Desperately Seeking Outperformers

We investigate the defining factors that can help you find reliable actively-managed equity funds

Ali Masarwah 6 December, 2011 | 9:13AM

Read more from Morningstar's Global Equities Week here.

The question on how to find good active equity managers is probably as old as portfolio management itself--and the answers have been, by and large, unsatisfactory. Fund performance data show that only a minority of active funds outperform their benchmark over time. An ever increasing number of European investors are turning to index funds and ETFs to get cheap exposure to market beta. The unsatisfactory nature of the debate on active fund management may, however, also be a result of asking the wrong questions. All too often investors and advisers have focused on short term past performance when picking funds. It could therefore make sense to go back to the basics and look to alternative approaches in search of outperformer funds. What factors should investors be on the lookout for when choosing actively managed equity funds?

We start off with lumping together the three Morningstar large cap categories Europe OE Global Equities Blend, Growth and Value available for sale in Europe including funds of funds. To eliminate short term "noise" we only focus on funds with long-term track records. We set back the clock to March 2003 as a starting point, defining four distinct market cycles along the way:

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Ali Masarwah

Ali Masarwah  is the editor of Morningstar.de in Germany.

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