A recent study from Morningstar has revealed that investors underperformed the equivalent annual market returns by roughly 1.7% each year over the course of a decade. Investors are leaving a lot of money on the table long-term in a trend that, while better than previous decades, still continues to show underperformance, reports Investment Week.
Back in 2011, a study done by the DALBAR Quantitative Analysis and Investor Behaviour group showed that in the mutual fund arena, the average investor underperformed the S&P 500 Index by nearly 4.3% yearly over a 20-year period; bonds were even worse, with investors behind up to 5.5% of the Barclays U.S. Aggregate Bond Index.
Some of the factors contributing to poorer performance could be an inability by the investors to establish performance that is repeatable, a pattern of investing in the wrong areas by interest, behavioral biases that can interfere with decision making, as well as poor timing in purchasing and selling funds.
Active managers work to hone their analysis and research, aiming to provide repeatable performance for clients based on experience. Often, investors might make decisions based on their own biases instead of methodical, research-based analysis and experience. This is an area that T. Rowe Price’s active managers shine in, as they work to make investment choices based on years of experience and research.
Investors also hit potential pitfalls when buying and selling funds, or when buying into funds when the price has already increased with good performance and then selling after the price has dropped with weaker performance. Depending on the investment strategy, experienced active managers can often work to identify strong-performing investment options before they experience periods of strong growth, buying into securities before their prices climb, and then working to predict any downturns or pullbacks and moving out of the positions before the fund is heavily impacted.
Active management firm T. Rowe Price believes in the difference and benefits to active investing and active management. The firm currently offers five actively managed ETFs for investors who are looking to invest in an environment of record IPOs beneficial to stock pickers. The firm brings a bevy of experience and research to its products, with portfolio managers averaging over 20 years in investing each, as well as over 400 investment professionals dedicated to researching companies within ETFs.
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