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Q3 Quarterly Investment Review
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QUARTERLYINVESTMENTREVIEW
THIRDQUARTER2010
Crestline Capital, LLCCC
USLargeCompaniesStocks
USSmallCompanyStocks
USREITStocks
Interna9onalDevelopedStocks
USBondMarket
USTreasuryOneMonthTreasuryBills
+11.29% +11.29% +13.22% +16.14% +2.48% +0.04%
Marketsegment(Indexrepresenta9on)asfollows:USLargeCompanyStocks(S&P500Index);USSmallCompanyStocks(Russell2000Index),USValueStocks(Russell1000ValueIndex).USRealEstateMarket(DowJonesUSSelectREITIndex),Interna9onalDeveloped(MSCIWorldexUSAIndex(netdiv.)),EmergingMarkets(MSCIEmergingMarketsIndex(grossdiv.)),USBondMarket(BarclaysCapitalUSAggregateBondIndex),andTreasury(One‐MonthUSTreasuryBills).TheS&PdataareprovidedbyStandard&Poor'sIndexServicesGroup.Russelldatacopyright©RussellInvestmentGroup1995‐2010,all rights reserved.MSCIdatacopyrightMSCI2010,all rights reserved.DowJonesdata (formerlyDowJonesWilshire)providedbyDowJones Indexes.BarclaysCapitaldataprovidedbyBarclaysBankPLC.USlong‐termbonds,bills,andinfla9ondata©Stocks,Bonds,Bills,andInfla9onYearbook™,IbbotsonAssociates,Chicago(annuallyupdatedworkbyRogerG. IbbotsonandRexA.Sinquefield). Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporfolio. Pastperformanceisnotaguaranteeoffutureresults.
MarketsUpdate:AQuarterinReviewThirdQuarter2010
EmergingMarketsStocks
+18.16%
1
BONDSSTOCKS
USValueStocks
+10.13%
MarketsUpdate:AQuarterinReviewThirdQuarter2010
2
• TheUSequitymarket ralliedstrongly in the thirdquarter, reversing thedismalperformanceof thesecondquarter.ThebroadUSmarketgainedover11%inthequarter,withmostassetclassesdeliveringdouble‐digitposi9vereturns.
• Performanceinotherdevelopedmarketswasgenerallygood,especiallyinScandinaviaandAustralia.However,therewasmuchdispersioninperformanceattheindividualcountrylevel.Ireland,whichcon9nuestofaceseverefiscalandfinancialproblems,and Japanhad smallposi9ve returns,while theScandinavian countriesall hadquarterly returns inexcessof25%.TheUSdollarlostgroundagainstmostmajorcurrencies,especiallytheeuroandtheAustraliandollar,whichgreatlyhelpedthedollar‐denominatedreturnsofdevelopedmarketequi9es.
• Emergingmarketshadevenbelerperformancethandevelopedmarkets,andwerethetop‐performingassetclassfortheperiod.Asinthecaseofdevelopedmarkets,therewasmuchdispersionintheperformanceofdifferentemergingmarkets,althoughmostemergingmarketsmanagedtoendthequarterwithdouble‐digit returns.TheUSdollaralso lostgroundagainstthemainemergingmarketcurrenciesinthethirdquarter,whichcontributedposi9velytothedollar‐denominatedreturnsofemergingmarketequi9es.
• Inthethirdquarter,valuestocksunderperformedgrowthstocksacrossallmarketcapitaliza9onsegmentsintheUSandinotherdevelopedmarkets.Inemergingmarkets,ontheotherhand,valuestockshadmixedperformancerela9vetogrowthstocks.Smallcapvaluestocksoutperformedsmallcapgrowthstocks,whilelargecapvaluestocksunderperformedlargecapgrowthstocks.
• Alongthemarketcapitaliza9ondimension,smallcapsnarrowlytrailed largecaps intheUS. Inotherdevelopedmarketsandinemergingmarkets,ontheotherhand,smallcapsgreatlyoutperformedlargecapsinthequarter.
• Notwithstandingthecon9nuedweaknessinthecommercialandresiden9alrealestatemarkets,realestatesecuri9eshadexcellentreturnsinthethirdquarterandverygoodperformancerela9vetootherassetclasses.
• Fixed income securi9es had good returns in the third quarter. Declining long‐term rates rewarded investorswhowereexposedtotermrisk.Intermediategovernmentsecuri9esandinfla9on‐protectedsecuri9esdidpar9cularlywell.
