CHICAGO, Dec. 12, 2019 /PRNewswire/ -- Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment research, today published its biennial global study of investor returns, "Mind the Gap," which measures how opportunely investors have timed their fund investments. The study estimates the performance of the average dollar invested in a fund and compares it to the fund's time-weighted return. The difference, or "gap", represents the impact that the timing of investors' purchases and sales had on the investment outcomes they achieved. The study finds that the return on the average dollar invested in funds lagged the average fund's return in most of the seven markets studied.
"Though it's an estimate, the investor return gap data can indicate when and where investors aren't getting the most out of their funds," said Russel Kinnel, chair of Morningstar's North America ratings committee and editor of Morningstar® FundInvestorSM. "By studying these gaps, we hope to form a better understanding of the circumstances and other factors that yielded better or worse outcomes for investors. With this information, we believe fund companies, financial advisors, and individual investors can make more informed choices and build better plans that promote success."
The study found that investor return gaps declined across most of the seven markets—Australia, Europe, Singapore, South Korea, Taiwan, the United Kingdom, and the United States—since the first global "Mind the Gap" study in 2017. Investors tended to obtain the best results in markets where systematic investing was common, and the worst results in volatile markets.
"Investor return gaps generally narrowed, as placid markets appear to have kept investors from over-trading on emotion. In most major markets, we found smaller gaps for low-cost funds and low-volatility funds," said Kinnel. "Additionally, we found that investors who made automatic contributions to their investments were most successful. Investors should continue to prioritize low-cost and less-volatile funds, and steady investments that can stand the test of time."
The study reviews five rolling 10-year return periods in the U.S. and five rolling five-year return periods outside the U.S. Key highlights of the study include:
- Low-cost and low-volatility funds fared better across asset classes, with exceptions. In Europe, Australia, and the U.S., the gap grew with volatility but not in some Asian markets. In the U.S., Australia, and Europe, low-cost funds produced higher investor returns and higher total returns across asset classes.
- For the U.S., Morningstar examined 10-year results for each year end from 2014-2018. In general, the gap widens around dramatic market reversals such as those seen in 2008 and 2009, because some investors panic and sell near the bottom, thus missing out on a dramatic rebound. Since 2017, the investor return gap has declined in the U.S. to 45 basis points. Among asset classes, U.S. allocation funds had investor returns that were 22 basis points higher than total returns and investors in alternative funds lagged total returns by 144 basis points.
- For Europe outside the U.K., the study looked at the three largest fund markets: France, Ireland, and Luxembourg, and found an overall gap was 53 basis points in the average five-year period. In terms of asset class, fixed-income has been tricky for investors due to market conditions in government bonds, emerging-markets debt, and high yield, resulting in a gap of 40 basis points. On the flip side, investors have earned a higher return than the total return on their euros in allocation funds of 32 basis points.
- Investor return gaps in the U.K. market have turned positive, to 27 basis points with allocation, equity, and alternative funds all producing higher investor returns than total returns.
- Australia's superannuation funds require a commitment to steady investing that has Australia's investors coming out on top, with an overall outperformance of 65 basis points versus total returns and strong investor returns for all asset classes.
- South Korean investors tend to invest money in regular installments when they choose a distribution platform and start investing in funds. Similar to Australia, Korean defined-contribution plans require an automatic contribution. Investor returns were higher than total returns within Korean allocation funds across all five rolling 5-year periods.
- The study also looked at Singapore and Taiwan. In Taiwan, fixed income has been challenging with investor returns in negative territory in four of the five periods examined. In Singapore, investors in equity lagged total returns on average for the five 5-year periods, but the gaps are getting smaller.
The "Mind the Gap" global study is available here and an article summarizing the findings is available on the Morningstar Blog. Also published today is a European "Mind the Gap" study that digs deeper into the gap in Europe, available here. The Morningstar Fund Investor also published a U.S. version of "Mind the Gap" in August 2019; the summary on Morningstar.com is available here.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors, and institutional investors in the private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with about $217 billion in assets under advisement and management as of Sept. 30, 2019. The company has operations in 27 countries. For more information, visit www.morningstar.com/company. Follow Morningstar on Twitter @MorningstarInc.
Morningstar's Manager Research Group consists of various wholly owned subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC. Morningstar's Manager Research Group produces various ratings including the Morningstar Analyst Rating for funds and the Morningstar Quantitative Rating for funds. The Analyst Rating is derived from a qualitative assessment process performed by a manager research analyst, whereas the Morningstar Quantitative Rating uses a machine-learning model based on the decision-making processes of Morningstar's analysts, their past ratings decisions, and the data used to support those decisions. In both cases, the ratings are forward-looking assessments and include assumptions of future events, which may or may not occur or may differ significantly from what was assumed. The Analyst Ratings and Quantitative Ratings are statements of opinions, subject to change, are not to be considered as guarantees, and should not be used as the sole basis for investment decisions. This press release is for informational purposes only; references to securities should not be considered an offer or solicitation to buy or sell the securities.
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Sarah Wirth, +1 312 244-7358 or [email protected]
SOURCE Morningstar, Inc.