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Rating:Study: Donít Sell that Fund Not Rated 0.0 Email Routing List Email & Route  Print Print
Wednesday, July 13, 2005

Study: Donít Sell that Fund

by: Sean Hanna, Editor in Chief

Fund investors who hold onto their funds for longer do better. That is the conclusion of a Morningstar study summarized in the Wall Street Journal. The study is a confirmation for fund firms seeking to retain their shareholders for longer periods.

According to the study, many fund shareholders experience returns below the performance advertised by funds. Those results primarily stem from how shareholders time their purchases and sales.

That news should come as no surprise to fund industry executives as it has long been conventional wisdom in the industry that investors pile into funds after periods of strong performance only to lose patience and sell if performance turns south.

Morningstar's research focused on the dollar-weighted returns of all U.S. stock funds with at least a ten-year history. It compared those returns to the funds' time-weighted returns. Morningstar found that funds with the smallest gaps between their dollar-weighted performance and their advertised performance likely had shareholders with the longest holding periods.

The largest gap, for example, was for sector funds. Growth funds also had a relatively large performance gap. Value funds had the smallest gap between the two measures.  

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