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Fund Spy

Domestic-Stock Funds Turn the Tables on Fund Company Stocks

On average the domestic-stock funds of publicly traded fund companies lost less than their parent company shares in the bear market.

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Since late 2007 it has been safe for the temperate man to come out from behind the bar.

I'm referring, of course, to the oft-quoted, 40-year-old quip by Nobel prize winning economist Paul Samuelson. Just as the only proper place for a temperate man to be in a saloon is behind the bar, he said, the only place to make money in the mutual fund industry was to buy the stocks of asset management companies. I've tested this epigram a couple of times over the years and have found evidence to support it: Every time I've looked, the stocks of most U.S. publicly traded asset managers have done better than the average return of their domestic-stock funds over most time periods, albeit with way more volatility.

Stocks Rocked
The variability of those individual fund manager stocks was one of the big reasons why Morningstar has never counseled investors to take Samuelson's witticism to its logical conclusion and sell all of their mutual funds and load up on the equity of their parent companies. Indeed, back in 2006 I wrote, "a bear market or regulatory scandal could rock these stocks." Since then a bear market has rocked the world and, sure enough, for a little while at least, the tables were turned and the average domestic-stock offering at publicly traded fund companies did better in relative terms than the shares of their advisors.

Dan Culloton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.