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any of the few fund fans want to take a crack at this process?

https://klementoninvesting.substack.com/p/want-to-...

A Tale of Bad Days: Investor Preferences and Fund Manager Skill, 29 Aug 2025
"We merge return data from the CRSP mutual fund database with Morningstar’s daily total net assets (TNA), covering 1,967 funds between August 2008 and June 2022... We define a bad day as any day d in month t when the market return falls below the 5th percentile of returns over the prior year (t − 12 to t − 1)... Funds in the highest decile of past bad-day performance generate a net CAPM alpha 2.25 percent (t = 1.83) higher than funds in the lowest decile."
https://papers.ssrn.com/sol3/papers.cfm?abstract_i...

The cutoff for a bad day has been lower since 2000, and is directly related to the standard deviation.

        badLimit    TR1d    TR1d
decde   Average   Average  StdDev
  192     -1.5%    0.07%   1.31%
  193     -3.3%    0.02%   2.14%
  194     -1.5%    0.04%   0.96%
  195     -1.1%    0.07%   0.71%
  196     -1.0%    0.03%   0.62%
  197     -1.3%    0.03%   0.86%
  198     -1.5%    0.07%   1.07%
  199     -1.3%    0.07%   0.88%
  200     -2.1%    0.01%   1.40%
  201     -1.6%    0.05%   0.93%
  202     -2.0%    0.06%   1.30%
Total     -1.6%    0.05%   1.17%
 
correl    1.00      0.49   -0.96

badLimit is the 5th percentile of 1-day returns over the prior year


The number of bad-days varies significantly year to year.

year  badLimit  Number of bad-days
2025    -1.7%           16
2024    -1.3%           12
2023    -2.0%            1
2022    -2.2%           24
2021    -2.0%            5
2020    -2.8%           21
2019    -1.9%            5
2018    -1.3%           31
2017    -0.8%            7
2016    -1.7%            9
2015    -1.4%           19
2014    -1.2%           14
2013    -1.3%            8
2012    -2.2%            1
2011    -1.9%           24
2010    -2.1%            9
2009    -4.6%            2
2008    -2.7%           30
2007    -1.2%           28
2006    -1.0%           13
2005    -1.1%            8
2004    -1.4%            8
2003    -2.3%            3
2002    -2.2%           22
2001    -2.3%           11
2000    -2.1%           17
1999    -2.0%            8
1998    -1.7%           18
1997    -1.4%           21
1996    -1.0%           17
1995    -0.9%            8

Here is a list of bad-days.

  y2019     y2020     y2021     y2022     y2023     y2024     y2025     y2026
20190103  20200127  20210512  20220105  20231220  20240131  20250110  20260120
20190513  20200131  20210920  20220113            20240412  20250127
20190805  20200224  20210928  20220118            20240430  20250221
20190814  20200225  20211126  20220121            20240717  20250227
20190823  20200227  20211130  20220203            20240724  20250303
          20200303            20220210            20240801  20250306
          20200305            20220211            20240802  20250310
          20200306            20220217            20240805  20250313
          20200309            20220223            20240903  20250328
          20200311            20220307            20240906  20250403
          20200312            20220422            20241031  20250404
          20200316            20220426            20241218  20250408
          20200318            20220429                      20250410
          20200320            20220505                      20250416
          20200323            20220509                      20250421
          20200327            20220518                      20251010
          20200401            20220609
          20200421            20220610
          20200611            20220613
          20200903            20220616
          20201028            20220628
                              20220826
                              20220913
                              20221007

  y2019      y2020       y2021       y2022      y2023       y2024       y2025       y2026
1/3/2019   1/27/2020   5/12/2021   1/5/2022   12/20/2023  1/31/2024   1/10/2025   1/20/2026
5/13/2019  1/31/2020   9/20/2021   1/13/2022              4/12/2024   1/27/2025
8/5/2019   2/24/2020   9/28/2021   1/18/2022              4/30/2024   2/21/2025
8/14/2019  2/25/2020   11/26/2021  1/21/2022              7/17/2024   2/27/2025
8/23/2019  2/27/2020   11/30/2021  2/3/2022               7/24/2024    3/3/2025
            3/3/2020               2/10/2022               8/1/2024    3/6/2025
            3/5/2020               2/11/2022               8/2/2024   3/10/2025
            3/6/2020               2/17/2022               8/5/2024   3/13/2025
            3/9/2020               2/23/2022               9/3/2024   3/28/2025
           3/11/2020               3/7/2022                9/6/2024    4/3/2025
           3/12/2020               4/22/2022              10/31/2024   4/4/2025
           3/16/2020               4/26/2022              12/18/2024   4/8/2025
           3/18/2020               4/29/2022                          4/10/2025
           3/20/2020               5/5/2022                           4/16/2025
           3/23/2020               5/9/2022                           4/21/2025
           3/27/2020               5/18/2022                          10/10/2025
            4/1/2020               6/9/2022
           4/21/2020               6/10/2022
           6/11/2020               6/13/2022
            9/3/2020               6/16/2022
           10/28/2020              6/28/2022
                                   8/26/2022
                                   9/13/2022
                                   10/7/2022

Here is a table of one-day total returns on recent bad-days for a few mutual funds.

