When we began using ETFs several years ago in our portfolios, we had no idea the size and power of the wave we were catching. At the time we were using Modern Portfolio Theory and calculating optimal asset allocation using historical index return data. We then picked managers we hoped (yes, hoped) would outperform those indices. There is no academic research or practical process for identifying managers who will beat their benchmarks. Research by Standard And Poors has shown that about 1 in 5 mutual fund managers beat their benchmarks in any given year, dropping as time goes on. So when we were told we could achieve benchmark returns year after year for a lower cost, the decision to abandon our hoping for a more prudent approach was an obvious one.
Financial & Market Commentary by Canal Capital Management