TimelineofEvents:AQuarterinReviewThirdQuarter2010
AgriculturalBankofChinaraises$19.2billion,inoneoftheworld’slargesteverini9alpublicofferings.
HundredsoffireseruptinseveralregionsacrossRussia,leadingtohazardouscondi9onsinMoscowandareduc9oninwheatavailableforexport.
Jul15 Aug31 Sep15
TheUSCongresspassestheFinancialReformBill,themostsweepingchangestofinancialregula9onsincetheGreatDepression.
ChinaovertakesJapantobecometheworld’ssecond‐largesteconomy.
ThelastUScombatunitswithdrawfromIraq.
Aug15
FloodsinPakistancausewidedevasta9on,withover17millionpeopleaffectedand5millionpeopleleshomeless.
Jul31
SouthAfricahoststheFIFAsoccerWorldCup,markingthecon9nent’sfirst9metoentertaintheworld’slargestspor9ngevent.
GoldmanSachssellescivilfraudchargesbroughtbytheSEC,agreeingtopayafine.
FivemonthsaserarigexplosionintheGulfofMexico,BPpermanentlysealstheleakingoilwell.
AIGagreedwiththeTreasuryandtheFederalReserveBankofNewYorkonaplantoreturntheinsurancegrouptofullprivateownershipoverthenexttwoyears,adrama9caccelera9onoftheprevious9metable.
3
TheTeaPartymovementgainsnotorietyinseveralprimaryelec9onsacrossthecountry.
Annualized(%)
Index1YearEnding
9/30/20103YearsEnding
9/30/20105YearsEnding
9/30/201010YearsEnding
9/30/201020YearsEnding
9/30/2010SinceIncep9on(Incep9ondate)
USLargeCompanyStocksS&P500Index 10.16 ‐7.16 0.64 ‐0.43 9.05 9.77
(01/1926)
USSmallCapStocksRussell2000Index 13.34 ‐4.29 1.60 3.99 10.28 11.29
(01/1979)
USValueStocksRussell1000ValueIndex 8.91 ‐9.38 ‐0.48 2.59 9.97 11.93
(01/1979)
USRealEstateInvestmentTrustStocksDowJonesUSSelectREITIndex 30.14 ‐6.98 1.36 10.12 11.23 12.39
(01/1978)
Interna9onalStocksMSCIWorldexUSAIndex 4.14 ‐8.96 2.42 2.91 6.30 9.40
(01/1970)
MSCIEmergingMarketsIndex(grossdiv.) 20.54 ‐1.20 13.08 13.77 11.60 13.87(01/1988)
BondsSBBILong‐TermCorporateBonds 13.33 9.80 6.82 8.55 8.65 5.96
(01/1926)
SBBIOne‐MonthUSTreasuryBills 0.09 0.93 2.43 2.35 3.55 3.63(01/1926)
BeyondtheQuarter:SurveyofLongTermPerformanceAsofSeptember30,2010
4
TheS&PdataareprovidedbyStandard&Poor'sIndexServicesGroup.Russelldatacopyright©RussellInvestmentGroup1995‐2010,allrightsreserved.MSCIdatacopyrightMSCI2010,allrightsreserved.DowJonesdata(formerlyDowJonesWilshire)providedbyDowJonesIndexes.USlong‐termbonds,bills,andinfla9ondata©Stocks,Bonds,Bills,andInfla9onYearbook™,IbbotsonAssociates,Chicago(annuallyupdatedworkbyRogerG.IbbotsonandRexA.Sinquefield). Indexesarenotavailablefordirect investment. Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporfolio.Pastperformanceisnotaguaranteeoffutureresults.
