Our Lean Approach
Nobel Prize laureate, Eugene Fama, provided all the evidence we needed to build this lean approach into our portfolio management solution.
Famed Nobel Prize laureate in economic sciences, Eugene Fama, is widely recognized as the “father of modern finance.” His research, focused on the relation between risk and expected rate of return, is well known and highly respected in both academic and investment circles.
While we are literally fans of all of Dr. Fama’s work, one study in particular, that he completed with Kenneth R. French, easily provided us with the solid evidence needed to build index investing into our portfolio management approach at Janiczek Wealth Management.
In the study “Luck versus Skill in the Cross-Section of Mutual Fund Returns,” Fama and French concluded:
- “..going forward we expect that a portfolio of low cost index funds will perform about as well as a portfolio of the top three percentiles of past active winners, and better than the rest of the active fund universe.”
- “..buried in the results are fund managers with more than enough skill to cover costs, and the lucky among them pull up the extreme right tail of the net reyurn estimates. Unfortunately, these good funds are indistinguishable from the lucky bad funds that land in the top percentiles of the estimates but have negative true alpha.