At its Morningstar Investment Conference 2017, the research giant said it had conducted ‘mind the gap’ research that revealed a disparity between total returns and actual investor returns, which tend to be lower.
The research compares total returns – changes in unit price plus income – with the average experience of most investors over a period, based on fund flow data indicating when they bought and sold the most.
“Investors often miss the benefits of fund investing,” said Russ Kinnell, Morningstar’s manager research editor.
Kinnell compared the investor experience of two popular funds – Fundsmith Equity and M&G Global Macro Bond.
He said the experience for investors in Fundsmith Equity since it launched in 2010 was “just what you dream of”, with investors buying the fund consistently as it outperformed during its first few years.
Morningstar rates the fund’s investor return at 24.47%, better than its widely reported total-return of 21.66%.
At the other end of the spectrum, Kinnell said investors may have bought and sold the M&G Global Macro Bond at the wrong times.
Even though the fund delivered a 6.35% total return over the period assessed, the estimated investor return was just 2.65% as it gathered most of its money in 2015 onwards when its returns were relatively flat.
