Investors Used These Quality Funds Well
We look at how investor return exceeds total return for these highly rated funds, in part three of our series examining these two metrics.
For the past two weeks Five-Star Investor has looked at funds Morningstar's analysts like but which investors have used poorly. We turned the spotlight on funds in which investor return--that is, the real-world experience of average investors in the fund--badly trailed that of the fund itself during the past decade.
Why don't investor returns match those of the funds they own? One of the main culprits is performance-chasing--investors pouring assets into funds with strong recent returns only to find that the funds cannot repeat those performances. This could be because a fund's larger asset base becomes a burden--especially in the small-cap arena--or it could simply be because a fund manager's hot streak begins to cool. Another common theme is investors fleeing funds after steep drops and thereby missing out when funds rebounded.
Adam Zoll does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.