The Brandes Institute, 2007
short-term underperformance for mutual fund managers – even those with exceptional long-term results – is commonplace. To draw this conclusion, we analyzed actively managed international stock funds (those mostly or completely invested in non-U.S. stocks) in the Morningstar database. We studied funds with large-cap value, large-cap growth, or large-cap blend mandates and 10 years of performance data available as of December 31, 2006. These criteria yielded a sample of 147 mutual funds.
Our first step was to divide this sample into deciles based on the funds’ annualized performance for the entire 10-year period. For example, decile 1 consisted of the 14 funds with the highest 10-year excluded annualized returns, while the funds with the next-highest returns formed decile 2, and so on. (Per statistical convention, deciles 2, 3, 4, 5, 7, 8, and 9 contained 15 funds.)