Investors in lower volatility funds fared better than those in higher volatility funds. The most-volatile quintile of funds saw investor returns lag total fund returns by 1.29 percent, while the investor returns beat the total returns of the least volatile quintile of funds by 0.81 percent.

Tracking error, the extent to which a fund’s returns deviate from its benchmark, was also a predictor of investor success, with investors lagging high-tracking error funds by 0.49 percent and beating low-tracking error funds by 0.82 percent.

Lower expense ratios, already deemed by Morningstar as an effective predictor of investor returns, also exhibit smaller gaps between total returns and investor returns than high-cost funds.

The Morningstar Stewardship Grade, which assesses funds based on how “shareholder friendly” their management and governance polices are, was a predictor of better investor outcomes. Funds with a stewardship grade of “A” saw investor returns beat the funds’ total returns by 0.18 percent annually for the decade ending Dec. 31, 2015, while investor returns for funds with an “F” grade lagged total returns by 2.59 percent.
 

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