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Chapter 30. If You Choose an Actively Ma... > What to Look For in an Actively Mana...

What to Look For in an Actively Managed Fund

We have said throughout this book that many mutual fund owners are victims of the performance game that is played out day after day. A fund achieves good performance for some period of time, strongly advertises this performance, attracts new money, and subsequently turns in disappointing performances. Maybe the fund was in the right sector at the right time, as technology funds were in 1998 and 1999. Perhaps one of the investment styles was currently favored by investors, such as value investing or growth investing. Maybe the fund simply took more risk than other funds when the market was going up, and therefore it performed even better than the market.

It is indeed difficult to spot the strong performers and invest in time to benefit from that strong performance. Presumably, however, it can be, and is, done by at least some investors. Clearly some funds do turn in very good performance over multiple-year periods; just ask the owners of the Magellan Fund when Peter Lynch was the manager.


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