Review & Outlook

Our take on the investing, financial, & economic themes of the day

A New Year’s Gift for Fund Marketing

24 December, 2013 by Matthew O'Brien, Ph.D. in Commentary

Past performance may not guarantee future results, but this fact doesn’t impede most retail investors from picking their mutual fund investments based largely upon past performance.  Funds typically report their performance over one, three, and five-year periods, so 2014 marks an important marketing milestone: the great financial crisis will recede from the five-year performance window.  In 2014 the five-year performance will only reflect the post-crisis bull market recovery, and not the 40% decline in the S&P 500 Index from 2007.  Jason Trennert at Strategas Research Partners has produced a nice table that shows just how dramatic the difference is.   5 yr

This cosmetic change in performance alone might provide more fuel for the current bull market in stocks, as people hear more and more “all time high” stories in the news media, discover the newly “stellar” past performance of mutual funds on Morningstar.com, and start buying.  Retail investors have missed out on much of the recovery since 2008, after selling near the bottom and staying mostly in cash, and will be eager to catch up.

Matthew B. O’Brien, Ph.D.