Fund flows are explained by short-term recent performance.
There is a near perfect correlation between a fund’s recent performance and the flow of assets. A fund with strong recent performance, typically experiences strong inflows. Conversely, when performance was poor it suffers outflows. This is evident in a vast body of surveys that were done. It is true for both retail and institutional investors.
We say we are long-term investors, but can we manage the evidence?
DALBAR (QAIB) has been studying investor behaviour for decades. They track what effects investors’ decisions to buy and switch funds over time. The results consistently show that the average investor earns less – in many cases much less – than mutual fund performance reports would suggest.
People love to chase “what’s working now”.
An extreme example of this behaviour is Ken Heebner’s US-based CGM Focus Fund (a diversified stock mutual fund) that gained 18% annually for the period 2000 to 2010. The S&P 500 was flat over the same period. It was the top performing fund for that period. Unfortunately, investors were not around to enjoy much of those gains. According to Morningstar the average investor in fund lost 11% per annum over this period.
How is this possible?
The fund surged 80% in 2007. In 2008 $2,6 billion of investments flowed into the fund. That year the fund dropped by 48%. In 2009 when the fund was up around 11% investors had already pulled $750 million from the fund. This is a classic example of buying high and selling low.
It is explained by investor behaviour buying a fund after a strong run and selling as it hits bottom. The investors’ dollar-weighted returns incorporate the effect of the in-and-out cash flows and the timing thereof. The funds time-weighted returns are the result of being invested for the full period.
The same happened to investors invested in the Fidelity Magellan Fund. Peter Lynch is the legendary investor who managed the fund between 1977 and 1990, churning out an annual return of 29%. You would reasonably expect investors to have done well, but this did not happen. According to Fidelity Investments, the average Magellan Fund investor lost money during Lynch’s tenure there.
A very recent example is Cathie Wood’s ARK Inovation ETF (ARKK). Since 2014 ARKK returned 23.5% annually compared to the S&P 500’s 14.6% for the same period. Most of ARKK’s returns occurred between 2019 and the ETF’s all-time high registered on February 18, 2021. Over that period, ARKK returned 203% compared to a 24% return for the S&P 500.
We have seen this before.
At its peak, billions of dollars herded into ARKK just as performance turned south. From February 18, 2021 through January 7, 2022, the ARK Innovation ETF has lost 43% of its value while the S&P 500 has gained 21%. ARKK’s ETF flows indicate the average investor in the fund is underwater.
“The ARRK Innovation ETF has returned 346% since its inception but no value has been created due to flows’ poor timing,” – Vincent Deluard (StoneX startegist).
Investors make emotional decisions based on recent events, changing their stance repeatedly at the most inopportune times. This behavioural gap is a severe drain on long-term performance.
A well-conceived investment plan must be paired with the conviction to stick to it. Moving in-and-out of investment managers is usually not a manager problem. It is rather an indication of a portfolio structuring problem, or a lack of suitable upfront work done. The investor needs to stay focussed on their long-term objective.
Chasing performance by buying recent “winners” and trying to time the market usually leads to vastly inferior performance.
Resources
DALBAR – Quantitative Analysis of Investor Behaviour
Forbes.com – How Investors Are Costing Themselves Money
Michael Cannivet – Cathie Wood’s Rollercoaster Performance Offers A Familiar Lesson About Volatility
The above article was written by Marius Kilian.
Thanks for sharing. I read many of your blog posts, cool, your blog is very good.
Can you be more specific about the content of your article? After reading it, I still have some doubts. Hope you can help me.
Your article helped me a lot, is there any more related content? Thanks!
Thanks for sharing. I read many of your blog posts, cool, your blog is very good.
I don’t think the title of your article matches the content lol. Just kidding, mainly because I had some doubts after reading the article.
I don’t think the title of your article matches the content lol. Just kidding, mainly because I had some doubts after reading the article.
Thanks for sharing. I read many of your blog posts, cool, your blog is very good.
Can you be more specific about the content of your article? After reading it, I still have some doubts. Hope you can help me.
