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When Investors Misuse Quality Funds, Part II

This week we look at foreign-stock funds and taxable-bond funds with investor returns that lag their total returns.

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In last week's Five-Star Investor, we looked at how investors have mistimed their purchases and sales of some notable U.S. stock funds, such as  Fairholme (FAIRX) and  Artisan Small Cap Investor (ARTSX). To do so, we used a statistic called investor return, which attempts to depict the return the typical investor earned in a fund, factoring not just what the securities in the portfolio gained or lost but also the timing of investors' purchases or sales. In many cases the 10-year annualized returns achieved by investors were a point or more lower than those achieved by the funds they owned. 

Often this gap was attributable to investors piling into hot funds after the strongest gains had already happened or leaving funds that had performed poorly, thus missing out on any rebound that might have followed. In some cases the gap can be quite dramatic, as we saw with some of the domestic large-cap and small-cap funds we examined last week.

Adam Zoll has a position in the following securities mentioned above: DODFX. Find out about Morningstar’s editorial policies.

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