A JPMorgan survey shows that 27 percent of mutual fund managers are underperforming the S&P 500 by 500 basis points this year. So what will they be doing in the fourth quarter to ensure that money stays in house next year? And what strategies will they put in place if relative performance catch up is simply what it's about?
Brian Gaffney, CEO of Allianz Global Investors Distributors, says everyone is still watching the benchmark, but when deciding whether your fund manager is adding value, there's much more to it.
"Everybody still is looking to the benchmark, and when you find people that are on a relative basis off the benchmark, you've got to understand what they're doing," Gaffney said. "Did they do what they said they were going to do?
"If you're investing in a dividend-paying mutual fund, and you find out it's the speculative dividend stocks that have taken off but the high-quality consistent growers have not, you're going to underperform the peer group, but is that the best choice? We would say no. Stay with the investment manager and the fund that consistently does what he says he's going to do."
So keep an eye on style drift and also capacity.