March 4, 2012
"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 wsj.com. To view Reynold’s whitepaper on “The (Un)Reliability of Past Performance,” click here.
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