Considerations in an Actively-Managed Fund

Christine Benz from Morningstar was on the Consuelo Mack Show over the weekend and her pick for The One Investment was the Dodge and Cox Balanced Fund [DODBX]. She said it has not done well of late. In looking at the Morningstar page for the fund it has had a couple of periods where it lagged a couple of different benchmarks and it is down 8.0% YTD through March 31 (according to Morningstar).

I do not know Dodge and Cox very well, but I believe their track record is outstanding (someone can correct me if that is wrong). Like all active managers do at some point, they are having a period where they are lagging their benchmark. This is not a big deal but Benz' opinion that things will improve soon is nothing but a look back at what they have done before and simply believing they will go back to beating their benchmark.

There can be no analysis because no one can know what the managers will do six months from now -- even the managers themselves cannot be certain what action they will take six months from now. This does not have to be a reason to avoid all actively managed products. I have a couple of actively managed products in my ownership universe (albeit narrower than DODBX). The managers of all of these funds are trying to be forward looking and sometimes they are right and sometimes they are wrong.

If you are inclined to buy actively managed products you just need to be aware that there is no real way you can do a forward looking analysis on the manager's forward looking analysis. If the managers have a track record for being right more often than they are wrong, that is great - but in the future they will be wrong some portion of the time.