ChangeinValueof$10,000InvestedinVariousMarketsOctober1,2009–September30,2010
5
CHANGEINVALUEOF$1
AssetClass Index 1Year 5Years 10Years 20YearsUSLargeCompanyStocks S&P500 $1.10 $1.03 $0.96 $5.66USSmallCapStocks Russell2000 $1.13 $1.08 $1.48 $7.07USValueStocks Russell1000Value $1.09 $0.98 $1.29 $6.69USRealEstateInvestmentTrustStocks DowJonesUSSelectREIT $1.30 $1.07 $2.62 $8.41Interna9onalDevelopedStocks MSCIWorldexUSA $1.04 $1.13 $1.33 $3.39EmergingMarketStocks MSCIEmergingMarkets(grossdiv.) $1.21 $1.85 $3.63 $8.99FixedIncomeCorporateBonds Long‐TermCorporateBonds $1.13 $1.39 $2.27 $5.25ShortTermGovernmentBonds One‐MonthUSTreasuryBills $1.00 $1.13 $1.26 $2.01
TheS&PdataareprovidedbyStandard&Poor'sIndexServicesGroup.Russelldatacopyright©RussellInvestmentGroup1995‐2010,allrightsreserved.MSCIdatacopyrightMSCI2010,allrightsreserved.DowJonesdata(formerlyDowJonesWilshire)providedbyDowJonesIndexes.USlong‐termbonds,bills,andinfla9ondata©Stocks,Bonds,Bills,andInfla9onYearbook™,IbbotsonAssociates,Chicago(annuallyupdatedworkbyRogerG.IbbotsonandRexA.Sinquefield). Indexesarenotavailablefordirect investment. Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporfolio.Pastperformanceisnotaguaranteeoffutureresults.
ValueofStockMarketsAroundtheWorldJanuary1990–September2010
• Globalmarketcapitaliza9onweightsarenotsta9c,theyvaryacross9me.
Developedmarkets’securi9esandcommodi9esdataprovidedbyBloomberg.EmergingMarkets’dataprovidedbyInterna9onalFinanceCorpora9on.TheRussell3000IndexisusedastheproxyfortheUSmarket.Theproxiesforthenon‐USdevelopedandemergingmarketsaretherespec9vedevelopedcountryandemergingcountrypor9onsfromtheMSCIAllCountryWorldIMIexUSAIndex.TheproxiesfortheUK,Canada,andAustraliaaretherelevantsubsetsofthedevelopedmarketproxy.
Weights
NumberofCountries
NumberofStocks TotalValue September30,2010
ChangeFromPreviousQuarter
01/90‐9/10Average
UnitedStates 1 2,954 12.82Trillion 42.91% ‐1.29% 44.66%DevelopedMarkets 23 3,613 12.98Trillion 43.45% 0.72% 50.47%EmergingMarkets 21 2,629 4.07Trillion 13.64% 0.56% 4.87%Total 45 9,196 29.87Trillion 100.00%
6
TheRandomnessofQuarterlyReturns
Q22007
Q32007
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Q12010
Q22010
Q32010
Q42010
15.05 14.52 3.66 2.14 0.58 4.78 23.36 1.02 34.84 35.44 9.18 9.81 8.40 18.16 ?
6.98 2.71 1.97 0.52 0.53 0.43 0.20 0.03 31.46 21.04 8.58 8.85 0.02 16.14 ?
6.28 2.56 0.93 ‐1.13 ‐0.80 ‐1.12 ‐21.15 ‐11.01 25.86 19.36 6.04 6.79 ‐4.13 13.22 ?
div.) 4.93 2.03 ‐1.62 ‐8.69 ‐1.17 ‐6.11 ‐21.94 ‐12.43 20.68 19.28 4.22 5.39 ‐8.29 11.29 ?
) 4.42 1.42 ‐3.33 ‐8.72 ‐2.49 ‐8.37 ‐22.18 ‐13.14 16.69 18.24 3.88 2.45 ‐9.93 11.29 ?
1.26 1.14 ‐4.58 ‐9.45 ‐2.72 ‐8.54 ‐26.12 ‐14.95 15.93 15.61 2.44 1.53 ‐11.14 10.13 ?
‐1.88 ‐0.24 ‐5.80 ‐9.90 ‐5.32 ‐20.67 ‐27.56 ‐16.77 8.24 11.09 0.01 1.35 ‐11.43 4.98 ?
‐9.36 ‐3.09 ‐13.54 ‐10.92 ‐5.39 ‐26.86 ‐39.95 ‐33.92 0.02 0.03 ‐2.17 0.01 ‐13.63 0.04 ?
TheS&PdataareprovidedbyStandard&Poor'sIndexServicesGroup.Russelldatacopyright©RussellInvestmentGroup1995‐2010,allrightsreserved.MSCIdatacopyrightMSCI2010,allrightsreserved.DowJonesdata(formerlyDowJonesWilshire)providedbyDowJonesIndexes.USlong‐termbonds,bills,andinfla9ondata©Stocks,Bonds,Bills,andInfla9onYearbook™,IbbotsonAssociates,Chicago(annuallyupdatedworkbyRogerG.IbbotsonandRexA.Sinquefield). Indexesarenotavailablefordirectinvestment.Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporfolio.Pastperformanceisnotaguaranteeoffutureresults.
