Which funds outperform their benchmarks over time and why?


27/06/2016 11:57:10 PM // Written by Phil Stockton

Which funds outperform their benchmarks over time and why?

Mutual Fund Landscape: which funds outperform their benchmarks over time and why?

Dimensional Fund Advisors’ recent study asked this very question and provided a summary of their findings a short video. They do this study each year and come to similar conclusions every time.

Whilst the annual study is limited to US listed mutual funds it is not unreasonable to suggest that similar return/survivorship trends exist in other large fund universes.

One factor that stands out year-on-year is that funds with lower fees tend to be more likely to survive and outperform relative to higher costed funds. In this year’s study they found that 40 percent of funds with the lowest quartile fees survived/outperformed versus just 21 percent for the highest quartile fee group.

If you believe that we are in a low return environment (we do) then focusing on cost is vital.  You need to look beyond the cost of any given fund and must consider the ‘total cost of ownership’.

Total cost of ownership includes the cost of advice, the cost of custody, the cost of execution and fund specific costs. None of us know what the markets will do on any given day but we can, with some certainty, calculate of total cost of ownership and take steps to minimise that key variable.

We have found that most investors can easily save at least 1 percent per annum by optimising their investments on a cost basis.

Do you know what your total cost of ownership is for your mutual fund holdings?  If not then you should; anything you can trim from the total cost of ownership will compound in your favour in the years ahead.

You can watch the DFA video here.

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