Should You Buy Stock Funds or Fund Company Stock?
It's been more lucrative on average to own fund company shares.
"I decided there was only one place to make money in the mutual fund business—as there is only one place for a temperate man to be in a saloon, behind the bar and not in front of it . . . so I invested in a management company."
Nobel Prize-winning economist Paul Samuelson uttered those words at a 1967 Senate hearing on financial legislation, but it doesn't take a genius to see the truth in it. We compared the returns of the shares of publicly traded mutual fund companies with the average returns of their mutual funds and found Samuelson's quip to be as incisive today as it was nearly 40 years ago. In most cases investors would have done better with the firm's stock than with its average stock fund.
The dichotomy was consistent across all time periods we examined. Over the trailing one-, three-, and five-year periods ending Dec. 31, 2005, the shares of more than 70% of the public fund companies in our database outperformed the typical equity fund in their respective lineups. During the 10-year period ending Dec. 31, 2005, the shares of each and every public fund company did better than their average stock funds.
Dan Culloton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.