Please stay tuned for important disclosure information at the conclusion of this episode.

Welcome to Investing Insights. I'm your host, Ivana Hampton. The odds of picking winning stocks are often stacked against amateur investors. Even professionals, including many active fund

managers who have access to lots of data and teams of analysts struggle to beat their indexes.

A Morningstar researcher investigated how often professional money managers succeeded and whether

their stock picking success or lack thereof could help investors

find better funds. Jack Shannon is a senior manager research analyst for Morningstar Research Services.

Here's our conversation. Welcome back, Jack.

Thank you. It's always a pleasure to be here.

Well, let's get started. You did follow-up research on your big stock bets report that was featured on a podcast in January.

Can you talk briefly about the original research and why you wanted to go deeper?

Yeah, so the original research was about whether big bets and portfolio, so big single positions,

end up helping or hurting portfolio outcomes.

And so what I did was I collected, you know, years worth of data on these big positions

and said, you know, in the aggregate, have they helped or hurt funds outperform the index?

And what I found was, well, for the most part, the bets were on winning stocks. So it was like two-thirds of the, of the bets ended up outperforming the market, yet, you know, less than a third, actually, of the funds actually outperform the market. So that raised a question of, okay, well, their biggest bets are working out. Why are the funds still underperforming part of its fees because they're active managers and

they want, you know, you got to pay them to manage your money. So, but the other part was,

um, it pointed to like a lack of winners throughout the rest of the portfolio. So what I wanted

to dig into was what does the sort of hit rate, the win rate look like in the rest of a portfolio? And does that

explain anything further about the performance of active funds and why they do or don't outperform?

So you looked at mutual fund managers hit rates. Explain what a hit rate is and what you were

hoping to find out. Yeah, so a hit rate I define, it's not a technical term, it's a created term, but it's the percentage

of their stock picks that ended up outperforming the index over their holding period.

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