Since 1994, DALBAR's Quantitative Analysis of Investor Behavior (QAIB) has measured the effects of investor decisions to buy, sell and switch into and out of mutual funds over short and long-term timeframes. These effects are measured from the perspective of the investor and do not represent the performance of the investments themselves. The results consistently show that the average investor earns less – in many cases, much less – than mutual fund performance reports would suggest.
The goal of QAIB is to improve performance of both independent investors and financial advisors by managing behaviors that cause investors to act imprudently. QAIB offers guidance on how and where investor behaviors can be improved.
This 28th Annual QAIB report examines real investor returns in over 20 different categories of investors. The analysis covers the 30-year period to December 31, 2020,which encompasses the crash of 1987, bull market of the 90’s, the drop at the turn ofthe millennium, the crash of 2008, recovery periods leading up to the most recent bull market, and the unprecedented events of 2020.
The best financial professionals double as behavioral finance coaches of their clients. When markets are down or even volatile, questions will arise from concerned clients and perspective will be needed. The QAIB report and materials give advisors the tools to tell a story, put things into perspective, and deliver the calming messages that are needed to mitigate return-destroying behavior. Such messages include:
The Full Study price is $975 and includes a Derivative Works license to use data in customized communications of up to 200 copies. Additional licensing is available for Derivative Works as well as Report Distribution.
The QAIB Advisor Edition is available on QAIB Advisor Studio, DALBAR's online portal for advisors for a subscription price of $250 per year.
Download the Abstract for QAIB Variable Annuity here or email us for more information at QAIB@dalbar.com.
Most QAIB products allow the purchaser to use its contents in customized communications for production of a selected number of copies (see Copyright Agreement within the deliverable).
The Full Study, for $975 is the complete report and includes copyrights for purchasers to use the data in Derivative Works for up to 200 copies (for higher level licensing email email@example.com).
The Advisor Edition, available with a subscription to Advisor Studio, is an investor summary and excludes data found in the Full Study to make it more comprehensible to the average investor. This report is able to be customized for one Advisor and can be distributed in its entirety to the Advisor’s clients. Copyrights are included for subscribers of Advisor Studio for Derivative Works up to 200 copies.
Purchasers of the Advisor Edition are able to brand the cover to display the name of one advisor, his or her firm name, address, phone number and email. This will populate automatically using the information collected when downloading the edition from your Advisor Studio account.
Firms may purchase an Advisor Edition of the QAIB report and white label the cover with their logo for firm-wide client distribution (prices based on distribution level). Please email QAIB@dalbar.com with your request.
Each item in the QAIB Store has copyright rules. These are listed on the store page for each item.
No. However, the Advisor Edition may be posted in its entirety under a password protected URL for the Advisor to share with clients.
Please email QAIB@dalbar.com to request access to your purchased report.
QAIB uses data from the Investment Company Institute (ICI), Standard & Poor’s, Bloomberg Barclays Indices and proprietary sources to compare mutual fund investor returns to an appropriate set of benchmarks. The study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “Average Investor.” Based on this behavior, the analysis calculates the “average investor return” for various periods. These results are then compared to the returns of respective indices.
QAIB uses the aggregate balances of mutual fund investors each month to calculate investor profits or loss after all performance limiting factors are considered. This reflects the market gain or loss that the average investor would see on a statement. Additional research is used to identify solutions that reduce the underperformance.
Four factors cause the gap between investor returns and an appropriate index:
Voluntary investor behavior includes:
QAIB measures assets after all costs and expenses are deducted and flows after all sales charges are paid. While some measures attempt to make adjustments for differing share classes and expense ratios, QAIB makes no such adjustments since only net assets and net flows are used.
No. QAIB reports the returns that are most visible to most investors, the investor’s personal return and the most widely used indexes.
The decision to compare the most visible measures of return allows QAIB to reflect the investors' perception and therefore to properly define the problem.
Having defined the problem, methods have been developed and are being developed to narrow the gap between these two measures. QAIB presents an "investor's" view of the fund.
Asset weighted returns by definition ignore the time during which the investor is out of the investment and do not provide a measure of the lost opportunity. As such asset weighted returns are a “fund’s” view, reflecting only returns when money is in the fund.
Soft dollars can be used to pay for this research. The QAIB research directly benefits investors and there is no distinction made in the regulations between economic research and behavioral research.
