The Difficulty with Chasing Returns

But the numbers are revealing: during 2020-2024, investor returns were lower than the US category in every year for every category group. That’s dramatic. Why all the red?

Return seeking can lead many investors to chase managers with strong recent performance, assuming the strong returns will continue. Unfortunately, this often leads to disappointment. Reversion to the mean is just as strong here as anywhere else. If you compare the top 10% versus the bottom 10% of annual performers over the following year, the average performance is nearly the same for both groups (in the 40th and 50th percentiles respectively).

Not only that, but top performers are likely to have done well for similar reasons. For example, a risk on period will see outperformance from managers with a higher beta tilt. If that performance is the basis for building a well-rounded portfolio, it will likely be higher beta across all selected managers. A portfolio built on recent strong returns, then, is likely to lack diversification.

Cue Eventide’s Portfolio Solutions, strategies that lean on both time in the market and diversification. These strategies are built from funds with managers and mandates we believe in for the long term, with diversification and correlation in mind during the building process.

Our mission is to be your indispensable growth partner as you manage your practice. Our Portfolio Solutions deliver a pre-packaged strategy so you can focus on every other facet of your business while we take care of one of the most arduous tasks on your plate: portfolio management.