The Difficulty of Selecting Superior Mutual Fund Performance

McGuigan, Thomas P.
February 2006
Journal of Financial Planning;Feb2006, Vol. 19 Issue 2, p50
Academic Journal
• Much has been written about the management of mutual funds and active versus passive management This study attempts to quantify the relative performance of actively managed large- and mid-cap domestic stock mutual funds with a passive strategy during a 20-year period, including 11 10-year rolling periods. • During the study period, most actively managed large- and mid-cap mutual funds underperformed their respective passive strategies. While every period under review had mutual funds that outperformed the passive strategy, few funds did so consistently • Furthermore, predicting in advance which mutual funds would outperform was difficult if not impossible, and the cost of selecting the "wrong" manager was high. These factors combined demonstrate the difficulty for financial planners to select superior performance. • The study also reviewed the impact of taxes on large-cap investments. • Finally, the author provides recommendations for financial planners in discussing action steps regarding clients' portfolios. INSET: Executive Summary.


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