Investors continue to engage in costly performance-chasing behavior.
 
The investor “returns gap” in the U.S., as measured by Morningstar, shrank to 37 basis points annualized over the 10-year period ended in 2016, a bit better than the 55 basis-point gap for the decade ended in 2015. Those figures include a variety of both stock and bond funds.
 
Morningstar’s annual Mind the Gap study, released Tuesday, estimates the dollar-weighted returns that investors as a group earn in open-end mutual funds, as opposed to the time-weighted returns used for the funds themselves.
 
The smaller gap over the most recent decade doesn’t mean investors are behaving better, though. The additional year of good market returns likely helped, Morningstar says.
 
“The basic premise is still there, that investors make significant timing errors,” said  Russ Kinnel, director of manager research at Morningstar.
 
Over a typical time period, performance gaps may not be all that bad, Kinnel said, but when times get tough, look out.
 
“Look at the damage [investors did] to themselves in 2009 when they were selling stocks and buying bonds,” Kinnel said. “That’s not 40 basis points [of lost returns]—that can be 400 basis points a year” an investor misses.
 
That poor timing shows up in the 79 basis-point gap investors suffered in diversified equity funds over the past decade, and the 73 basis-point shortfall in bond funds.
 
The overall results were helped by a positive performance gap of 5 basis points in allocation funds, which include target-date funds widely used in 401(k) plans.
 
Morningstar’s latest study, which included more global funds than in past surveys, confirmed the benefits of systematic investing into boring investments.
 
As in the U.S., Australian investors enjoyed positive gaps due to their superannuation funds, a compulsory employer contribution scheme.
 
In South Korea, investors had particularly good timing in fixed-income funds that are used in a national savings plan, Morningstar said.
 
In its latest research, Morningstar also found that the more expensive a fund is, the worse investors do.
 
Besides the obvious cost drag, the research firm says higher-cost funds frequently take on greater risks to overcome higher fees, and are thus more prone to inspiring fear and greed in investors and more poor timing decisions on the part of portfolio managers.
 
The latest findings “speak to value that advisors can add, simply building a plan that works for humans,” Kinnel said, particularly now when memories of the 2008-2009 bear market are fading.