Quote:
Originally Posted by Snave
I think Tim's point may have been more along the lines that it is better to look at a longer history than a recent 1 year of stellar growth with 10 years of weak returns. While I agree that past performance is not indicative of future success, it is a smarter way to go than 9 bad years of performance with a good one in the last 12 months.
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Hmm, yes I can go along with that... although if we are to examine an actively-managed fund's performance, I think it's more important to look at it in relation with the fund manager's tenure and the turnover ratio.
For example-- and I'm just arbitrarily selecting a fund on the list here-- let's take a look at Putnam Voyager A (PVOYX). As you can see there, it's managed by 2 fund managers who... just started in January 31, 2008! Um, yikes, I wasn't expecting it to be that early. But anyways, can you see how the past performance may not be indicative of future performance, no matter how far you go back? Because how the fund has performed wasn't the result of the current managers.
Plus, the fund has a very typical turnover ratio of 65%, which means that within less than 2 years, the entire portfolio could change completely! So, the performance hinges even more so on the abilites of these two green fund managers.
So, while the saying may be well-worn, it does have some merit, "Buy the fund manager, not the fund."
Either that, or we can simply be good passive investors and set a properly-diversified portfolio based on our own risk tolerance and target horizon. Oh, and to avoid loads and high ERs whenever possible.