HighestReturn
LowestReturn
Thistableshowsfromtoptobolomthe highest returning asset classeseachyearover the last14quarters.Each asset class is color codedbasedonthelegendbelow.
Thelackofapalernindicatesthatpickingwhichassetclasseswillbethebestorworstperformersisvirtuallyimpossible.
InQ42008,forexample,theMSCIEmergingMarketsIndexwasthesecondtoworstperformingassetclass.Aquarterlateritwasrightupatthetop.
Porfolioscombiningthesevariousinvestmentswillavoidextremereturns.
USLargeCapStocks(S&P500)
USSmallCapStocks(Russell2000)
USLargeValueStocks(Russell1000Value)
Interna9onalDevelopedStocks(MSCIWorldexUSA)
EmergingMarketsStocks(MSCIEmergingMarkets)
RealEstate(DowJonesUSSelectREIT)
One‐MonthUSTreasuryBills
Long‐TermCorporateBonds
7
ReturnsofGloballyDiversifiedPorfoliosAsofSeptember30,2010
January1988startdatebasedonthelatestcommonindexincep9on. GlobalStocksrepresentedbyMSCIAllCountryWorldIndex(grossdiv.)andTreasuryBillsrepresentedbyUSOne‐MonthTreasuryBills.DatacopyrightMSCI2010,allrightsreserved.©Stocks,Bonds,Bills,andInfla9onYearbook™,IbbotsonAssociates,Chicago(annuallyupdatedworkbyRogerG.IbbotsonandRexA.Sinquefield).Indexesarenotavailablefordirectinvestment.Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporfolio.Pastperformanceisnotaguaranteeoffutureresults.
Annualized(%)
Q32010 OneYear ThreeYears FiveYears TenYears TwentyYears
100%GlobalStocks 14.46 8.95 ‐6.97 2.93 2.13 7.8375/25 10.83 7.01 ‐4.48 3.20 2.49 6.9950/50 7.22 4.88 ‐2.34 3.20 2.65 6.0025/75 3.62 2.57 ‐0.53 2.94 2.60 4.84100%TreasuryBills 0.04 0.09 0.93 2.43 2.35 3.55
Posi9vevs.Nega9veMonths:January1988–September2010,Total273months
8
USStockReturnsAsofSeptember30,2010
Russelldatacopyright©Russell InvestmentGroup1995‐2010,all rights reserved.TheS&PdataareprovidedbyStandard&Poor's IndexServicesGroup. Indexesarenotavailable fordirectinvestment.Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporfolio.Pastperformanceisnotaguaranteeoffutureresults.
Returns(%)
AssetClass Index Q32010 OneYearThreeYearsAnnualized
Marketwide Russell3000 11.52 10.96 ‐6.60LargeCap S&P500 11.29 10.16 ‐7.16LargeCap Russell1000 11.56 10.75 ‐6.79LargeCapValue Russell1000Value 10.13 8.91 ‐9.38LargeCapGrowth Russell1000Growth 13.00 12.66 ‐4.36SmallCap Russell2000 11.29 13.34 ‐4.29SmallCapValue Russell2000Value 9.72 11.84 ‐4.99SmallCapGrowth Russell2000Growth 12.82 14.78 ‐3.75
• Historically,valuestocks,asmeasuredbythera9oofbook‐to‐marketequity(BtM),haveoutperformedgrowthstocksoverthelongterm.Duringthethirdquartervaluestocksunderperformedgrowthstocks.
• Historically,smallstockshaveexperiencedhigherreturnsthanlargestocksoverthelongterm.Duringthethirdquartersmallcapsstocksgenerallyunderperformedlargecapstocks.
