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Death Taxes and Short-Term Underperformance GE Funds 2011.pdfOur mission: the Brandes

Institute investigates potential opportunities arising from the influence of behavioral and structuralfactors on global investing.

Research Projects:

The Role of Expectations in Value and Glamour Stock Returns (June 2011)When value and glamour stocks missed earnings expectation targets, what happened to theirstock prices over the following year? Prices of value stocks increased when earnings expectationswere beat and missed and even when business fundamentals deteriorated. Glamour stocksbehaved more predictably, with prices rising and falling after beats and misses, respectively.

In this report, the Brandes Institute investigates the role that expectations played in investorsassessment of value and glamour stocks to better understand the sequence of events that allowedvalue stocks to deliver superior long-term returns. The evidence suggests an undercurrent ofbehavioral error, counters assertions published by select scholars, and provides fresh evidenceexplaining why value investing historically has been a successful long-term strategy.

This is a preprint of an article whose final and definitive form has been published in The Journalof Behavioral Finance [2011] [copyright Taylor & Francis]; The Journal of Behavioral Finance isavailable online at www.informaworld.com

Equity Dispersion: Value Stocks Yet to be Rewarded (January 2011)The correlation of returns for various equity asset classes has been high. In addition, the range or"dispersion" of returns across asset classes and across sectors within those asset classes hasbeen low. These factors have made it difficult for active managers to outperform. But dispersionofvaluations remains relatively wide by historical standards, creating a fertile environment forvalue-based stock pickers. When return dispersion broadens or returns to more normal levels,these undervalued securities may outperform the broader market.

Recent Articles:

Death, Taxes, and Short-Term Underperformance: Global Equity Mutual Funds(October 2011)In our original Death, Taxes, and Short-Term Underperformance studies, we examined the short-

term underperformance of U.S., non-U.S., and global mutual funds. Our research found thatinvestors in equity mutual funds should expect periods of underperformance both versus thebenchmark and relative to peers. Our studies also indicated that even longer periods ofunderperformance, up to three years, had relatively little impact on some of the better fundsability to generate long-term success. In this handout we revisit and update our previous studyon short-term underperformance of global equity mutual funds.

Broad is the New Narrow: How Passive Investing Creates Concentrated Portfolios (April2011)Passive investing, particularly in emerging markets, has become an increasingly popular means ofquick, diversified exposure to a particular segment of the markets. Defensive investors, asBenjamin Graham noted, would be best served owning a diversified list of leading companies.Yet its the presumption of diversification that can lead investors astray. Many passiveinvestments are, in fact, extremely concentrated owing to the disproportionate size of its largestholdings and blindly weighting by market capitalization. With emerging markets now the largestregion of the equity markets by number of investable securities, they offer opportunities forinvestors willing and able to invest actively outside of the largest securities.

Our Complete Collection:Click here to view a list of all Brandes Institute publications

Manager Challenge is a registered trademark of Brandes Investment Partners, L.P. in the UnitedStates.

The Brandes Institute is a division of Brandes Investment Partners.

Copyright 1998 - 2011 Brandes Investment Partners ALL RIGHTS RESERVED

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