 BuyDate   SellDate    VTI    SPY   FCNTX  BIAWX   IWO    IWM    IJR    IWN   AVUV   BRK-B
16-Jan-26  20-Jan-26  -2.0%  -2.0%  -2.1%  -2.6%  -1.1%  -1.2%  -1.4%  -1.3%  -1.5%  -1.6%
9-Oct-25   10-Oct-25  -2.7%  -2.7%  -2.9%  -3.1%  -2.9%  -3.0%  -3.1%  -3.0%  -3.5%  -1.5%
17-Apr-25  21-Apr-25  -2.4%  -2.4%  -2.4%  -2.8%  -2.5%  -2.0%  -2.0%  -1.6%  -2.0%  -2.2%
15-Apr-25  16-Apr-25  -2.1%  -2.2%  -2.4%  -2.2%  -1.4%  -1.0%  -1.0%  -0.4%  -0.4%  -2.2%
9-Apr-25   10-Apr-25  -4.1%  -4.4%  -3.6%  -4.1%  -4.1%  -4.2%  -4.4%  -4.1%  -4.9%  -1.1%
7-Apr-25   8-Apr-25   -1.6%  -1.6%  -0.9%  -1.6%  -2.9%  -2.6%  -3.0%  -2.4%  -2.4%  0.5%
3-Apr-25   4-Apr-25   -5.9%  -5.9%  -5.6%  -6.7%  -4.7%  -4.5%  -4.3%  -4.1%  -4.4%  -6.9%
2-Apr-25   3-Apr-25   -5.0%  -4.9%  -5.2%  -5.6%  -6.4%  -6.4%  -7.0%  -6.5%  -8.2%  -1.4%
27-Mar-25  28-Mar-25  -2.0%  -2.0%  -2.5%  -2.4%  -2.1%  -2.0%  -2.2%  -2.0%  -2.0%  -1.5%
12-Mar-25  13-Mar-25  -1.4%  -1.3%  -1.8%  -1.8%  -1.7%  -1.5%  -1.7%  -1.4%  -1.3%  1.7%
7-Mar-25   10-Mar-25  -2.7%  -2.7%  -3.1%  -3.5%  -2.6%  -2.5%  -2.3%  -2.6%  -2.3%  0.3%
5-Mar-25   6-Mar-25   -1.9%  -1.8%  -2.8%  -3.2%  -2.1%  -1.5%  -1.3%  -1.1%  -0.9%  -0.1%
28-Feb-25  3-Mar-25   -1.8%  -1.8%  -2.3%  -2.2%  -3.3%  -2.7%  -2.3%  -2.1%  -2.6%  -0.7%
26-Feb-25  27-Feb-25  -1.5%  -1.6%  -1.9%  -2.3%  -2.1%  -1.5%  -1.4%  -0.9%  -0.9%  1.7%
20-Feb-25  21-Feb-25  -1.8%  -1.7%  -2.1%  -0.8%  -3.6%  -2.9%  -2.7%  -2.2%  -2.7%  -0.6%
24-Jan-25  27-Jan-25  -1.4%  -1.4%  -2.2%  -2.8%  -2.0%  -1.0%  -0.3%  0.2%   -0.7%  2.5%
8-Jan-25   10-Jan-25  -1.5%  -1.5%  -1.1%  -1.8%  -2.2%  -2.2%  -2.0%  -2.2%  -1.5%  -2.0%
17-Dec-24  18-Dec-24  -3.1%  -3.0%  -3.0%  -3.4%  -4.2%  -4.4%  -4.1%  -4.4%  -4.0%  -2.0%
30-Oct-24  31-Oct-24  -1.9%  -2.0%  -2.4%  -3.0%  -1.7%  -1.7%  -1.6%  -1.5%  -1.1%  -0.9%
5-Sep-24   6-Sep-24   -1.7%  -1.7%  -2.1%  -1.6%  -2.1%  -1.9%  -1.7%  -1.6%  -1.7%  -1.2%
30-Aug-24  3-Sep-24   -2.2%  -2.1%  -2.7%  -3.1%  -3.5%  -3.1%  -2.9%  -2.7%  -2.8%  0.2%
2-Aug-24   5-Aug-24   -2.9%  -2.9%  -3.0%  -2.8%  -3.0%  -3.2%  -3.1%  -3.6%  -3.4%  -3.4%
1-Aug-24   2-Aug-24   -2.0%  -1.9%  -2.3%  -3.0%  -3.6%  -3.5%  -3.4%  -3.4%  -4.2%  -0.8%
31-Jul-24  1-Aug-24   -1.6%  -1.4%  -1.0%  -1.9%  -3.1%  -3.3%  -2.8%  -3.1%  -3.7%  -1.5%
23-Jul-24  24-Jul-24  -2.3%  -2.3%  -3.2%  -2.9%  -2.3%  -2.1%  -1.8%  -1.8%  -1.9%  -0.3%
16-Jul-24  17-Jul-24  -1.4%  -1.4%  -2.6%  -2.6%  -1.8%  -1.0%  -0.5%  0.0%   -0.3%  1.5%
29-Apr-24  30-Apr-24  -1.6%  -1.6%  -1.4%  -2.0%  -2.1%  -2.0%  -1.9%  -2.0%  -2.5%  -1.1%
11-Apr-24  12-Apr-24  -1.4%  -1.4%  -1.5%  -1.6%  -2.1%  -1.8%  -1.5%  -1.4%  -1.4%  -1.1%
30-Jan-24  31-Jan-24  -1.7%  -1.6%  -1.9%  -1.7%  -2.0%  -2.4%  -2.5%  -2.7%  -2.7%  -0.9%
19-Dec-23  20-Dec-23  -1.5%  -1.4%  -1.2%  -1.4%  -2.2%  -1.9%  -1.7%  -1.7%  -1.5%  -1.8%
 