The average investor refers to the universe of all mutual fund investors whose actions and financial results are restated to represent a single investor. This approach allows the entire universe of mutual fund investors to be used as the statistical sample, ensuring ultimate reliability.
QAIB quantitatively measures sales, redemptions and exchanges (provided by the Investment Company Institute) and describes these measures as investor behaviors. The measurement of investor behavior is the net dollar volume of these activities that occur in a single month during the period being analyzed.
QAIB calculates investor returns as the change in assets, after excluding sales, redemptions, and exchanges. This method of calculation captures realized and unrealized capital gains, dividends, interest, trading costs, sales charges, fees, expenses and any other costs. After calculating investor returns in dollar terms (above) two percentages are calculated:
Total return rate is determined by calculating the investor return dollars as a percentage of the net assets, sales, redemptions and exchanges for the period.
Annualized return rate is calculated as the uniform rate that can be compounded annually for the period under consideration to produce the investor return dollars.
The Average Equity Fund Investor is comprised of a universe of both domestic and world equity mutual funds. It includes growth, sector, alternative strategy, value, blend, emerging markets, global equity, international equity, and regional equity funds.
The Average Fixed Income Fund Investor is comprised of a universe of fixed income mutual funds, which includes investment grade, high yield, government, municipal, multi-sector, and global bond funds. It does not include money market funds.
The Average Asset Allocation Fund Investor is comprised of a universe of funds that invest in a mix of equity and debt securities.
The Average [Sector] Fund Investor is comprised of a universe of funds that invest solely in companies that operate in related fields or specific industries. The following Average Sector Fund Investors were referenced in this report: Consumer, Health, Financial, Tech/Telecom, Real Estate, Precious Metals, Utilities, and Natural Resources
The Average [Capitalization and Style] Fund Investor is comprised of a universe of funds that are categorized by the types of companies in which they invest:
Small-cap mutual funds invest primarily in companies with market capitalizations of up to $2-2.5 billion.
Mid-cap mutual funds invest primarily in companies with market capitalization that generally ranges from $1 billion to $7 billion or in companies with both small and medium market capitalization.
Large-cap mutual funds invest primarily in companies with market capitalizations which are generally more than $5 billion or in companies with both medium and large market capitalizations.
Growth mutual funds invest primarily in common stock of growth companies, which are those that exhibit signs of above-average growth, even if the share price is high relative to earnings/intrinsic value.
Value mutual funds invest primarily in common stock of value companies, which are those that are out of favor with investors, appear underpriced by the market relative to their earnings/intrinsic value, or have high dividend yields.
Blend mutual funds invest primarily in common stock of both growth and value companies or are not limited to the types of companies in which they can invest.
The Average Equity Index Fund Investor is comprised of a universe of funds that are designed to track the performance of a U.S. equity market index.
The Average Target Date Fund Investor is comprised of a universe of funds that follow a predetermined reallocation of assets over time based on a specified target retirement date.
The Average Alternative Strategies (Alt-) Fund Investor is comprised of a universe of funds that employ alternative investment approaches like long/short, market neutral, leveraged, inverse, or commodity strategies to meet their investment objective. The following Average Alternative Strategies Fund Investors were referenced in this report: Alt-Domestic Equity, Alt-World Equity, Alt – Asset Allocation (“AA”), and Alt-Multisector Bond.
The Guess Right Ratio is the frequency that the average investor makes a short-term gain. One point is scored each month when the average investor has net inflows and the market (S&P 500) rises in the next month. A point is also scored when the average investor has net outflows and the market declines in the next month. The ratio is the number of points scored as a percentage of the total number of months under consideration.
Retention Rate reflects the length of time the average investor holds a fund if the current redemption rate persists. It is the time required to fully redeem the account. Retention rates are expressed in years and fractions of years.
The monthly value of the consumer price index is converted to a monthly rate. The monthly rates are used to compound a “return” for the period under consideration. This result is then annualized to produce the inflation rate for the period.
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Louis S. Harvey, the founder of Dalbar, a kind of J.D. Power for the financial services industry, analyzed stock market history and found that since 1940 US equities have always recovered, even in real terms, within five years of any crash.
He uses that finding-which might surprise a few people-as the basis for a portfolio asset allocation strategy that he's now sharing with the world.
