Active vs. Passive Investing:

Most Active Managers Fail To Beat Their Benchmark After Fees and Expenses.

In 2012, a whopping 88% of hedge funds, 65% of large cap core mutual funds, 80% of large cap value MF and 67% of small cap MF underperformed their benchmarks for 2012.  This is according to Goldman’s David Kostin.  Bloomberg estimates that 635 hedge funds went out of business in 2012.  That number is up 8.5% YOY.  According to CRSP, for the 10 years ending in 2011, only 53% of equity MF survived the period and most (79.51%) active equity Managers failed to beat their benchmarks.  The numbers are even worse for actively managed bond funds.  Over the 10 year period, only 58% of bond MF survived the period and 88.60% failed to beat their benchmarks.

Source: CRSP data provided by the Center for Research in Security Prices, University of Chicago. Past performance is no guarantee of future results.

CRSP active vs. passive scorecard 2011 The Mutual Fund Landscape- for blog

Passive investing still works!  Capitalism still works.

As we ring out 2012, I am reminded that individuals should take the advice of David Swensen (Yale), John Bogle, Warren Buffet and many others to follow the academic approach to investing and turn off the financial news.  We should all focus on the core activities that we can control and avoid the short term noise.

1)  Work with a Fiduciary who has a legal obligation to put your interest first.  Many advisors do not have this legal obligation.

2)  Control factors that matter most.  Reduce fees, taxes, turnover, transaction costs and eliminate market timing.  Focus on asset allocation and work with an advisor that charges 1% or less for $500k or more.

3)  Most actively managed mutual funds fail to beat their index over extended periods.  Focus on passive investing and asset allocation.  Not chasing hot returns.

4)  You may need to do all of the above and save more to hit your retirement goals.

5)  Get a 2nd opinion from a fee-only Fiduciary.  Someone who has a “legal loyalty” to put your interest first.  Give us a call at 303-549-4720.

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Here is the link for Bloomberg article regarding David Swensen’s perspective.  Here is the link for David Swensen’s opinion piece in the NY Times.

Happy New Year to all!

Who we are:

Integrity Investment Advisors, LLC is a fee-only independent Registered Investment Advisory Firm. We are headquartered in Fort Collins, Colorado and serve clients on a national basis. If you know anyone who may benefit from our services, please contact us. 2013 Press Release: Integrity Investment Advisors, LLC and Managing Partner Todd Moerman are pleased to have recently joined an exclusive group of wealth managers offering the low cost mutual funds of Dimensional Fund Advisors (DFA) to its clients. We are an approved DFA advisor.

Please Remember: Past performance may not be indicative of future results.  Moreover, no current or prospective investor should assume that future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in any general informational materials or educational sessions, will be profitable or equal any corresponding indicated historical performance level(s).  Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for an investor’s retirement portfolio.  Moreover, you should not assume that any discussion or information contained in this website serves as the receipt of, or as a substitute for, personalized investment advice from Integrity Investment Advisors, LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.