Correcting an Impression and Gaining Some Insights - Blog 690 Extra

Mike Lipper’s Monday Morning Musings

Correcting an Impression and Gaining Some Insights

Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018 –

 

In our latest blog in our discussion of a remarkably consistent mutual fund we focused on superior performance to the Russell 1000 Growth. Our comment looking at relative performance for 1,3,5,10, and 15 years in which the fund performed better that in no period was its superiority was more than 2.62 %. This demonstrated particular portfolio management skill and showed it was generally limited to the Russell 1000 Growth list. which was accurate.

Late Sunday night or early Monday morning a different picture appeared. When looking at performance on a year by year basis, the fund was better than the index five out of the last ten years and in 2013 it beat the index by 572 basis points or more than twice the three year average superiority. I apologize for not probing further. Nevertheless, the exercise did reveal a couple of valuable insights.

Even with a superior ten year record, a good fund did not put three individual superior years together. Also the ten year period included two small declining years. These insights suggest to me that fund and other investors need to be patient and forgiving in looking for consistently good yearly results. Another observation is that a single year of very strong performance, particularly early in the observation period, can influence relative performance results for a long time and give the impression that there is more consistency than actually exists.