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Morningstar Mythbusters Investigates the Fund Manager of the Year Jinx

Over the long term, Fund Manager of the Year winners' funds outperform.

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One year ago my colleague John Rekenthaler wrote an article investigating whether Morningstar Fund Manager of the Year award winners outperform their peers in the 10 years after they receive their awards. (For more-recent winners, he used the longest time period available.) He found that, on average, domestic-stock winners do beat out their category peers on a risk-adjusted basis, albeit on a modest margin. Fixed-income winners have a better peer-beating record, and international-stock winners walloped the competition by a wide margin on a risk-adjusted basis.

While the awards are intended to reward past performance and not predict future returns, it's nice to know that funds of winners do tend to perform better than those run by nonwinners on a risk-adjusted basis in the long term. But what about the short term or intermediate term? How long does it take for the just-decorated cream of the fund manager crop to rise to the top of their categories? While people joke that the award is jinxed, we find that managers have done well after the award--but the time period measured matters. Winners' funds frequently outperform on a risk-adjusted basis five or 10 years after the manager receives the award, though there is some dispersion in the one- and three-year period risk-adjusted returns.

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Kailin Liu does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.