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Does AllianceBernstein Add Value?

Many mutual fund firms tout their research teams as giving them an advantage that can help you make more money. The historical evidence has shown that the money spent trying to pick winning stocks or time the market correctly hasn't been money well spent. Still, many investors are drawn in by these marketing tactics, so it should help to provide real-life examples and see if these active managers are truly adding alpha, or returns above their benchmark. Today, we'll look at AllianceBernstein.

AllianceBernstein has about $478 billion of assets under management (as of December 31, 2010). The firm's mission is quite clear. From its Web site:

  • To place our clients' interests first and foremost
  • To use our research to gain more knowledge than any investment firm in the world
  • To use and share our knowledge to help clients achieve investment success and confidence
My colleague Kevin Grogan, who co-wrote The Only Guide You'll Ever Need for the Right Financial Plan with me, took a deeper look at whether that research has turned into better gains for investors in the firm's funds. The results haven't been encouraging.

We'll compare AllianceBernstein's funds to the passively managed funds of Dimensional Fund Advisors for the areas where comparable funds exist. The period is 2006-2010, the longest time period for which data is available for each of the funds we'll examine.

The average returns for the funds are pretty telling. The AllianceBernstein funds had an average return of 2.1 percent over this period, versus 3.6 percent for DFA.

Going back 10 years yields similar results. Please note that there are far fewer funds to compare, as some AllianceBernstein funds don't go back that far or there are no DFA counterparts that go back that far.

In this case, the average return of the AllianceBernstein funds was 3.5 percent, versus 4.5 percent for the DFA funds.

Domestically and internationally, AllianceBernstein failed to outperform passively managed alternatives in the majority of cases. These certainly don't seem like "superior outcomes." It should be noted that AllianceBernstein's International Growth fund also invests in emerging markets, which carry a higher expected return.

AllianceBernstein has tremendous resources at its disposal and undoubtedly has some very bright people managing the portfolios and researching investment strategies. In fact, AllianceBernstein boasts that it has 240 analysts who have an average of 13 years of professional experience. If these investment professionals can't demonstrate outperformance, what are the odds that you or your advisor can? A passive strategy continues to give you the best chance of achieving your goals.

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