Collctive Brain

The Oppenheimer Global Allocation Fund: Expert Insight Into What the Market Already Knows

Collctive Brain

Once again, Oppenheimer Funds has produced an excellent commercial highlighting their investment ideology of understanding the collective human behavior that drives markets and building investment solutions based on their understanding of that behavior. The most recent advertisement touts their Global Allocation Fund as assessing the global macroeconomic environment, the risk environment, and finally valuation to see if all three components are in congruence with each other (i.e. top down approach) and then making their investment decisions. You can watch their eloquent delivery of this message video shown below.

By this time, most investors are probably eating out of the palm of their hand, believing that collective human nature can be fully understood by one fund complex and that “expert insight” can help them to avoid risk while reaping the benefits of superior returns. It is a great pitch, but void of any actual reality.

We have recently produced a series of articles highlighting the subpar performance of Oppenheimer Funds as a fund family, although they are generating billions of dollars in profits off of their “expertise.” To quickly summarize, we found only a single fund out of 72 indicated the potential for significant outperformance. We quickly dismissed this notion given that the 1 fund only had 3 years of performance history. Statistical conclusions based off of limited samples sizes are dangerous since just 1 more year can lead to a completely different conclusion.

In a similar vein, we find the Oppenheimer Global Allocation Fund (QVGIX). You can find its particular alpha chart below.

As you can see, based off of 13 years of historical performance history, it has underperformed its Morningstar assigned benchmark by -1.91% per year. But how could this possibly be given their “expert insight” into human behavior, global macroeconomics, risk, and security valuation?

In short, their ability to understand these factors in their entirety is no better than anyone else. Or even shorter, they simply cannot do so. These types of factors, whether they are economic, risk, or even human nature, are random variables that are driven by future events, which nobody can predict with a very high precision. Having full and complete information of these factors and how the market is going to react to these factors and exploit them in an investment strategy is highly unlikely. Although Lady Luck allows some managers to have their spotlight for a short period of time, almost all active managers tend to revert back down to earth over longer time horizons suggesting that their skill was improperly classified to begin with. 

The only real “expert” that exists is the market itself. It represents the millions of combinations of valuations across all market participants at any given time. It is an investor’s ally in knowing what they cannot know will full certainty. This is why it is best to discard these types of advertisements as wishful thinking and see the market as your best business partner in the entire world. In our opinion, capturing its benefits through the use of index funds will better serve your purpose of reaching your financial goals.