By and large, both investors and fund professionals rely heavily on past performance in their fund selection process. The problem is that past performance is of little use in identifying funds or managers who will deliver superior future performance relative to their peer group. Numerous studies have failed to unearth a significant positive correlation between past relative performance and future relative performance. The only correlation found has been the consistency of managers with very bad returns to continue to post bad returns in the future.
Our experience evaluating active managers leaves us less than surprised by the inability of winners to consistently repeat. Our research indicates that even skilled managers’ past success often sows the seeds of their future underperformance. There are a variety of reasons that we have identified as to why maintaining an investment edge is difficult:
The fact that track records are not useful in predicting future relative performance is the basis on which index fund proponents conclude that low cost index funds are the better choice. But we disagree with the underlying premise. The fact that track records are not predictive is not tantamount to concluding that superior future performers can’t be identified in advance. It simply means that the track record does not provide sufficient information to do so. Our approach to fund research recognizes that past performance is useful only as a tool for screening funds to identify those that may be worthy of further research. Value added comes from identifying why a fund performed well in the past, determining if the portfolio management team has an identifiable edge and assessing whether the edge (if one exists) is sustainable.
Gretchen Hollstein and Monica Muñoz Named to 2021 Top Wealth Advisor Moms List
We are pleased to announce that Senior Advisors Gretchen Hollstein, CFP® and Monica Muñoz, CFP® have been named as two of the country’s Top Wealth Advisor Moms for 2021 by Working Mother. This recognition is a testament to their passion for both roles they hold, advisor and parent.
Commentary from Our CIO—Third Quarter 2021
Chief Investment Officer Jeremy DeGroot reviews key elements of the global macro environment and how they impact our financial market outlook: COVID-19, U.S. economic policy, growth, and inflation. He also covers our reasons for near-term caution on U.S. stocks, and an in-depth review of emerging market equities, in light of recent market headlines and regulatory developments in China.
Introducing Litman Gregory’s Updated Logo
For many years, our team has referred to the services we offer to our clients as "wealth management". To us, this communicates that we provide both investment management and financial planning in an integrated way to support their broader wealth planning goals. As of today, we have officially updated our name and logo.