The Greatest Return Stories Ever Told

Abstract

If one wants to compare track records of managers across widely different asset classes and investment styles, the Sharpe ratio (which is both benchmark-independent and scalable to different levels of risk) is perhaps the best measure of risk-adjusted return. The authors collected quarterly track records, covering 495 mutual funds, institutional commingled funds and separate accounts, endowments, and other asset pools, and ranked them by their Sharpe ratios over the long period from January 1980 to March 2000. Some of the high-ranking funds are well known, such as Berkshire Hathaway and Fidelity9s Magellan Fund; but a number of surprises emerge. The number-one Sharpe ratio fund over that period was a tactical asset allocation product managed by Barclays Global Investors. Most managers underperformed their benchmarks, but the number of truly exceptional track records should give pause to those who assume that active management is fruitless because of the efficiency of markets.