99.43%

[Sweep_the_Leg]

@Huskie87

When I do a mutual fund search, using the Morningstar category of US small growth, and filter by performance over the same time period, only 2 mutual funds show performance greater than 10.38%.

So wrong bench aside, the very first fund I looked up (granted, I run up against it all the time so I know it’s really good) is T Rowe QM US Small-Cap Gr Eq (PRDSX). As of today, it’s returned 10.77% and it’s in the 10th percentile. So there should be another 15 funds or so you’re missing.

[Huskie87]

@Sweep_the_Leg

That’s how a lot of these reports spit out the wrong info. They don’t use the right benchmark…Or share class for that matter. Yeah, most C Shares probably underperform vs their advisory share class. That’s 1.00% a year difference after all.

As I said, even using the cheapest fund classes, only 3 out of roughly 100 outperform. C shares have nothing to do with that outcome.

[Sweep_the_Leg]

@Huskie87

The Russell 2000 is a joke. Ever heard of index reconstitution arbitrage? It was basically invented to play the Russ 2000

So you’re going to judge funds based on the benchmark you decide is best for them? That’s pretty irresponsible, actually.

[Huskie87]

@Sweep_the_Leg

@Huskie87

When I do a mutual fund search, using the Morningstar category of US small growth, and filter by performance over the same time period, only 2 mutual funds show performance greater than 10.38%.

So wrong bench aside, the very first fund I looked up (granted, I run up against it all the time so I know it’s really good) is T Rowe QM US Small-Cap Gr Eq (PRDSX). As of today, it’s returned 10.77% and it’s in the 10th percentile. So there should be another 15 funds or so you’re missing.

Again, you are only looking at funds in existence. A percentile ranking is basing performance of funds currently in existence. A correct track record will include funds which no longer exist due to past performance. Survivorship bias…

[Sweep_the_Leg]

@Huskie87

@Sweep_the_Leg

@Huskie87

When I do a mutual fund search, using the Morningstar category of US small growth, and filter by performance over the same time period, only 2 mutual funds show performance greater than 10.38%.

So wrong bench aside, the very first fund I looked up (granted, I run up against it all the time so I know it’s really good) is T Rowe QM US Small-Cap Gr Eq (PRDSX). As of today, it’s returned 10.77% and it’s in the 10th percentile. So there should be another 15 funds or so you’re missing.

Again, you are only looking at funds in existence. A percentile ranking is basing performance of funds currently in existence. A correct track record will include funds which no longer exist due to past performance. Survivorship bias…

Which, as brain wash pointed out, was considered in the study. It’s just a bad report. Sorry.

Edit: And, my point above was that in a few seconds I was able to find a fund that outperformed that somehow slipped through your screen. Your info was wrong.

[Huskie87]

@Sweep_the_Leg

@Huskie87

The Russell 2000 is a joke. Ever heard of index reconstitution arbitrage? It was basically invented to play the Russ 2000

So you’re going to judge funds based on the benchmark you decide is best for them? That’s pretty irresponsible, actually.

I didn’t choose anything. I provided a report, which you deemed to be wildly false without looking at it. Upon closer inspection, using the index they chose, they’re actually spot on.

[Huskie87]

@Sweep_the_Leg

@Huskie87

@Sweep_the_Leg

@Huskie87

When I do a mutual fund search, using the Morningstar category of US small growth, and filter by performance over the same time period, only 2 mutual funds show performance greater than 10.38%.

So wrong bench aside, the very first fund I looked up (granted, I run up against it all the time so I know it’s really good) is T Rowe QM US Small-Cap Gr Eq (PRDSX). As of today, it’s returned 10.77% and it’s in the 10th percentile. So there should be another 15 funds or so you’re missing.

Again, you are only looking at funds in existence. A percentile ranking is basing performance of funds currently in existence. A correct track record will include funds which no longer exist due to past performance. Survivorship bias…

Which, as brain wash pointed out, was considered in the study. It’s just a bad report. Sorry.

Edit: And, my point above was that in a few seconds I was able to find a fund that outperformed that somehow slipped through your screen. Your info was wrong.

its a bad report because they don’t allow survivorship bias to distort the outcome. You misread brain’s comment and I still don’t think you understand what survivorship bias means or why it’s important.

[Sweep_the_Leg]

I’m not sure why you’re so resistant to the idea this study is flawed. I’m not saying active management is always the best solution, far from it actually. Just pointing out that is a wildly misleading report.

Edit: Also, your link takes me to their homepage so I’m not exactly sure what report you’re referring to. If it’s the 2016 year-end study, they find that 93.21% of small cap managers underperform their bm. Amazingly I do understand survivorship bias. In fact, what I’d like to know is how you think it plays a role in this study. They say performance data is as of 12/31/16. So are you saying the data represents the 165 funds that have a 15 year track record, or they somehow accounted for all the funds that existed 15 years ago and included them in the study?

