Quantitative Analysis of Investor Behavior Terms Explained
For purchasers of DALBAR's Annual Investor Behavior Study, QAIB, terms used in the report can be found below. To purchase QAIB, go to QAIB.com
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.
[Average] Investor Behavior
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.
[Average] Investor Return (Performance)
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 investor return rate for the period
- Annualized investor return rate
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.
Average Equity Fund Investor
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.
Average Fixed Income Investor
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.
Average Asset Allocation Investor
The Average Asset Allocation Fund Investor is comprised of a universe of funds that invest in a mix of equity and debt securities.
Average [Sector] Fund Investor
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
Average [Capitalization and Style] Fund Investor
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.
Average Equity Index Fund Investor
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.
Average Target Date Fund Investor
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.
Average Alternative Strategies (Alt-) Fund Investor
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.
Guess Right Ratio
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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