Success or Failure: The Evidence From Style-Rotating Funds

Actively managed funds tout their ability to successfully rotate across styles (such as large-caps versus small-caps and value versus growth) or sectors (industries) and thus outperform passive strategies (such as index funds). It is certainly true that investment styles do move in and out of favor, presenting actively managed funds with an opportunity for asset managers to outperform passive strategies through the use of portfolio rotation strategies. In addition, the emergence of style- and sector-based ETFs has facilitated the ease and affordability of rapid portfolio rotation across styles and/or sectors, and thus improved the implementation capabilities of style-timing strategies.

The question is: are actively managed funds persistently able to add value? Adam Corbett—author of the February 2016 study, Are Style Rotating Funds Successful at Style Timing? Evidence from the U.S. Equity Mutual Fund Market to the body of literature on what is typically referred to as tactical asset allocation (TAA).

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