Ballis's Benchmark (a)

Abstract

In this case series, Margaret Ballis, a soon-to-be Darden School of Business graduate, is about to begin her dream job at a leading investment management firm. On her way to becoming a fund manager, she cannot help wondering about her future success. Ballis is trying to assess her ability to consistently outperform the stock market; she questions whether it is even possible to achieve persistent performance as a fund manager. Using data downloaded from Morningstar, Inc., on 2,852 mutual funds, students are prompted to investigate whether funds that beat the S&P 500 Index benchmark during a five-year period are more likely to beat the Index over the next five-year period. Students are asked to take a closer look at the “hot hand” phenomenon by investigating investors' reactions to streaks of outperformance and examining whether funds that outperformed their peers several years in a row also outgrow their peers in terms of size.The A case (UVA-F-1621) can be used to support an introductory class in data analysis with an emphasis on PivotTables, data filtering, and regressions. The B case (UVA-F-1622) can be used to support a more advanced financial analysis for students with some exposure to the CAPM model. There are two supplemental spreadsheets: one for students (UVA-F-1621X) and one for instructors (UVA-F-1621TNX). Excerpt UVA-F-1621 Rev. Aug. 16, 2012 Ballis's Benchmark (A) As Margaret Ballis, a second-year student at the Darden Graduate School of Business Administration, boarded the bus for Foxfield, a popular spring social event, she couldn't help thinking that her life in Charlottesville, Virginia, would soon be over. Although she had come to business school at the height of the worst financial crisis since the Great Depression, she had found her dream job at a leading investment management firm. She was convinced her two years at Darden had paid off already. She was well prepared to be an outstanding research analyst and was on her way to becoming a fund manager. Nonetheless, something was bothering her as her summer 2010 start date approached. As fund manager, would she be able to consistently outperform the stock market? By the time she retired from the job, would she have achieved anywhere near the consistent performance of such greats as Peter Lynch, the famed fund manager who beat the market 11 of 13 years? Ballis couldn't get away from the industry's advertising. She heard its usual disclaimer everywhere. From Fidelity, “Past performance is no guarantee of future results.” From Vanguard, “The performance data shown represent past performance, which is not a guarantee of future results.” She knew the U.S. Securities and Exchange Commission with its amendment to Rule 482 in 2003 required mutual funds to include in their advertising “a statement that past performance does not guarantee future results,” but Ballis hadn't thought much about its intent in terms of consumer protection. . . .