Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.Ron Surz

That's inches away from being millimeter perfect.
Ted Lowe, retired BBC snooker commentator


September has historically been the worst performing month for US stock markets, losing 1% on average over the past 85 years, while the average return in the other 11 months was a positive 1.3%. Not so this September, with its 9% gain, bringing the year-to-date return up to 5%, and reversing a 4% cumulative loss through August. This September was the best September since 1939.

So much for history repeating itself.

In the following, I review year-to-date stock market performance around the world and remind you that investment manager due diligence will benefit immensely by replacing peer groups with a scientific alternative. I give you the information you need - PODs - to accurately evaluate your managers’ investment performance. I also give you an excellent interactive tool - Style Scan - to understand the current stock holdings of your portfolios

Client-facing consultants should be worried about the due diligence that you and your clients rely upon. We can and should be “millimeter perfect,” rather than settling for being inches away, as observed in the quote that introduces this commentary. Annual end-of-year reporting season is around the corner so now is the time to seek out the best. If you’ve been concerned about the accuracy and depth of your performance reporting now is the time to fix it.

Following the discussion of performance evaluation tools, I conclude with a brief description of the confusion and controversy surrounding target date funds, which are increasingly more popular and important.

As always, feedback is much appreciated.

Year-to-date stock market performance
The US stock market’s 5% return in the first nine months of 2010 was below its historical average, but it’s good to see positive returns, and many segments of the markets have performed quite well. For contrast, the Citigroup high-grade corporate bond index was up 16.4% year-to-date, which is quite extraordinary.
As the chart below shows, large-cap US companies have lagged the overall market with a 2% return, while mid- and small-sized companies have done substantially better, earning more than 11%. Smaller companies led the 2009 rally and continue to dominate in 2010. I use Surz Style Pure® style and country definitions throughout this commentary, as described here.     

Smaller has been better, which is somewhat surprising given the current angst about the economy; you’d think investors would feel safer with larger companies, and those companies would attract more capital. Smaller companies have now outperformed large for the past 21 months.
YTD Styles