Your article helped me a lot, is there any more related content? Thanks!
Your article helped me a lot, is there any more related content? Thanks! https://accounts.binance.com/register?ref=P9L9FQKY
Your article helped me a lot, is there any more related content? Thanks! https://accounts.binance.com/ph/register-person?ref=B4EPR6J0
Your point of view caught my eye and was very interesting. Thanks. I have a question for you.
Your article helped me a lot, is there any more related content? Thanks!
Thanks for sharing. I read many of your blog posts, cool, your blog is very good.
Can you be more specific about the content of your article? After reading it, I still have some doubts. Hope you can help me. https://accounts.binance.com/tr/register?ref=W0BCQMF1
I don’t think the title of your article matches the content lol. Just kidding, mainly because I had some doubts after reading the article. https://www.binance.com/es-MX/register?ref=JHQQKNKN
Your point of view caught my eye and was very interesting. Thanks. I have a question for you.
I don’t think the title of your article matches the content lol. Just kidding, mainly because I had some doubts after reading the article.
Thank you for your sharing. I am worried that I lack creative ideas. It is your article that makes me full of hope. Thank you. But, I have a question, can you help me?
Can you be more specific about the content of your article? After reading it, I still have some doubts. Hope you can help me.
Can you be more specific about the content of your article? After reading it, I still have some doubts. Hope you can help me. https://www.binance.com/de-CH/register?ref=UM6SMJM3
I don’t think the title of your article matches the content lol. Just kidding, mainly because I had some doubts after reading the article.
Your point of view caught my eye and was very interesting. Thanks. I have a question for you.
I don’t think the title of your article matches the content lol. Just kidding, mainly because I had some doubts after reading the article.
Thank you for your sharing. I am worried that I lack creative ideas. It is your article that makes me full of hope. Thank you. But, I have a question, can you help me?
Your point of view caught my eye and was very interesting. Thanks. I have a question for you.
Thanks for sharing. I read many of your blog posts, cool, your blog is very good.
Your point of view caught my eye and was very interesting. Thanks. I have a question for you.
Thank you for your sharing. I am worried that I lack creative ideas. It is your article that makes me full of hope. Thank you. But, I have a question, can you help me?
Thank you for your sharing. I am worried that I lack creative ideas. It is your article that makes me full of hope. Thank you. But, I have a question, can you help me?
Your point of view caught my eye and was very interesting. Thanks. I have a question for you.
Can you be more specific about the content of your article? After reading it, I still have some doubts. Hope you can help me.
Your point of view caught my eye and was very interesting. Thanks. I have a question for you.
Thanks for sharing. I read many of your blog posts, cool, your blog is very good. https://www.binance.com/kz/register?ref=RQUR4BEO
Your point of view caught my eye and was very interesting. Thanks. I have a question for you. https://www.binance.info/en/register-person?ref=JHQQKNKN
I don’t think the title of your article matches the content lol. Just kidding, mainly because I had some doubts after reading the article. https://www.binance.com/ru/register?ref=V3MG69RO
Thanks for sharing. I read many of your blog posts, cool, your blog is very good.
I don’t think the title of your article matches the content lol. Just kidding, mainly because I had some doubts after reading the article. https://www.binance.info/bn/register?ref=UM6SMJM3
I don’t think the title of your article matches the content lol. Just kidding, mainly because I had some doubts after reading the article.
Your point of view caught my eye and was very interesting. Thanks. I have a question for you. Registrera dig
Can you be more specific about the content of your article? After reading it, I still have some doubts. Hope you can help me.
Thank you for your sharing. I am worried that I lack creative ideas. It is your article that makes me full of hope. Thank you. But, I have a question, can you help me?
Your article helped me a lot, is there any more related content? Thanks!
Your point of view caught my eye and was very interesting. Thanks. I have a question for you.
Thank you for your sharing. I am worried that I lack creative ideas. It is your article that makes me full of hope. Thank you. But, I have a question, can you help me?
