Don’t Mind the Gap?

Morningstar finds in “Mind the Gap” that poor timing of trades by mutual fund investors results in 1.7% annual underperformance of buy-and-hold (6.0% versus 7.7%) during 2013 through 2022. Is this finding correct? In the July 2024 draft of their paper entitled “Bad Timing Does Not Cost Investors One Fifth of Their Funds’ Returns: An Examination of Morningstar’s ‘Mind the Gap’ Study”, Jon Fulkerson, Bradford Jordan, Timothy Riley and Qing Yan examine the methodology of the Morningstar study and repeat calculations using an amended approach. Using monthly fund returns, net flows and assets available to Morningstar clients by fund category for a broad sample of U.S. mutual funds during January 2013 through December 2022, they find that: (more…)