The decade closed with equities appreciating 257% and advancing in eight of 10 years in the 2010’s. But have the markets become so overvalued that the coming decade will bring low or even negative returns?
It’s only natural for someone invested in a poorly performing active equity mutual fund to wonder if it’s time to make a change. Should an investor sell a fund if it trails its benchmark for a year? Three years? Five years?
Investment time horizon is a critical concept in building wealth. Most investors have very long investment time horizons, typically decades or more. Investment managers also require long time horizons to deliver on their investment thesis.
One of the underappreciated aspects of active management is the ability to build a well-curated portfolio of mutual funds that pursue unique investment strategies. The chart below shows the aggregate performance of ten active US equity strategies over the last thirty-eight years. Allocating to the top strategies and avoiding the bottom strategies can dramatically improve long-term performance.
Even though we all know market fluctuations are a normal part of equity investing, large market declines can be scary because they often happen rapidly and feel random.
We are experiencing a new peak in the rhetoric around trade, geo-politics, the economy and the business cycle. We have also seen increased market volatility. It can be hard to know when to be concerned and when to tune out the noise. Having a consistent framework for viewing markets with a long-term perspective can be a valuable tool to help avoid costly behavioral mistakes. While there may be a heightened sense of fear in the headlines, based on our Market View, there is no reason to sound the alarm.