Can you be more specific about the content of your article? After reading it, I still have some doubts. Hope you can help me.
**mindvault**
mindvault is a premium cognitive support formula created for adults 45+. It’s thoughtfully designed to help maintain clear thinking
**gl pro**
gl pro is a natural dietary supplement designed to promote balanced blood sugar levels and curb sugar cravings.
**sugarmute**
sugarmute is a science-guided nutritional supplement created to help maintain balanced blood sugar while supporting steady energy and mental clarity.
**vitta burn**
vitta burn is a liquid dietary supplement formulated to support healthy weight reduction by increasing metabolic rate, reducing hunger, and promoting fat loss.
**synaptigen**
synaptigen is a next-generation brain support supplement that blends natural nootropics, adaptogens
**glucore**
glucore is a nutritional supplement that is given to patients daily to assist in maintaining healthy blood sugar and metabolic rates.
**prodentim**
prodentim an advanced probiotic formulation designed to support exceptional oral hygiene while fortifying teeth and gums.
**nitric boost**
nitric boost is a dietary formula crafted to enhance vitality and promote overall well-being.
**wildgut**
wildgutis a precision-crafted nutritional blend designed to nurture your dog’s digestive tract.
**sleeplean**
sleeplean is a US-trusted, naturally focused nighttime support formula that helps your body burn fat while you rest.
**mitolyn**
mitolyn a nature-inspired supplement crafted to elevate metabolic activity and support sustainable weight management.
**yusleep**
yusleep is a gentle, nano-enhanced nightly blend designed to help you drift off quickly, stay asleep longer, and wake feeling clear.
**zencortex**
zencortex contains only the natural ingredients that are effective in supporting incredible hearing naturally.
**breathe**
breathe is a plant-powered tincture crafted to promote lung performance and enhance your breathing quality.
Your article helped me a lot, is there any more related content? Thanks!
**prostadine**
prostadine is a next-generation prostate support formula designed to help maintain, restore, and enhance optimal male prostate performance.
**pineal xt**
pinealxt is a revolutionary supplement that promotes proper pineal gland function and energy levels to support healthy body function.
**energeia**
energeia is the first and only recipe that targets the root cause of stubborn belly fat and Deadly visceral fat.
**prostabliss**
prostabliss is a carefully developed dietary formula aimed at nurturing prostate vitality and improving urinary comfort.
**boostaro**
boostaro is a specially crafted dietary supplement for men who want to elevate their overall health and vitality.
**potent stream**
potent stream is engineered to promote prostate well-being by counteracting the residue that can build up from hard-water minerals within the urinary tract.
**hepatoburn**
hepatoburn is a premium nutritional formula designed to enhance liver function, boost metabolism, and support natural fat breakdown.
**hepato burn**
hepato burn is a potent, plant-based formula created to promote optimal liver performance and naturally stimulate fat-burning mechanisms.
**flow force max**
flow force max delivers a forward-thinking, plant-focused way to support prostate health—while also helping maintain everyday energy, libido, and overall vitality.
**neurogenica**
neurogenica is a dietary supplement formulated to support nerve health and ease discomfort associated with neuropathy.
**cellufend**
cellufend is a natural supplement developed to support balanced blood sugar levels through a blend of botanical extracts and essential nutrients.
**prodentim**
prodentim is a forward-thinking oral wellness blend crafted to nurture and maintain a balanced mouth microbiome.
**revitag**
revitag is a daily skin-support formula created to promote a healthy complexion and visibly diminish the appearance of skin tags.
Your article helped me a lot, is there any more related content? Thanks!
Thanks for sharing. I read many of your blog posts, cool, your blog is very good.
Thank you for your sharing. I am worried that I lack creative ideas. It is your article that makes me full of hope. Thank you. But, I have a question, can you help me?
**memorylift**
memorylift is an innovative dietary formula designed to naturally nurture brain wellness and sharpen cognitive performance.
Thank you for your sharing. I am worried that I lack creative ideas. It is your article that makes me full of hope. Thank you. But, I have a question, can you help me?