Just as fund companies tend to overstate the expertise level of their youthful, call-center “investment advisers”, management also tends to attribute what the evidence shows to be more-or-less luck to extraordinary investment acumen. As I’ve said before, the exorbitant fees charged for active management would be well worth it, if superior returns were consistently delivered. But, the returns are not being delivered, and the fees are mostly not worth it (especially the overpriced, advisor-pushed funds). What’s worse, while I concede that in any given year, two thirds of fund managers will beat the market, that percentage decreases dramatically as the time horizon lengthens.
In fact, using a manager’s good track record has been shown to be one of the worst things you can do when picking a fund. The maxim of past performance as no guarantee of future results is right. For that matter, superior past performance is almost a guarantee of sub-par results in the future.
If you read the advertisements for mutual funds in the business pages, they are likely accompanied by smiling, happy, healthy people and in big numbers, the 1, 5, and 10 year returns on the fund. If they are really gutsy, and have happened to beat the S&P 500, they’ll compare those numbers with the index as well. However, this only tells part of the story. First, every well managed fund that delivers consistently faces a huge upsurge in dollars to invest, making it harder to deliver those outperforming returns. Do they make this clear in the advertisement that the superior returns delivered many years ago are harder to come by now that they have 10x or more to manage? No.
Second, one of the true benefits of operating a huge fund complex with dozens or hundreds of funds means that, at any given time, one of them will be outperforming. This means that the funds are touting what is hot at the moment, keeping silent about their underperformers, and exacerbating the first problem. I am reminded of the book maker who makes ten picks a week, so that he can be sure to have some correct calls to tout the next week. The “Hot Hand” theory, as espoused by University of Illinois Finance Professor Josef Lakonishok, tells us that any fund manager who outperforms one year can expect to continue to outperform for a maximum of 10 subsequent quarters. Lakonishok attributes this to market momentum more than any investment acumen. As money pours into that manager’s fund and funds like it, asset prices are bid ever higher. After the period of overperformance, if there is indeed one at all, the manager is more than likely to underperform, and sometimes drastically underperform. The key takeaway is that you should not be enamored with advertisements of hot funds.
On top of this phenomenon, you should be aware that herd mentality makes it difficult for any fund manager. On a macro level, history bears this out. For example, in the early stages of the 1990′’s bull market, fund inflows were about one tenth of the level in 1999-2000, when the market was at its peak. Conversely, fund outflows were at their peak in 2002-2003 when the market was at its bottom. The result was a $4 trillion dollar hickey to the small investor in the form of paper wealth vanished. To the extent that the fund industry continued with their deceptive advertising, they deserve some blame.
Mark Brandon is the managing partner of First Sustainable (http://www.firstsustainable.com), a registered investment advisory catering to socially responsible investors. First Sustainable does not accept payment from any sponsors of financial products.
The Volkswagen Jetta, or the VW Jetta is a car that is made by the Volkswagen Company and is basically a sedan variation of the Volkswagen Golf. The name ‘VW Jetta’ was used only in South Africa and North America until 2005. Volkswagen used the names ‘Vento’ and then ‘Bora’ in Europe. The VW Jetta was made because the marketing people at Volkswagen were astute enough to realize that the people in the United States preferred to drive sedan model cars as opposed to hatchback models like VW’s Golf car. South Africa shows similar preferences and so marketing for both America and South Africa remains almost identical. Volkswagen’s marketing team proved that they made advantageous observations as the Jetta eventually became the best selling European car in the United States.
The Jetta first made its debut in North America in 1980. It was available as either a two-door coupe or a four-door sedan. This model had a different version called the Volkswagen Fox that was sold only in South Africa. The original US VW Jetta model was manufactured and sold from 1980 though 1984.
The next generation of VW Jettas proved to be the most successful for Volkswagen and remained in production from 1985 through 1992. In the United States alone, the VW Jetta outsold the VW Golf by almost half. This is the time when the Jetta saw its peak sales and was named the best-selling European car in America. This version of the VW Jetta was also one of the first Volkswagen cars to be made in China. The difference between the first generation of VW Jettas and the second generation was in the body design as the car featured changes with added large, body-colored bumper covers, low side skirts and side-clad and grille alterations.
From 1991 through 1998, the third generation of VW Jetta was dubbed the “poor man’s BMW” as it was loaded with trim features. The exterior of third generation VW Jettas were considered to be ‘boxy’ and had subtle body changes like a new grille, assorted wheel covers and body-colored rub strips. The VW Jetta from this time period was available in the GL, which is the basic trim, and the GLS, which is the luxury model trimmed with leather interior and power windows, locks and sunroof as well as many other features.
The fourth generation of the VW Jetta came out late in 1998 and continued production until 2005. This Jetta shared some of the same styling marks as the larger VW Passat. The body of the fourth generation VW Jetta includes a rounder shape and arched rooflines. This VW Jetta was made in a variety of trim levels as well as in a wagon version. The fourth generation VW Jetta was made in a few different models with the GL being the base model, the GLS a slightly higher model and the GLX being the luxury model.
The fifth generation of the VW Jetta was unveiled at the 2005 Los Angeles Auto Show. The latest generation of the VW Jetta is larger than the previous generation with luxury styling and a roomy interior. This model of the VW Jetta is also the first to feature an independent rear suspension system and a new 5 cylinder engine.
Automotive journalist Steven Johnson writes for publications such as www.vw-jetta-performance.com.
