Does Slow and Steady Win the Race? Not Quite

While second quartile performance for a mutual fund is not sexy, consistent second quartile performance adds up to top quartile performance over the long run. By examining all domestic equity funds as classified by Morningstar beginning at year-end 1996, only "diversified" funds were used...

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Bibliographic Details
Published in:Journal of Financial Planning 2005-08, Vol.18 (8), p.22
Main Authors: Riepe, Mark W, Swerbenski, Bill
Format: Article
Language:English
Subjects:
Bias
Equity
Equity funds
Hypotheses
Mutual funds
Rates of return
Ratings & rankings
Online Access:Get full text
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Summary:While second quartile performance for a mutual fund is not sexy, consistent second quartile performance adds up to top quartile performance over the long run. By examining all domestic equity funds as classified by Morningstar beginning at year-end 1996, only "diversified" funds were used (that is, Morningstar had to have classified the fund as large value, large blend, large growth, mid-value, mid-blend, mid-growth, small value, small blend, or small growth). Hyper-consistent funds that have managed to be second quartile for five straight years just barely turn in top quartile performance on a cumulative basis and that assumes the most aggressive adjustment for survivor bias. The bottom line is that consistent second quartile performance does not cut it if you seek to find top quartile funds for the long term. What you need to find are funds that are consistently in the mid- to upper end of the second quartile.
ISSN:1040-3981