I find Morningstar Investor Returns data fascinating. Recently, I looked at the gap between total returns and investor returns across the Morningstar Style Box and found that it had widened significantly. While looking at those figures, I wondered how they worked out on a fund company level. By asset weighting investor returns on a fund company level, I could find out whose shareholders fared better. Or, put another way, whose shareholders are smarter?
As you may recall, investor returns are calculated by adjusting returns for flows in and out of funds in order to arrive at an estimate of the average investor's return in the fund. As I pointed out in my comparison of CGM Focus' (CGMFX) investor returns with T. Rowe Price Equity Income's (PRFDX), steady returns at T. Rowe Price Equity Income led to steady flows and typically solid investor returns. However, CGM Focus' investor returns were much worse than its total returns because a huge portion of its shareholder base came into the fund in 2007 and the first half of 2008 when performance was great only to get whipsawed when performance slowed. While the gap between the two return figures is interesting, investor returns are really the bottom line. I'd feel better about CGM Focus if it had a big gap but its investor returns were still strong.
For my first fund company smack down, I went straight to the fund industry's Montagues and Capulets (substitute Hatfields and McCoys or Wolverines and Buckeyes if you prefer): Vanguard and Fidelity. To be fair, many investors have accounts with both companies, and I'm one of those--so please take this in the spirit of fun that it is intended.
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Russel Kinnel has a position in the following securities mentioned above: VWILX, VPCCX, VHCOX, FTABX. Find out about Morningstar’s editorial policies.