Active Management CAN work!

Despite what we read in the press almost every week, there are plenty of mutual funds and some money managers that, after fees and costs and expenses, have outperformed their benchmarks both purely and adjusted-for-risk for long and consistent track records.

Even in bonds, where the margins are probably a lot thinner than with equities.

I don't know how to do it myself, so I am not a fund manager. But I know how to separate managers like we are warned warning against from those with track-records worthy of my clients' and my own money.

The minute I lose confidence in my ability to discern between the consistently worthy managers and the rest, we'll all be using index fund portfolios, and I'll be shifting from being an investment advisor to being a financial planner.

But that's not happening yet. No way!

Here's an example of how my mutual fund portfolio for "moderate" investors compares to the U.S. stock market and to a portfolio of low-cost index funds from Fidelity that represent a similar 60% stocks, 40% bonds portfolio:

Average Annual Return Comparison

Time Frame      PWS' 60 Flex      S&P 500      Index Funds 60/40
1 yr                      14.10                     16.52            11.31
3 yr                        7.04                     -6.49            -1.88
5 yr                      10.47                      1.73              4.30
10 yr                    11.06                     -0.02              3.71

*Data is through 10/31/10; volatility (Standard Deviation) for mine is lower and Alpha his higher, too.