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AAII Readers Predict Their Top Sector Over the Next Five Years

Each year, AAII publishes its guides to the top mutual funds and exchange-traded funds. In conjunction with those guides, we also publish an analysis of the top-performing funds and ETFs over the last five years. For the last several years, health care has dominated all other sectors. In this year’s coverage of the top mutual funds over the last five years, health care once again was the strongest long-term perform, but its positioning is weakening.

AAII Weekly Survey Question

As we all know, historical performance is no guarantee of future performance. As such, we were interested in learning which sector our readers think will be the strongest performer over the next five years. So I posed the following question to our readers:

Health care sector funds, on average, have been the top-performing funds over the last several years. Which sector do you think will perform best over the next five years?

Here are the results:

In all, 1,384 readers responded through 7 a.m. (Central) on Sunday, March 21.

Over the next five years, the information technology sector is picked to be the top-performing sector by 26% of our readers, garnering the most votes.

A fifth of our readers is not sure which sector will be the top performer over the next five years.Of those, the majority (58%) believe their portfolio will basically match the performance of the S&P 500 over the next 12 months.

In third place, with 16% of the votes is the financial sectors, which, in theory, should benefit from rising interest rates and possible deregulation.Of those, the majority (58%) believe their portfolio will basically match the performance of the S&P 500 over the next 12 months.

Only 10% of our readers think health care will continue to dominate all other sectors over the next five years.Of those, the majority (58%) believe their portfolio will basically match the performance of the S&P 500 over the next 12 months.

Weekly Special Question

As investors, knowing when to sell an investment may possibly be a more difficult decision that choosing what to buy. To get a feel for what enters into the mutual fund sell decision for our readers, last week’s special question asked:

What criteria do you use to decide when it is time to sell a mutual fund?

In all, we had 100 readers who actually invest in mutual funds respond to the question.Luckily, out of the 140 readers that responded, the overwhelming majority think individual investors hold some advantage over the pros. In fact, only 6.4% of respondents said that individual investors have no advantages over professional money managers.

Overwhelmingly, over 40% of the responses dealt with performance: either lagging historical measures, lagging the performance of a given benchmark or underperforming relative to similar funds.Luckily, out of the 140 readers that responded, the overwhelming majority think individual investors hold some advantage over the pros. In fact, only 6.4% of respondents said that individual investors have no advantages over professional money managers.

From there, things dropped off rather quickly. In second place, with nearly 9% of the responses, was a change in fund manager as a reason for selling a mutual fund.

Tied with almost 7% as a reason for selling a mutual fund are:

  • Change in fund objective
  • Gain harvesting
  • Rising fees or expenses or finding a similar fund with lower fees and expense

Here is a sampling of the responses:

  • “To rebalance to target allocations and for tax reasons (tax loss harvesting).”
  • “After a period of high performance, when there seems to be a sentiment change.”
  • “I compare the return of a fund to the average return for its category, as defined by Morningstar. In particular, I look at the percentile rank versus peers. Depending on how bad the percentile is, I may cut a fund in a year, or if the return is about average, after a couple of years for a better fund.”
  • “I don’t sell.”
  • “[I sell when] I need the money.”
  • “When expenses increase beyond that of equivalent competitors.”
  • “When I can tax-loss harvest losses and re-purchase a similar fund to replace it.”
  • “When they change the investment principles as outlined in their prospectus.”

Everybody has an opinion! Why not give us yours? Participate in our weekly member poll, updated every Monday, and see the results online at http://www.aaii.com/memberquestion.

 

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