Baird’s Reynolds Discusses the Unreliability of Past Performance in Wall Street Journal

March 4, 2012
In a Wall Street Journal article published on March 5, Aaron Reynolds, Associate Director of Asset Manager Research for Baird, cautions that investors should be wary of jumping into funds that have been recent stars compared with a benchmark or peers. The article titled, “Hold the Applause: Fund Managers Look a Lot Smarter This Year, but…,” takes a closer look at why many fund managers are doing a better job of beating stock-market benchmarks this year than they did in 2011.

"Managers are adaptive, but they don't change their stripes all that often," says Aaron Reynolds, associate director of asset-manager research at Milwaukee-based securities firm Robert W. Baird & Co. Rather, it is the dynamics of the market that are always changing, he says, and that results in a cyclical pattern in which the percentage of active managers beating a benchmark ebbs and flows.”

In the article, Reynolds suggests investors consider fund managers whose approaches aren’t currently as popular. “With the proliferation of ETFs, Baird's Mr. Reynolds says "the bar is raised" for active managers to demonstrate their value. He says it is possible to find active funds that beat benchmarks over time—but he cautions that investors should be wary of jumping into funds that have been recent stars compared with a benchmark or peers. They might do better, he says, by favoring managers who have been laggards because their approaches are unloved. …

“An out-of-favor style" can easily come back into favor and provide a tailwind for much improved performance in the future," Mr. Reynolds wrote in a recent paper.”

Online subscribers can click here  to read the full article on To view Reynold’s whitepaper on “The (Un)Reliability of Past Performance,” click here.

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