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Rekenthaler Report

3 Lessons About Stock Funds, From the Coronavirus Crisis

Something old, something new, and something out of the blue.

A Missed Opportunity
Recently published in The Review of Asset Pricing Studies is a study of how equity funds fared this spring, when global stock markets were buffeted by news of COVID-19. Entitled "Mutual Fund Performance and Flows During the COVID-19 Crisis," by Lubos Pastor and M. Blair Vorsatz, the paper addresses the relative returns for active stock funds from late February through the end of April. (The article also examines funds' sales results, a topic that I will set aside.)

The authors posited that although active stock funds regularly trail passive funds, they may justify their existence by excelling during "periods that are particularly important to investors"--that is, during market gyrations that presage economic recessions. To capture both sides of 2020's investment crisis, they selected a time period that included both the stock market decline and its immediate recovery.

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