Fund Investors: Focus on Stewardship

Fund selectors should focus on stewardship and cost rather than salesmanship and past performance

Christopher J. Traulsen, CFA 17 December, 2012 | 2:03PM
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Among fund selectors, and even on occasion among media, an undue focus on past performance, particularly short-term past performance, is all too common. This is understandable to an extent—performance is the one concrete metric by which advisers will be held to account by their clients. Unfortunately for investors and advisers relying on it, past performance is not a particularly accurate indicator of future results.

Cost and Stewardship: Key Factors for Fund Investors

There are more salient items for fund selectors to focus on. One factor to look at is cost, as I previously explained with respect to bond funds. Fund fees represent fixed negative alpha in an uncertain world. It isn’t everything, but you ignore it at your peril.

(As an aside, the Retail Distribution Review (RDR) should have a salutary impact on investors’ ability to assess these costs by helping them clearly discern the amount they are paying for fund management versus the amount they are paying for financial advice.)

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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.

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About Author

Christopher J. Traulsen, CFA  is director of fund research, Europe and Asia, Morningstar.