didn't read it all, but it looks like this NYTimes article (probably paywalled) would answer your questions:

https://www.nytimes.com/2015/03/15/y...rket-zero.html

From all I've read and experienced, it isn't skill, so I would not expect it to persist. But plenty of people, even some smart ones, believe it could be skill. Probably because they want to believe.

[OldShooter]

Quote:

Originally Posted by Digital Nomad ... Maybe history is an indicator of the future and certain financial companies and fund managers are just better than others in picking stocks. So if a Mutual Fund did better than its peers year after year after year, would you assume that there is a better than 50/50 chance it will continue to beat most of its peers in 2022?

No. Here is a slide I have posted before, summarizing S&P fund results for two five-year periods. As you can see, roughly 16% of top quintile funds stayed in the top quintile for the following five years. If the results were purely random, one would expect to see 20%.

Definitely not close to 50/50. For a top quintile fund, there is about a 50% probability that it will end up on the bottom quintile or be shut down. 46% to be exact.

S&P publishes "manager persistence" reports semiannually. The percentage numbers bounce around a little bit but the takeaway is always the same.

[SecondCor521]

Quote:

Originally Posted by OldShooter No. Here is a slide I have posted before, summarizing S&P fund results for two five-year periods. As you can see, roughly 16% of top quintile funds stayed in the top quintile for the following five years. If the results were purely random, one would expect to see 20%.

These facts lead me to think that there is some evidence indicating that managers in the top quartile or quintile are taking some slightly excess-proportioned risks to stay at the top. Which makes psychological sense to me.

[Digital Nomad]

Interesting replies. So far most of you think it is just a fluke that this growth mutual fund is beating its peers (other very popular and successful growth mutual funds), and each year of overperformance is just a random event or a case of taking lots of risks. Interesting.

I would like to think the executives at places like Fidelity or Vanguard are not dumb and compensate their superstar mutual fund managers handsomely and believe their success is not just a fluke but superior stock market skills and knowledge.

But think of the potential investor 5-10-15 years ago who were considering investing in this mutual fund and also thought its success was just luck and put their money in a fund with poorer results. What a shame!

[braumeister]

Quote:

Originally Posted by Digital Nomad But think of the potential investor 5-10-15 years ago who were considering investing in this mutual fund and also thought its success was just luck and put their money in a fund with poorer results. What a shame!

Yes, but think of the potential investor of today who tries to dig up a bit of research on it and finds that you won't answer any of their questions.

[UnrealizedPotential]

I cannot really have an opinion without knowing how the fund did in down years. Since you will not name the fund, we cannot look to see how the fund did in down years. This information is important .

[UnrealizedPotential]

If you do not give the name of the fund then we cannot engage in a dialogue with you as we would be answering with incomplete information.

[braumeister]

Quote:

Originally Posted by Digital Nomad If I give the name of the growth mutual fund then the conservation will turn away from my basic question (Can the superior stock market expert mutual fund managers guide a fund that beats its competition for years and years?)

But we don't know that it has. We only have your superficial impression that it has, no actual data.

[OldShooter]

Quote:

Originally Posted by SecondCor521 These facts lead me to think that there is some evidence indicating that managers in the top quartile or quintile are taking some slightly excess-proportioned risks to stay at the top. Which makes psychological sense to me.

Well, I don't think anyone knows for sure. The most popular explanation I have seen seems to be a combination of a "winner's curse" and a lucky hand going cold. Top performing funds typically attract lots of capital, which is often difficult for a manager to deploy using whatever his strategy is. So the results don't happen.

Another factor may be that a scheme works until it has been discovered by enough people that it stops working. Too many trying to exploit it.

Quote:

Originally Posted by Digital Nomad Interesting replies. So far most of you think it is just a fluke that this growth mutual fund is beating its peers (other very popular and successful growth mutual funds), and each year of overperformance is just a random event or a case of taking lots of risks. Interesting.

Well, you state this outperformance as if it is a fact. We don't know that because you are hiding the data. Until I see the data my best guess is that the outperformance you describe probably does not exist. Also, I really don't care whether this magical fund consistently outperforms its peers or not. The question is whether it outperforms the total return of its benchmark. ( It is mathematically certain that the "peers" in aggregate do not on average outperform. Ref the Sharpe paper I linked.)

Quote:

Originally Posted by Digital Nomad I would like to think the executives at places like Fidelity or Vanguard are not dumb and compensate their superstar mutual fund managers handsomely and believe their success is not just a fluke but superior stock market skills and knowledge. ...

Another way to look at this is to hypothesize that a person with such talent exists and ask why he or she would make their skills available to retail investors for a pittance. French discusses this in that video I linked. I think the answer is not. IF such a person or people exist, they are lying by the pool on their megayachts or on the beachs of their private islands. Why would they keep working for others? Answer IMO is that they wouldn't. Why would they?

[Scrapr]

Quote:

Originally Posted by Digital Nomad But think of the potential investor 5-10-15 years ago who were considering investing in this mutual fund and also thought its success was just luck and put their money in a fund with poorer results. What a shame!

and the suckers that did all the research & invested only to find out PP /= FP. And they lost their shirt. Magellen fund was a top performer. The last 5 years it hasn't beat the Vanguard Total Market


https://www.google.com/finance/quote...n=MUTF%3AVTSAX

[OldShooter]

Quote:

Originally Posted by Digital Nomad If I give the name of the growth mutual fund then the conservation will turn away from my basic question and people will pick apart the fund. (Can the superior stock market expert mutual fund managers guide a fund that beats its competition for years and years?)

Your premise is that such a fund exists. That's not selling very well.

[RunningBum]

Vanguard PRIMECAP was a fund that did extremely well. I've been invested in it for a number of years, though I did cut my holdings considerably a couple years ago.

https://www.fool.com/investing/2016/...n-indexer.aspx shows how it did from 2001 to 2015. It seemed to me to be beating the S&P 500 all the time, but the reality is it only did 9 out of 15.

Still, that's pretty good. About 3 years ago I wanted to make my taxable account more efficient, and I considered whether to sell of PRIMECAP. I must be crazy to sell off a fund that does so well every year, right? And it's closed to new investors, so it's gotta be great.

But logic ruled, so I sold it off and bought an index fund. Lo and behold, PRIMECAP is trailing the S&P for the preceding 1 and 3 years. https://investor.vanguard.com/mutual...formance/vpmax

Of course a fund could outperform the index every year. Like I could correctly call "tails" in 20 straight coin flips. But I can almost guarantee I won't.