The Biggest Failure of the Investment Management Industry

By Jack M. Forehand (@practicalquant) —  The investment management business has improved dramatically in the past twenty years. The days of brokers selling high priced products to unsuspecting consumers that serve no purpose other than to line their own pockets are mostly gone. Fees have also fallen drastically, and efforts to educate investors on them by people like John Bogle have led to substantially increased investment in index funds and other low-cost products, which is certainly a good thing. In 1996, the average equity mutual fund in the U.S. charged over 1%. Today the average is about 0.63%, a decline […]

What are Investor Returns, Really?

There is some confusion around why the total investor return data published by Morningstar differs from the returns that investors are actually earning. Russ Kinnel, director of manager research for Morningstar, unravels the discrepancy. Investors’ actual returns, explains Kinnel, are the dollar-weighted returns that reveal how well investors used the fund and how well they timed their transactions. If, for example, investors buy into a fund because it’s showing great returns, this flood of dollars would result in actual investor returns falling below the fund’s published total returns. Since markets are cyclical, factors that once worked well (and bolstered returns) […]