9
Interna9onalStockReturnsAsofSeptember30,2010 Returns(%)
AssetClass Index Q32010 OneYearThreeYearsAnnualized
Marketwide MSCIAllCountryWorldexUSA 16.58 7.56 ‐7.42DevelopedLargeCap MSCIWorldexUSA 16.14 4.14 ‐8.96DevelopedSmallCap MSCIWorldexUSASmallCap 17.75 10.86 ‐6.31DevelopedValue MSCIWorldexUSAValue 15.83 ‐0.23 ‐9.97DevelopedGrowth MSCIWorldexUSAGrowth 16.44 8.69 ‐8.02EmergingMarketsLargeCap MSCIEmergingMarkets 18.23 20.05 ‐1.59EmergingMarketsSmallCap MSCIEmergingMarketsSmall 20.48 32.32 1.26EmergingMarketsValue MSCIEmergingMarketsValue 16.76 19.11 0.75EmergingMarketsGrowth MSCIEmergingMarketsGrowth 19.31 21.34 ‐3.74
MSCIdatacopyrightMSCI2010,allrightsreserved.Interna9onaldevelopedrepresentedbyMSCIWorldexUSAindexandEmergingMarketsbyMSCIEmergingMarketsIndex.Indexesarenotavailablefordirectinvestment.Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporfolio.Pastperformanceisnotaguaranteeoffutureresults.
IMPACTOFCURRENCYFLUCTUATIONSONRETURNSFORINVESTORSINUSDOLLARSOneYearReturnsinUSDollarsandLocalCurrency ThreeYearAnnualizedReturnsinUSDollarsandLocalCurrency
10
OneYearReturnsinUSDollarsandLocalCurrency
ReturnUS
Dollars
ReturnLocal
CurrencyImpactofCurrency
1.Chile 57.13% 37.99% 19.14%
2.Philippines 52.35% 41.11% 11.24%
.
.
26.UnitedStates 9.62% 9.62% ‐
.
.
44.Ireland ‐25.12% ‐19.83 ‐5.29%
45.Greece ‐52.38% ‐49.02 ‐3.36%
ThirdQuarter2010Returns
ReturnUS
Dollars
ReturnLocal
CurrencyImpactofCurrency
1. Poland 35.46% 16.79% 18.67%
2.Chile 32.55% 16.89% 15.66%
.
.
.
40.UnitedStates 11.36% 11.36% ‐
.
44.Japan 5.83% ‐0.91% 6.74%
45.Ireland ‐3.55% ‐13.46% 9.91%
MSCICountryReturnsinUSDollarsandLocalCurrencyAsofSeptember30,2010
11MSCIdatacopyrightMSCI2010,allrightsreserved.
TENYEARPERFORMANCERANKINGOFMARKETSAROUNDTHEWORLDINUSDOLLARSASOFJUNE30,2010
1.Colombia2.Peru3.Indonesia4.CzechRepublic5.Egypt6.Brazil 7.Russia8.India9.Chile10.Mexico11.Thailand12.SouthAfrica13.Morocco14.Korea15.Denmark16.Hungary17.Australia18.Malaysia19.China20.Norway21.Philippines22.Singapore23.Canada24.Austria25.Poland26.Switzerland27.Turkey28.Israel29.HongKong30.Spain31.NewZealand32.Sweden33.Germany34.UnitedKingdom35.Portugal36.Netherlands37.Belgium38.France39.USA40.Taiwan41.Japan42.Italy43.Ireland44.Greece45.Finland
RealEstateInvestmentTrusts(REIT)StocksAsofSeptember30,2010
NumberofREITstocksandtotalvaluebasedonthetwoindices.DowJonesUSSelectREITIndexdataprovidedbyDowJones©.S&PGlobalexUSREITIndexdataprovidedbyStandardandPoor’s©.Indexesarenotavailablefordirectinvestment.Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporfolio.Pastperformanceisnotaguaranteeoffutureresults.
12
Returns(%)
Index Q32010 OneYearThreeYearsAnnualized
DowJonesUSSelectREITIndex 13.22 30.14 ‐6.98S&PGlobalexUSREITIndex 21.88 10.09 ‐13.26
NumberofREITStocks TotalValueofREITStocks
56%
US$265B
WorldexUS$226B
BondReturnsAsofSeptember30,2010
YieldCurvedatafromFederalReserve.StateandLocalBondsarefromtheBondBuyerIndex,generalobliga9on,20yearstomaturity,mixedquality.HighQualityCorporateBondsrepresenttheMoody’s seasoned Aaa Corporate Yield. Investment Grade Corporate Bonds represent theMoody’s seasoned Baa Corporate Yield. Barclays Capital data, formerly Lehman Brothers,providedbyBarclaysBankPLC.USlong‐termbonds,bills,infla9on,andfixedincomefactordata©Stocks,Bonds,Bills,andInfla9on(SBBI)Yearbook™,IbbotsonAssociates,Chicago(annuallyupdatedworkbyRogerG.IbbotsonandRexA.Sinquefield).Ci9groupbondindexescopyright2010byCi9group.TheMerrillLynchIndicesareusedwithpermission;copyright2010MerrillLynch, Pierce, Fenner & Smith Incorporated; all rights reserved. Indexes are not available for direct investment. Index performance does not reflect the expenses associated with themanagementofanactualporfolio.Pastperformanceisnotaguaranteeoffutureresults.
