John Bogle Analyzes Investor Trading of ETFs

By on June 24, 2009

Vanguard Group founder John Bogle found that investors lagged actual returns of ETFs due their poor timing decisions. The underperformance ranged from -0.4% per year for large-cap value funds to -17.9% per year for financials ETFs.

From the article:

“On a simple average basis, ETFs in the study delivered a 1% compounding return over the trailing five years, translating into a cumulative gain of 6%. Investors, however, earned a -3.5% average compounding return, translating into a cumulative loss of 12%. “When you combine those, you’re talking about 18% of investor capital that’s been lost by all this trading,” said Bogle.”

SMA Comment: The underperformance of fund investors has previously been exposed by the Dalbar studies and Bogle’s findings provide further evidence there is money to be made in taking the other side of the trade of the masses. It is not the ETFs that are the problem as implied by Mr. Bogle, but the emotions of investors, who cannot help but shoot themselves in the foot when it comes to market timing decisions.


Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>