Investors Are Doing Better

We regularly see reports concluding that investors earn lower returns than the published returns for individual mutual funds. The reason usually given for the discrepancy is poor timing. Investors tend to buy a fund after it’s had good returns and then sell after a bad period.

This article from Morningstar says investors have done better int his bull market. But it’s not ready to say investors are smarter and learned from the past. Instead, it says investors traditionally have better returns during an extended bear market, because they buy and hold. But during volatile markets, investors are more prone to buy and sell at the wrong time.

In other asset classes, the gap worsened. The gap among international-equity funds grew to 105 basis points, with total returns of 2.95% annualized. Investors’ timing in regional funds (dedicated to Europe and Asia) and foreign large-growth has been poor.

The gap in taxable-bond funds grew to 87 basis points annualized with an asset-weighted investor return of 3.01% annualized. It is not too surprising that investor timing has been off in more-speculative categories like emerging-markets bond and bank-loan funds, but even core intermediate-bond funds show a gap of 87 basis points.