Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Monday, July 28, 2014

Why the 'Top Funds' May Be A Flop

Piggy bank

The “top funds” list has been a staple of the investment press for years, dazzling many with the potential for market-beating gains.  Yet many people do not know that the lists are continually changing, and it is almost impossible for an actively managed fund to stay on top for more than a few years at a time. 

A study by S&P Dow Jones found that just two out of 2,862 funds it managed to stay in the tope quartile after five years.

New investor money is welcome by almost any fund, however, fund managers also know that too much money can be a problem.  Once a fund is full of cash, it becomes more difficult for managers to hide their moves.  This is why funds often close their doors to new money.  Eventually, funds that have too much to invest start to fall back because they cannot outdo the indexes against which they are measured. 

Disciplined investors who pay attention to costs beat active managers, especially as their gains begin to reinvest and compound.  “It’s truly good news, although not likely to end up on the cover of a glossy investment magazine anytime soon.”

See Mitch Tuchman, Why You Should Ignore ‘Top Funds’ Lists, Forbes, July 27, 2014.


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