Chart of the Week: Investor self sabotage
The asset classes where investors experience poor returns due to poor behaviour.
This week’s Chart of the Week comes from our latest Mind the Gap study. Although the report is based on US asset classes, it provides insights into how investors behave with differing asset classes.
The report finds that the average dollar invested in managed funds and ETFs earned 7.0% per year over the 10 year period ending December 31 2024. This is what we would call the investor return, or the actual return that an investor received. This is about 1.2% per year less than the 8.2% aggregate annual total return over that span, assuming an initial lump sum purchase. This puts the investor return gap at 1.2%.
The difference is explained by the timing and magnitude of investors’ purchases and sales of fund shares during the 10 year period. These investors are losing about 15% of the funds’ aggregate total return because of these decisions.
What we do see, however, is that this gap broadens and narrows when it comes to different asset classes. This has been consistent across what has been measured in the past in previous Mind the Gap studies.
In absolute terms, sector equity funds saw the largest shortfall to the funds’ total return, while investors in allocation funds (also known as multi-asset funds) captured the largest share - almost 97% of the fund return.
Though the gap narrowed considerably for alternative funds over the decade ended December 31 2024, compared with prior 10 year rolling periods, it would’ve been substantially wider (-0.8% per year) if the study excluded liquidated funds, as such funds are assumed to earn no total return from the time they’re liquidated through the end of the study, pushing the category group’s return lower. The amount of liquidated funds are significant. Of the 1,259 alternative funds that started the study, 711 were subsequently liquidated.
What we can take from this data is that investors tend to experience better outcomes in funds such as multi-asset funds, where they may be more hands off.
You’re able to find previous editions of Chart of the Week here.
