I tend to think of myself that I am pretty good at reading charts, but the chart I want to discuss today had me stumped when I first saw it., And every time I go back to it, I still need a moment to get my head around it. But if you are a fund selector, an asset allocator, or a CIO, you definitely should try to understand what this chart has to say.
Re: "Yet, this research points to a simple investment strategy for fund selectors. Look at funds that underperformed in years six to ten before today. These are the funds that tend to follow styles that are likely to come back into favour in the next five years. And that may have a better chance of outperforming going forward than the funds that did well in the last five years or so.", it would be interesting to take the analysis a step further and see whether it's not only styles coming back (i.e. value funds finally having a period of outperformance), but also because those funds are highly likely have had their managers replaced.
Re: "Yet, this research points to a simple investment strategy for fund selectors. Look at funds that underperformed in years six to ten before today. These are the funds that tend to follow styles that are likely to come back into favour in the next five years. And that may have a better chance of outperforming going forward than the funds that did well in the last five years or so.", it would be interesting to take the analysis a step further and see whether it's not only styles coming back (i.e. value funds finally having a period of outperformance), but also because those funds are highly likely have had their managers replaced.
Good point, I haven't thought about that.
I would suggest putting together the chart with these two posts of yours:
https://klementoninvesting.substack.com/p/sentiment-cycles-created-by-institutional
https://klementoninvesting.substack.com/p/the-curse-of-having-to-invest-in
...in the spirit of market "reflexivity"
It would be interesting to see this chart with a horizon of 1 year - I suspect the same pattern will emerge.
Not really, there is incredible persistence in flows up to about three years. After that it starts to fade. and the pattern above emerges.