[Huskie87]

@Sweep_the_Leg

I’m not sure why you’re so resistant to the idea this study is flawed. I’m not saying active management is always the best solution, far from it actually. Just pointing out that is a wildly misleading report.

I’m not here to convince you, and it’s ok if you don’t want to learn. It would actually inhibit your ability to sell product if you were fully aware of just how poorly actively managed funds have performed. It’s ok though, I’ve provided a well documented report, along with instructions that anyone with Morningstar can follow to verify. You can keep spreading misleading information and make your living doing it, but that wouldn’t be the life for me. I wouldn’t feel good about that, or the impact that it ultimately has on your investors.

I’m done replying to you now, but more than happy to discuss with anyone actually interested in learning.

[Sweep_the_Leg]

@Huskie87

@Sweep_the_Leg

I’m not sure why you’re so resistant to the idea this study is flawed. I’m not saying active management is always the best solution, far from it actually. Just pointing out that is a wildly misleading report.

I’m not here to convince you, and it’s ok if you don’t want to learn. It would actually inhibit your ability to sell product if you were fully aware of just how poorly actively managed funds have performed. It’s ok though, I’ve provided a well documented report, along with instructions that anyone with Morningstar can follow to verify. You can keep spreading misleading information and make your living doing it, but that wouldn’t be the life for me. I wouldn’t feel good about that, or the impact that it ultimately has on your investors.

I’m done replying to you now, but more than happy to discuss with anyone actually interested in learning.

Gotcha. So when confronted with facts you take your ball and go home. Why not just sign up to be a DFA advisor if you really don’t want to do any due diligence?

[Huskie87]

@infinitybenzo

@Huskie87

Here’s data straight from Morningstar Direct…

The benchmark stated in the SPIVA report for the category of US small cap growth is the S&P SmallCap 600 Growth index. This index returned 10.38% annualized for the 15 years ending 12/31/2016.

When I do a mutual fund search, using the Morningstar category of US small growth, and filter by performance over the same time period, only 2 mutual funds show performance greater than 10.38%.

Lord Abbett Micro Cap Value I - 12.17%

Aberdeen US Small Cap Equity - depending on share class, roughly 11% annualized

Neuberger Berman has 3 share classes that outperformed, and two that underperformed.

There are a total of 462 funds which show 15 year performance. Now, many of these are different share classes of similar funds (A, C, I, etc.). Each fund has roughly 4-5 versions of itself…so we’re talking more like 100 unique funds. If we have 100 unique funds, and 2-3 of them outperformed, that gives us a success rate of 2-3%. Said another way, 97-98% underperformed.

Now, I’m sure the Morningstar category is not the exact way that SPIVA did this, the Micro Cap fund seems like maybe an outlier. But that’s semantics. The share class question is a great one, and I don’t know the answer to that. However, even if we use the cheapest share classes, we still only get 3 outperformers and something like 97 underperformers.

dang is it that bad? Most of us should just learn programming language and follow the index 100%. Let the computer do the trading when/if needed.

Sorry, missed your comment in all that. Yes, it is that bad.

STL brought up PRDSX as one that he ‘knows’ will outperform because he runs up against it all the time. 1.1.2002 - 12.31.2016 the fund returned 8.44% annually…so roughly 2% underperformance relative to the benchmark chosen in this report

[igor555]

99.43% of wholesalers dont understand survivorship bias?

[Sweep_the_Leg]

@Huskie87

@infinitybenzo

@Huskie87

Here’s data straight from Morningstar Direct…

The benchmark stated in the SPIVA report for the category of US small cap growth is the S&P SmallCap 600 Growth index. This index returned 10.38% annualized for the 15 years ending 12/31/2016.

When I do a mutual fund search, using the Morningstar category of US small growth, and filter by performance over the same time period, only 2 mutual funds show performance greater than 10.38%.

Lord Abbett Micro Cap Value I - 12.17%

Aberdeen US Small Cap Equity - depending on share class, roughly 11% annualized

Neuberger Berman has 3 share classes that outperformed, and two that underperformed.

There are a total of 462 funds which show 15 year performance. Now, many of these are different share classes of similar funds (A, C, I, etc.). Each fund has roughly 4-5 versions of itself…so we’re talking more like 100 unique funds. If we have 100 unique funds, and 2-3 of them outperformed, that gives us a success rate of 2-3%. Said another way, 97-98% underperformed.

Now, I’m sure the Morningstar category is not the exact way that SPIVA did this, the Micro Cap fund seems like maybe an outlier. But that’s semantics. The share class question is a great one, and I don’t know the answer to that. However, even if we use the cheapest share classes, we still only get 3 outperformers and something like 97 underperformers.

dang is it that bad? Most of us should just learn programming language and follow the index 100%. Let the computer do the trading when/if needed.

