Motley Fool Money Why Investors Earn Less Than Their Funds, and the Small-Cap Surge
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Sep 27, 2025 In this enlightening discussion, Jeff Ptak, Managing Director at Morningstar Research Services, dives into key investor behaviors that lead to performance gaps in mutual funds. He explains the difference between dollar-weighted and time-weighted returns and how high trading activity can negatively impact investor outcomes. The conversation also covers the recent small-cap surge and its implications, along with advice on using conservative return assumptions for investment planning. Ptak emphasizes taking early action on personal goals, inspired by the late financial journalist Jonathan Clements.
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Small-Cap Surge Explained
- Small-cap stocks surged recently with the Russell 2000 clearing its 2021 peak and microcaps outperforming large-cap indices.
- Drivers include cheaper valuations and potential benefits from expected Fed rate cuts lowering bank loan costs for smaller firms.
Corporate-Treasury Yield Spread Tight
- The spread between investment-grade corporates and Treasuries is just 0.75%, the tightest since 1998.
- That narrow spread signals high investor optimism or reduced perceived safety of Treasuries.
Average Dollar Earned Less Than Fund Return
- Morningstar's Mind the Gap finds investors earned 1.2% less than their funds over 10 years, shaving roughly 15% off aggregate returns.
- Jeff Ptak attributes the shortfall mainly to timing and magnitude of cash flows that reflect buying high and selling low.