Bloomberg’s Kaissar Weighs-In on Morningstar Fund Ratings

In a recent article, Bloomberg columnist Nir Kaissar challenges the rationale of a Wall Street Journal article suggesting that Morningstar mutual fund ratings lead investors to “assume erroneously” how those funds will perform in the future. “That analysis is flawed,” Kaissar writes. “Morningstar awards stars for beating peers, not the market. Given that the vast majority of funds lose to the market, highly rated funds may not be delivering any value to investors. Buying the best poorly performing fund is cold comfort,” he writes. Kaissar suggests that a more helpful exercise would be to gauge whether funds with high ratings […]

Higher Fund Assets Can Lead to Poorer Fund Performance

Research recently released by Duke University shows that “greedy” funds with rising asset levels can return poorer performance for investors, according to an article in Institutional Investor. Evidence presented in a new study by researchers at Duke University and Texas A&M University indicates that “alpha diminishes significantly as individual funds grow and as industry assets under management rise,” the article says. Higher assets lead to higher income from management fees and profits, it says, but this can translate into underperformance for investors. The study analyzed data from domestic equity funds for the period between 1991 and 2001 and found that, […]

Hedge Funds Perform When Managers are Vested and Inflows are Limited

Research from NYU and Columbia University shows that hedge fund managers that invest in their own funds deliver the best results, according to a recent article in Institutional Investor. In a paper distributed this month, the researchers report that “insider investment aligns incentives between managers and investors and induces managers to limit the size of their fund, resulting in higher alphas.” The study also shows that when funds raise outside capital, managers are “compensated primarily from managerial fees and leave little value to outside investors.” Funds with no outside capital, the study shows, earned higher excess annual returns (to the […]

Every Stock Fund In Red for 2008

A sign of how tough the market has been this year: Through November 24, every long stock fund tracked by Morningstar — that’s right, every single long stock fund — had lost ground in 2008. That includes 10,085 U.S. funds (which, on average, had lost 44.47 percent) and 2,912 international funds (which had lost an average of 51.01 percent). The best U.S. performer: Embarcadero Alternative Strategies, which was down 1.55 percent. That was far better than the best international performer, Prasad Growth, which was down “only” 11.21 percent. (Click here for full list of fund returns.) There were, of course, […]