The tendency of individual investors to buy funds in asset classes that have seen good performance can cost them about 0.51% in lost performance, research shows.
The Morningstar research revealed that the timing of fund allocations can see a difference of between -0.51% and 0.46% when a fund investor’s return (or loss) was compared to the published return of a fund.
The 0.51 percentage-point difference was for the diversified equity fund group.
“Although this represents only a small percentage of the annualised return produced by funds in the group, it is still a meaningful loss of return,” Morningstar said.
Timing was only a “possible” explanation for why investor returns differ from published returns, the firm said.
Simon Dorricott, associate director of equity strategies at Morningstar, said: “One possible explanation is that investors tend to invest in funds, markets or categories that have already shown strong absolute returns, and are subsequently invested through a period of lower absolute performance.”
However, if timing is the cause, then investors appeared to be best at timing concentrated equity funds.
The results are from a study of investors in UK-domiciled funds called “Mind the Gap 2017 – UK”.
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