Fun Facts Newsletter | May 2016

As the World Turns was a popular soap opera for 54 years on CBS from 1956 to 2010. While I never watched it, the title is applicable to investment management in our increasingly global and rapidly changing world. The investment pendulum swung strongly in our favor in both March and April with international and value-style stocks being strong performers. The dog of the past few years—commodities—has been the best performer in 2016. What will the future bring? Stay tuned! Remember: The world does turn, and the stock market goes up and down. A bull market is defined as a time period when the stock market goes up more than 20% from its prior low and never falls more than 20% from a recent high. We are now in the second-longest bull market in history. Much of this bull market, which began in 2009, is recovery from the carnage of 2008. But remember that sharp stock market downturns have not been repealed, and as we wrote recently, recoveries are faster than people think or realize. For you statistics buffs, the longest bull market was October 1990 to March 2000. Those were the days!

U.S. economic growth poses a challenge, with the economy growing only 0.5% in the first quarter of 2016, versus 1.4% in the fourth quarter of 2015 and 2.0% in the third quarter.

We have preached for years that low-cost funds serve our clients better and high-cost funds pose a hurdle that is hard to overcome. This is included in our Investment Philosophy Core Principle #4, “Manage fees and expenses.”

Morningstar recently published updated research on the value and importance of using low-cost funds. Morningstar Director of Manager Research Russ Kinnel defines and summarizes the results of his research as follows (emphasis added in bold): “… the problem with only looking at returns is you generally have survivorship bias … So, success ratio is a way of folding those funds that got killed off back into the performance … It turns out costs do matter … and what's really powerful … is how big the impact is, so for instance, the cheapest quintile of equity funds over the five years and in 2015 had a 62% success ratio versus 20% for the priciest quintile. Meaning, you are three times more likely to be successful shopping in the cheapest bin than the priciest bin. And what's also striking is just how consistent that is. Look at any time period, look at any peer group, asset group and it works and almost always it's that same stair step. So, it's really a remarkably consistent indicator of performance.” I couldn’t have said it better, which is why I quoted him!

As always, please contact us with any questions, news or comments.

View/Print the Fun Facts Newsletter