Comments on: Active Funds Protect In A Down Market… Debunked http://wheredoesallmymoneygo.com/active-funds-protect-in-a-down-market-debunked/ A personal finance blog written by Preet Banerjee Sat, 11 Feb 2012 16:22:10 +0000 hourly 1 http://wordpress.org/?v=3.1.2 By: Preet http://wheredoesallmymoneygo.com/active-funds-protect-in-a-down-market-debunked/#comment-574 Preet Wed, 07 May 2008 11:03:46 +0000 http://symbiantcapital.com/2008/05/06/active-funds-protect-in-a-down-market-debunked/#comment-574 <p>Excellent point Michael James. I have also not seen any evidence to suggest that managers who do hold substantial cash positions switched to cash before any initial downturn in performance (i.e. sometimes the cash positions come too late). I think a certain amount of their cash holding can be attributed to knowing that investor redemptions are ramping up as well.</p> Excellent point Michael James. I have also not seen any evidence to suggest that managers who do hold substantial cash positions switched to cash before any initial downturn in performance (i.e. sometimes the cash positions come too late). I think a certain amount of their cash holding can be attributed to knowing that investor redemptions are ramping up as well.

]]> By: Michael James http://wheredoesallmymoneygo.com/active-funds-protect-in-a-down-market-debunked/#comment-573 Michael James Wed, 07 May 2008 01:49:15 +0000 http://symbiantcapital.com/2008/05/06/active-funds-protect-in-a-down-market-debunked/#comment-573 <p>The situation is actually worse for actively-managed funds than it first appears. Morningstar's risk-adjusted return formula penalizes volatility far too severely. The cash that actively-managed funds tend to hold lowers their volatility somewhat compared to indexes. So, index ETFs get rated too low in Morningstar's ratings.</p><p>There have been severe down markets where actively-managed funds have performed comparably to indexes, but this can also be explained by cash holdings.</p> The situation is actually worse for actively-managed funds than it first appears. Morningstar’s risk-adjusted return formula penalizes volatility far too severely. The cash that actively-managed funds tend to hold lowers their volatility somewhat compared to indexes. So, index ETFs get rated too low in Morningstar’s ratings.

There have been severe down markets where actively-managed funds have performed comparably to indexes, but this can also be explained by cash holdings.

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