Investing October 16, 2003

S&P: 'Buy and Hold' Paid Off During Bear Market

October 16, 2003 (PLANSPONSOR.com) - Funds with lower portfolio turnover fared better than their higher turnover counterparts - at least over the longer term, according to new research.
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Standard & Poor’s reported that funds with a lower than average turnover outperformed their higher turnover counterparts in all of its nine domestic fund styles on a three- and five-year annualized basis through September 30, 2003.

“During the recently concluded bear market, it was clear that funds with a lower than average turnover outperformed those with a higher turnover,” said Phil Edwards, Managing Director of funds research at Standard & Poor’s. “Buy and hold strategies prevailed over the long term and investors were rewarded for their patience. This consistently worked even over the last five-year period.”

But patience may not have been the best play once the market turned, S&P found. In the last 12 months, only five of the nine fund styles with lower than average turnover saw higher returns. “While the pattern is not quite as evident as it is over the long-term, it does make clear that trends do not last forever,” Edwards said.  

According to the S&P data, for example:

  • Below-average turnover (43.63%) mid-cap blend funds returned 10.52% over five years, compared to 8.94% for above-turnover funds and 10.15% for the category overall.
  • Below-average turnover (78.95%) mid-cap value funds returned 10.98% over five years, compared to 8.04% for above-turnover funds and 9.97% for the category overall.
  • Below-average turnover (34.07%) small-cap value funds returned 12.19% over five years, compared to 11.08% for above-turnover funds and 11.79% for the category overall.

For more information, go to    www.standardandpoors.com .

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