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Approximately 75% of fund managers do not beat the S&P 500 year in and year out. How can a basket of 500 hundred stocks beat the majority of actively managed mutua

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

l funds? The people who manage these funds are, for the most part, brilliant people. They are highly educated and have access to the most advanced information and

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

ecision support systems in the world. So why is it that they do not outperform the S&P 500?

A Quick Test:

Here's a very crude test of management performance: Let

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

's compare the domestic-equity mutual fund performance supplied by Morningstar against the S&P 500 index for one, three, five and ten-year periods, looking back fr

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

m April 30, 1995. The S&P 500 index is a fair comparison for large, domestic companies.

Our results:

--Of the 1,097 funds Morningstar covered for the one-year pe

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

iod, 110 beat the S&P 500, while 987 fell short. Results ranged from 46.84% to -32.26%, while the S&P 500 attained a 17.44% return.

--During the three-year period

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

, the S&P 500 returned 10.54%, while results in the funds varied from 29.28% to -15.02% compounded annually. Of the total 609 funds, only 266 beat the S&P 500.

--

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

hifting to the five-year period, of 470 funds, 204 beat the S&P 500. Results ranged from 27.35% to -8.51%, while the index racked up 12.62%.

--At ten years, only

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

56 of 262 funds managed to beat the index, and results varied from 24.77% to -4.06% compounded annually against 14.78% for the S&P 500.

The fact that most funds d

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

not beat the overall stock market should not be surprising. Since the majority of money invested in the stock market comes from mutual funds, it would be mathemat

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

cally impossible for the majority all of these funds to out perform the market.

The implied promise held out to investors in actively managed mutual funds is that

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

in exchange for higher fees (relative to index funds), the actively managed fund will deliver superior market performance. There are a host of barriers to fulfill

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

ng this implied promise.

Some of the problems are:

--The larger a mutual fund gets, the more difficult it becomes to deliver exceptional performance.

--Although

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

fund size runs counter to performance, fund managers have a strong motivation to let the fund grow as big as possible because the bigger the fund gets, the more m

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

ney the fund managers make.

--Most skillful mutual fund managers are hired away by hedge funds, where their financial rewards are greater and there are few restri

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

tions on investment techniques.

--By law mutual funds are supposed to be conservative, which in theory limits their potential losses. This conservative stance gen

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

erally limits their ability to use arbitrage, options, or shorting stocks.

Can You Do Better?

Because of the general inflexibility and restrictions of most mutua

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

funds, your investment capital is not properly hedged against market fluctuations. In most cases, if you compared the beta of the equity exposure held in actively

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

managed mutual funds to an equal equity exposure to the S&P 500 index, your reward/risk ratio would be less rewarding than purchasing an identical equity exposure

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

to the S&P 500 index. So, the answer is, you can do better and beat the S & P 500 by using an effective stock market timing system.

Copyright 2006 Equitrend, Inc

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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