A recent study of 1,103 investors found that more than half (53%) had not developed a financial plan to fund their retirement in the last 5 years, and more broadly, found an alarming lack of knowledge among some investors related to their retirement savings.
The obvious consensus is that the client is convinced that they're better off with the advisor than without! This is the fundamental reason that clients pay their advisor despite the fact that lower-cost or zero-cost alternatives are available.
Being better off with the advisor is not about the advisor; rather, it is all about the client. Having seen volumes of material that describe why a client should use an advisor, I can tell you there is scarcely a note about how to make the client better off.
So how does the advisor make the client better off?
Dalbar has launched a new subscription-based interactive hub for advisors to communicate with clients to support and improve investor behavior.
The platform, known as QAIB Advisor Studio, is available for $250 a year for advisors (it varies for enterprise subscriptions), and is based on Dalbar's proprietary Quantitative Analysis of Investor Behavior. It will be updated throughout the year.
The second quarter was not only an exceptionally strong one for U.S. stocks but also an especially strong quarter for investors of actively managed equity funds.
According to a new Dalbar study that focuses on investor behavior rather than market or fund returns, the average active equity fund investor outperformed the average equity index fund investor by 223 basis points in the second quarter — gaining 20.97% versus 18.74%.
Investors in what have historically been the most conservative mutual fund asset classes were actually the most spooked into making withdrawals during the first quarter’s Covid-related market volatility, according to new research from Dalbar.
Rocky Balboa said, ''You, me, or nobody is gonna hit as hard as life. But it ain't about how hard ya hit. It's about how hard you can get hit and keep moving forward. How much you can take and keep moving forward. That's how winning is done.'' Investors are getting hit hard. The broad US equity market, as represented by the S&P 500 Index, experienced a 30% bear market decline in the course of 23 trading days.1 That's roughly 130 days faster than the typical bear market, dating back to 1900.2 The massive gains of 2019 disappeared between Valentine's Day and St. Patrick's Day.3 The instinct is to sell. Sit the rest of this out. Yet, we can't stop thinking about all we have learned of the follies of trying to time the market. We summon up the famous DALBAR study, and the analysis showing what happens if we miss the best days in the market (half of those days happen during a bear market4)
The time to sell is not when stocks are down. Yet the principle is so much easier to embrace during rising markets than in the midst of chaotic selling, which causes our flight instinct to kick in. Resist the urge. Money is made at turning points, and the crowd is rarely right at critical moments. Why? Because 50% to 90% of daily volume is driven by the trading algorithms, not by human investors with long-term time horizons.
Investors lose massive amounts due to panic selling in down markets. More can be done about this perennial problem. This article identifies one critical action that can be taken to stem panic-driven losses. That action is based on a full understanding of the timing, cause and prudent use of financial instruments that can avoid much of the loss.
Lou Harvey from DALBAR Inc. discusses a strategy that should help investors stay put, literally, in the next market downturn.
Since 1988, the stock market’s average return has been 10% per year. But stock fund investors have earned only 4.1% per year, according to Dalbar’s Quantitative Analysis of Investor Behavior.
The habit can be costly. Research firm Dalbar publishes an annual study of investor behavior, which tracks cash flows in and out of stock funds. In 2018, the average investor trailed Standard & Poor’s 500-stock index by 5.0 percentage points. (The S&P 500 lost 4.4% in 2018, which means the average investor lost 9.4%.) “Judging by the cash flows we saw, investors sensed danger in the markets and decreased their exposure, but not nearly enough to prevent serious losses,” says Dalbar’s Cory Clark.
...But after reading my column last week about the Dalbar Quantitative Analysis of Investor Behavior study showing just how lousy investor timing was in 2018, he wanted help to improve his timing...
We are all influenced by our emotions, our hopes and fears. Such is being human. But these emotions do not always lead to the best decisions. When you add our attitudes about money to the mix, the results can be quite complicated.
A combination of volatile market conditions and bad timing caused the average U.S. investor to lose twice as much as the S&P 500 in 2018, according to a new study from DALBAR.
The research firm’s latest Quantitative Analysis of Investor Behavior (QAIB) found that investors were actually blown away by market turmoil last year, losing 9.42 percent over the course of 2018, compared with a 4.38 percent retreat by the S&P.