Returns(%)
Index Q32010OneYear
ThreeYearsAnnualized
One‐MonthUSTreasuryBills(SBBI) 0.04 0.09 0.93BankofAmericaMerrillLynchThree‐MonthT‐Bills 0.04 0.13 1.13BankofAmericaMerrillLynchOne‐YearUSTreasuryNote 0.25 0.91 2.60Ci9groupWorldGovernmentBond1‐5Years(hedged) 0.83 2.83 4.45USLongTermGovernmentBonds(SBBI) 5.64 13.37 10.84BarclaysCapitalCorporateHighYield 6.71 18.44 8.75BarclaysCapitalMunicipalBonds 3.40 5.81 6.04BarclaysCapitalUSTIPSIndex 2.48 8.89 6.91
USTreasuryYieldCurve
13
BondYieldsAcrossDifferentBondIssuers
14
TheTabletopGuidetoMutualFundsIseverythingyouneedtoknowaboutmutualfundinves9ngcontainedonanapkin?
Probablynot.ButarecentMorningstarstudysuggeststhatkeepingthisbitoffoldedwisdominyourpocketmightbemorehelpfulthanconsul9nganarmyofexpertsinthesearchforclevermoneymanagers.Morningstarexaminedfivebroadcategoriesofequityandfixed‐incomefundsovermul9pleperiodsbeginningin2005,2006,2007and2008andendinginMarch2010.Fundsweresortedintoquin9lesbasedonexpensesandtheperformanceofthecheapestfundswascomparedtothatofthemostexpensive.TheycomputedtotalreturnforfundssurvivingthroughMarch2010aswellasa"successra9o"measuringthepercentageoftheini9alcohortthatwentontosurviveandoutperformtheirpeers.Unsurprisingly,cheapfundsoutperformedtheirexpensivecousins.Commen9ngontheresults,MorningstarDirectorofMutualFundResearchRusselKinnelobserved:"Ineverysingle.meperiodanddatapointtested,low‐costfundsbeathigh‐costfunds."1
AsimilarexerciseevaluatedthesamefundsusingtheMorningstarRa9ngsassignedatthebeginningofeach9meperiod.Thera9ngsshowedpredic9vepoweraswell,althoughnotaspronouncedastheexpensesra9os."Ingeneral,"Kinelstates,"5‐starmutualfundsbeat1‐starfundsonourthreemeasures,althoughtherewereexcep9ons.Alltold,thestarsguidedinvestorstobelerresultsin59outof70(84%)observa9ons.“Sowhichmeasureismoreusefulforinvestors—fundexpensesorra9ngs?Morningstardeclinestocrownachampion,findingmeritinboth.Expenseswereamorereliablepredictor("theyworkedevery9me"),whilestarscouldbehelpful"Iniden9fyingfundsthatmightbemergedoutofexistence."
Forreasonsuncleartous,thepredic9vepowerofexpensesinthisexercisewasmorepronouncedamongequityfundsthanfixedincomeorbalancedvehicles.Amongbothdomes9candinterna9onalequityfunds,totalreturnsinevery9meperiodwerehigherforthecheapestfundscomparedtothe5‐starfunds.Morningstarconcludesthat"Investorsshouldmakeexpensera9osaprimarytestinfundselec9on.Theyares9llthemostdependablepredictorofperformance.“Soundsgoodtous.
Waiter,I’llkeepthatnapkin.
1.RusselKinnel."FundSpy—HowFundExpenseRa.osandStarRa.ngsPredictSuccess"Morningstar,August9,2010.ThissketchbyCarlRichardsoriginallyappearedinTheNewYorkTimes.MoreofhissketchescanbefoundatBehaviorgap.com.
15
MichaelMoore
1120CrestlineCourt•LakeOswego•OR97034
Telephone:503‐635‐4457
www.crestlinecapital.net
Crestline Capital, LLCCC