Sorry, missed your comment in all that. Yes, it is that bad.

STL brought up PRDSX as one that he ‘knows’ will outperform because he runs up against it all the time. 1.1.2002 - 12.31.2016 the fund returned 8.44% annually…so roughly 2% underperformance relative to the benchmark chosen in this report

Data was a/o today. And I - along with professional buyers - judge a fund against their stated benchmark. If we’re allowed to pick whatever benchmark we want I can make the stats look pretty good too.

[infinitybenzo]

So, there were that many closed funds due to whatever reasons to influence the total performance of the existing managers? What are the chances a mutual fund stays in business for 10 years but closes down due to poor performance. 11 years in business means they must have had stable and sizable investors and given some ridiculous amount of AUM must be invested according to the prospectus - small caps and long - I cant imagine too many funds closing down.

[infinitybenzo]

If a fund closed down in year 2 due to outsized redemption requests - because we all know that under performance is not the death sentence for hedge funds, mutual funds, and PE funds - then this fund’s performance will only be included in the 1 year performance. Given my post up there that funds in existence for more than 10 years will probably stay, 15 year performance probably does not have significant amount of survivorship bias.

[brain_wash_your_face]

One other point of note, you are all correct that the selection of the benchmark is crucial. IMO Russell 2000 makes more sense to use because it is objectively the smallest 2000 stocks among the 3000 largest stocks. If I recall correctly, S&P uses a profitability screen for their index, and as a quant factor that is an area that has been rewarded recently. Moreover, S&P 600 is not constructed to be the ‘market’ but rather some subset that is subjectively selected.

Anyway, that’s my take on the benchmark debate.

[Huskie87]

@infinitybenzo

If a fund closed down in year 2 due to outsized redemption requests - because we all know that under performance is not the death sentence for hedge funds, mutual funds, and PE funds - then this fund’s performance will only be included in the 1 year performance. Given my post up there that funds in existence for more than 10 years will probably stay, 15 year performance probably does not have significant amount of survivorship bias.

Page 11 of the report shows the survivorship rates for various categories. Here’s just a few…

All domestic funds 41.84%

All large cap 34.11%

All small cap 51.99%

SCG 41.71%

So…more than half of the small cap growth funds that were in existence on 1.1.2002 no longer exist.

[Huskie87]

@brain\_wash\_your\_face

One other point of note, you are all correct that the selection of the benchmark is crucial. IMO Russell 2000 makes more sense to use because it is objectively the smallest 2000 stocks among the 3000 largest stocks. If I recall correctly, S&P uses a profitability screen for their index, and as a quant factor that is an area that has been rewarded recently. Moreover, S&P 600 is not constructed to be the ‘market’ but rather some subset that is subjectively selected.

Anyway, that’s my take on the benchmark debate.

S&P 600 Growth is the benchmark used by both iShares and Vanguard for it’s small cap growth funds, for what that’s worth. Russell indexes are extremely flawed because of what’s known as index reconstitution drag. Discussion for another time perhaps

[Sweep_the_Leg]

@Huskie87

@infinitybenzo

If a fund closed down in year 2 due to outsized redemption requests - because we all know that under performance is not the death sentence for hedge funds, mutual funds, and PE funds - then this fund’s performance will only be included in the 1 year performance. Given my post up there that funds in existence for more than 10 years will probably stay, 15 year performance probably does not have significant amount of survivorship bias.

Page 11 of the report shows the survivorship rates for various categories. Here’s just a few…

All domestic funds 41.84%

All large cap 34.11%

All small cap 51.99%

SCG 41.71%

So…more than half of the small cap growth funds that were in existence on 1.1.2002 no longer exist.

But, to infinity’s point (and mine as well) the 15 year number only counts those funds with a 15 year track record. 99% of those funds didn’t underperform. Not even close. Yes, basically half the funds that existed 15 years ago are gone, but if we’re really just talking about the funds that are still around today, it doesn’t really matter.

[Huskie87]

@infinitybenzo

If a fund closed down in year 2 due to outsized redemption requests - because we all know that under performance is not the death sentence for hedge funds, mutual funds, and PE funds - then this fund’s performance will only be included in the 1 year performance. Given my post up there that funds in existence for more than 10 years will probably stay, 15 year performance probably does not have significant amount of survivorship bias.

I could be reading your post wrong, so let me know if I’m misreading…

If a fund closed down in 2003, then it’s performance would only be included in the data showing performance of funds over the 15 years ending 12.31.2016.

If a fund closed down in 2013, then it’s performance would be included in the data showing performance of funds over the 15, 10 and 5 years ending 12.31.2016.

If a fund closed down sometime in 2016, then it’s performance would be included in all of the returns series.

Hope that makes sense.