A Better Way to Judge “Long Term” Performance
June 23rd, 2017 | Posted in Investing
For investors, it’s natural to look at an investment’s performance over time to gauge how successful it’s been. But how long a time period should they consider?
Many investors don’t take into account the complete cycle of a bull and bear market — instead, they rely on standard industry measures like one-, three- and five-year returns. The problem with that is the current bull market is now in its eighth year, the second longest on record. How can you tell if an investment is well run in that environment? As the axiom goes: a rising tide lifts all boats.
A Los Angeles fund manager recently suggested defining a full market cycle as “a peak-to-peak period that contains a price decline of at least 20% over at least a two-month period from the previous market peak, followed by a rebound that establishes a new higher peak.”
Intrigued by the idea, the Wall Street Journal applied it to the performance of the 100 largest non-bond, actively managed funds, from 2008 through the first quarter of 2017, making sure a single manager or team was responsible for the performance.*
Generally, they found that value funds held up best in the bear market by hanging onto more of their value, while growth funds plummeted. When the market turned, growth funds made up ground (plus a bit more) while value funds lagged, although growth funds exposed investors to more volatility.
For investors, treating a full cycle this way can help them avoid dismissing funds with a subpar three- or even five-year performance versus an index.
However, a peak-to-peak view creates a dilemma for investors who use on-line investment services like Zacks Advantage. Because all such services came into being relatively recently, how will they perform in a bear market?
The answer is: no one knows. But investors can reach some educated conclusions. Like all such services, Zacks Advantage doesn’t have a peak-to-peak track record. But it shares an investment committee with Zacks Investment Management. Founded in 1992, Zacks Investment Management has advised high net worth and institutional investors in all types of markets. And because Zacks Advantage portfolios are actively managed, they have the potential to draw on that experience if the committee believes changes are warranted.
To learn more about their approach, click here. It’s just one more way that Zacks Advantage represents the next generation of on-line investment managers.
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Source: https://www.wsj.com/article_email/a-funds-peak-performance-matters-1496628721-lMyQjAxMTA3MTA3NTYwNjU1Wj/
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss
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