“It pays to invest with managers who invest in their funds. ” – Russel Kinnel of Morningstar
I think this statement will come as no surprise to most investors. Mr. Kinnel did some research on mutual funds to prove the point. It turns out that manager investment is correlated to better performance.
Mr. Kinnel was able to group mutual funds into bands required by the SEC based on manager investment. For US equity funds, there was a 10% improvement in success rates between managers who had $0 invested and those who had over $1 million invested.
The sad part is that the success rate for the better managers was still only 39% over the five year period of the study. It dropped to 29% for those not “eating the soup.” Success rate is defined in his study as a mutual fund that survived and outperformed their category peers.
This seems to end up advocating index funds for public equity exposure instead of actively managed funds.
Sources:
