1) Stop relying on published returns for your own holdings. Start keeping track yourself. There are piles of evidence that actual human being's returns are much lower than the published returns because of the timing of their additions/draws, reinvestment of dividends etc.
2) Yes, the MER is already included in the published past results. It becomes important when considering future probable returns. If you accept that regardless of a past winning streak, the probability of beating the market NEXT year is still only 50%, then you should expect to underperform the market by the amount of the MER. Long-term mutual funds have shown this to be true. On average funds earn the index return LESS the MER.
3) In the debate whether active investment can beat passive indexing,
(i) a big part of the research problem lies in the use of mutual funds' returns as the 'proof'. Yet many funds are REQUIRED to stay fully invested, and prohibited from shorting the market. So in the last year's downdraft, even if they wanted to exit the market, they couldn't.
Add to that the fact that some investors bought mutual funds with deferred sales charges, and so cannot sell their fund without huge penalties. Thus they are locked in (twice over) through down drafts.
This has the effect of making the returns from active mutual funds much lower than the manager probably earned on his own invested money.
(ii) a proven problem for mutual fund managers comes from excessive cash flows - into the fund after it has done well and out of the fund after poor performance. These fund are very hard to deal with - forcing him to buy and sell at NOT opportune times. And lowering his returns.
CONCLUSION: I believe that active management can outperform the market, or at least match the market with lower risk (which is what I accomplish). But that active mutual funds have headwinds (in addition to their actual investing performance) that make it impossible except for short, lucky, periods of time.
2) Yes, the MER is already included in the published past results. It becomes important when considering future probable returns. If you accept that regardless of a past winning streak, the probability of beating the market NEXT year is still only 50%, then you should expect to underperform the market by the amount of the MER. Long-term mutual funds have shown this to be true. On average funds earn the index return LESS the MER.
3) In the debate whether active investment can beat passive indexing,
(i) a big part of the research problem lies in the use of mutual funds' returns as the 'proof'. Yet many funds are REQUIRED to stay fully invested, and prohibited from shorting the market. So in the last year's downdraft, even if they wanted to exit the market, they couldn't.
Add to that the fact that some investors bought mutual funds with deferred sales charges, and so cannot sell their fund without huge penalties. Thus they are locked in (twice over) through down drafts.
This has the effect of making the returns from active mutual funds much lower than the manager probably earned on his own invested money.
(ii) a proven problem for mutual fund managers comes from excessive cash flows - into the fund after it has done well and out of the fund after poor performance. These fund are very hard to deal with - forcing him to buy and sell at NOT opportune times. And lowering his returns.
CONCLUSION: I believe that active management can outperform the market, or at least match the market with lower risk (which is what I accomplish). But that active mutual funds have headwinds (in addition to their actual investing performance) that make it impossible except for short, lucky, periods of time.
