Can an individual broker/advisor and their team consistently deliver outperformance?
Perhaps we can look to the mutual fund industry for the answer. Afterall, individual brokers/advisors and their teams are essentially a smaller version of larger active mutual fund managers. Both are looking to deliver outperformance through specific stock picking and market timing.
Each year, Dimensional analyzes returns from a large sample of US-based mutual funds. The objective is to assess the performance of mutual fund managers relative to benchmarks.* This year’s study updates results through 2020. The evidence shows that a majority of fund managers in the sample failed to deliver benchmark-beating returns after costs.
As of December 31, 2020, the sample evaluated in this study contained 4,279 US-based mutual funds. Collectively, these funds managed more than $10.9 trillion in shareholder wealth.
Past performance is no guarantee of future results. See Data Appendix for more information.
Past performance is no guarantee of future results. See Data Appendix for more information.
If larger mutual fund managers with much greater economies of scale and resources cannot consistently deliver outperformance, and in some cases even survive, is it realistic to expect for an individual broker/advisor and their team do the same?
We instead focus on designing properly diversified, low costs, and tax efficient portfolios that specifically align with our individual clients’ risk tolerance and goals. Those portfolios help our clients enjoy risk based long term market returns, which along with their individualized comprehensive financial planning, provide them the greatest probability of achieving the wealth they seek to enjoy.
Feel free to email us to request a copy of the Mutual Fund Landscape 2021 report provided by Dimensional Fund Advisors.
*In the study results, “benchmark” refers to the primary prospectus benchmark used to evaluate the performance of each respective mutual fund in the sample where available. See Data Appendix for additional information.
Data Sample
US-domiciled, non-Dimensional open-end mutual fund data provided by Morningstar. Dimensional fund data is provided by the fund accountant. Beginning sample includes funds as of the start of the sample period. Dimensional funds or subadvised funds whose access is or previously was limited to certain investors are excluded. Index funds, load-waived funds, and funds of funds are excluded from the sample.
Methodology
Surviving funds are those with return observations for every month of the sample period. Each fund is evaluated relative to its primary prospectus benchmark. Where the full series of primary prospectus benchmark returns is unavailable, non-Dimensional funds are instead evaluated relative to their Morningstar category index. Outperformers are funds that survived the sample period and whose cumulative net return over the period exceeded that of their respective benchmark. We aggregate funds with multiple share classes to the strategy level.
Morningstar Categories
Equity fund sample includes the following Morningstar historical categories: Diversified Emerging Markets, Europe Stock, Foreign Large Blend, Foreign Large Growth, Foreign Large Value, Foreign Small/Mid Blend, Foreign Small/Mid Growth, Foreign Small/Mid Value, Global Real Estate, Japan Stock, Large Blend, Large Growth, Large Value, Mid-Cap Blend, Mid-Cap Growth, Mid-Cap Value, Miscellaneous Region, Pacific/Asia ex-Japan Stock, Real Estate, Small Blend, Small Growth, Small Value, World Large Stock, and World Small/Mid Stock. Fixed income fund sample includes the following Morningstar historical categories: Corporate Bond, High Yield Bond, Inflation-Protected Bond, Intermediate Core Bond, Intermediate Core-Plus Bond, Intermediate Government, Long Government, Muni California Intermediate, Muni California Long, Muni Massachusetts, Muni Minnesota, Muni National Intermediate, Muni National Long, Muni National Short, Muni New Jersey, Muni New York Intermediate, Muni New York Long, Muni Ohio, Muni Pennsylvania, Muni Single State Intermediate, Muni Single State Long, Muni Single State Short, Muni Target Maturity, Short Government, Short-Term Bond, Target Maturity, Ultrashort Bond, World Bond, and World Bond-USD Hedged.
Index Data Sources
Index data provided by Bloomberg Barclays, MSCI, Russell, FTSE Fixed Income LLC, and S&P Dow Jones Indices LLC. Bloomberg Barclays data provided by Bloomberg. MSCI data © MSCI 2021, all rights reserved. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. FTSE fixed income indices © 2021 FTSE Fixed Income LLC. All rights reserved. S&P data © 2021 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
Indices are not available for direct investment. Their performance does not reflect the expenses associated with management of an actual portfolio.
UNITED STATES:
Consider the investment objectives, risks, and charges and expenses of the Dimensional funds carefully before investing. For this and other information about the Dimensional funds, please read the prospectus carefully before investing. Prospectuses are available by calling Dimensional Fund Advisors collect at (512) 306-7400 or at us.dimensional.com. Dimensional funds are distributed by DFA Securities LLC.
Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.
