Many Active Managers Follow Index

According to an article in Financial Planning online, active managers do not add significant value. The article sites a study by Sharath Sury, executive director of the Institute for Financial Innovation & Risk Management and an adjunct Professor of Economics at the University of California, Santa Cruz. Sury found that active managers have broad market exposures that cause their funds to look similar to indexes. Unfortunately, active managers charge more than index funds.

Interestingly, one of the reasons that active managers fail to deliver value is that they charge more.

Here's the link to the article: Active Managers Don't Add Value: Study

Small Caps Rise

The Russell 2000 index of small capitalization stocks has risen 36% since early October, according to The Wall Street Journal. The index is just 4.2% below the all time high of 865.29.

I find this particularly amazing, given that investors have pulled money from U.S. small cap mutual funds in 37 of the past 40 weeks, according to EPFR Global.

Intelligent investors understand the small cap stocks, both domestic and international, belong in a low cost, passive portfolio. They are long term investors and do not move tactically from asset class to asset class.

Investors Zig and the Market Zags

Investors pulled $2.8 billion from US stock funds in January, according to Morningstar. Investors were likely reacting to the poor results turned in by equities in 2011.

But the spurned market responded by turning in its best result for the month of January in 15 years. The Dow Jones Industrial Average rose 3.4% and the Standard & Poor's 400 gained 4.4% in January.

The lesson? Investors need to learn to remain steadfast. Successful investing does not require timing in and out of the market. Rather, successful investors develop an appropriate investment approach and remain committed to it.

Happy Valentine's Day