Archive for November, 2009
By definition, actively managed funds (those shaped and guided by professional managers) strive to outperform the market, so they can be a great fit for the Explore portion of your stock portfolio. One of the biggest challenges is that there are literally thousands of funds from which to choose.
Research shows that active management can have the biggest impact with small-cap and international equities. (Remember the efficient market theory?) Statistics tell us that over the ten-year period from 1993 through 2002, 77% of actively managed large-cap funds underperformed the S&P 300 Index. Conversely, in this same ten- year period, 63% of actively managed small-cap funds outperformed their index, and 63% of actively managed international funds outperformed their index. It just makes sense that there would be a much better opportunity to find a diamond in the rough among smaller, less well-known, emerging companies.
Given this advice, should you restrict yourself to small-cap or international funds for your Explore holdings? Not necessarily. If you know what you’re looking for and do your homework, a variety of actively managed large-cap funds—such as growth, value, or sector (industry-specific) funds—can also provide opportunities to outperform the market. Perhaps the best way to do your own research is to take advantage of the mutual fund screeners available online. At schwab.com, for example, you can screen more than ten thousand funds to find those that fit your criteria.
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