“It’s hard to disaggregate to what extent it’s the TDFs themselves and to what extent it’s connected to auto-enrollement,” he said.
Morningstar’s study appears to confirm the folly of timing investments over the past decade. Morningstar uses a third metric, an asset-weighted total return, to measure how the average investor fared in their mutual fund investments while taking into account decisions to enter and exit funds at certain times.
Market timing is still hurting investor performance, according to Morningstar. In the decade ending on March 31, the average open-ended fund posted a 6.9 percent annualized asset-weighted total return, creating a 1.4 percent gap over the 5.5 percent return enjoyed by investors.
Since Morningstar’s last “Mind the Gap” study in December 2016, the behavior gap has narrowed in some fund categories like domestic equities and municipal bonds. In others, like taxable bonds and international equities, the gap has widened.
Alternatives funds posted the worst dollar-weighted returns over the 10-year study period at a paltry nine basis points annually, but when time-weighted returns were taken into account, alternatives posted a 1.3 percent annual loss—meaning alternatives fund investors were able to create a positive behavior gap despite the poor performance of their asset class.
Morningstar’s data set included all U.S. open-end mutual funds that hold individual securities, excluding ETFs and fund-of-funds.