              avg     -2.2%  -2.2%  -2.4%  -2.7%  -2.7%  -2.5%  -2.4%  -2.3%  -2.5%  -1.0%
             stdev    1.1%   1.1%   1.1%   1.2%   1.1%   1.2%   1.3%   1.4%   1.6%   1.7%
             correl   1.00   1.00   0.91   0.91   0.77   0.79   0.79   0.75   0.76   0.62

Here is a table of correlations:

        correl  correl  correl  correl  correl  correl  correl  correl  correl  correl
Ticker    VTI     SPY   FCNTX   BIAWX     IWO     IWM     IJR     IWN    AVUV   BRK.B   ___                  Name
  VTI     1       1      0.94     0.9     0.9    0.89    0.87    0.85    0.83    0.63   ___     Vanguard Total Stock Market ETF
  SPY     1       1      0.95     0.9    0.86    0.86    0.84    0.81     0.8    0.64   ___      State Street SPDR S&P 500 ETF
FCNTX    0.94    0.95     1      0.93     0.8    0.75     0.7    0.67    0.65    0.53   ___           Fidelity Contrafund
BIAWX     0.9     0.9    0.93     1      0.78    0.72    0.67    0.62     0.6    0.42   ___  Brown Advisory Sustainable Growth Inv
  IWO     0.9    0.86     0.8    0.78     1      0.98    0.93    0.91    0.86    0.46   ___     iShares Russell 2000 Growth ETF
  IWM    0.89    0.86    0.75    0.72    0.98     1      0.98    0.98    0.94    0.53   ___        iShares Russell 2000 ETF
  IJR    0.87    0.84     0.7    0.67    0.93    0.98     1      0.99    0.97    0.56   ___      iShares Core S&P Small-Cap ETF
  IWN    0.85    0.81    0.67    0.62    0.91    0.98    0.99     1      0.98    0.58   ___      iShares Russell 2000 Value ETF
 AVUV    0.83     0.8    0.65     0.6    0.86    0.94    0.97    0.98     1      0.57   ___      Avantis US Small Cap Value ETF
BRK.B    0.63    0.64    0.53    0.42    0.46    0.53    0.56    0.58    0.57     1     ___         Berkshire Hathaway Inc.

The previous table was Asset correlations for time period 10/01/2019 - 02/28/2026 based on monthly returns.

CAGR for 10/01/2019 - 02/28/2026 was:

  avg                        Annualized             Annualized        correl
bad-day  Ticker   CAGR   Standard Deviation  Beta     Alpha      R2     VTI
-2.72%     IWO   9.72%         23.01%        1.20     -6.82%    0.80    1
-2.68%   BIAWX   12.31%        19.76%        1.04     -2.63%    0.81    1
-2.51%     IWM   10.26%        22.61%        1.18     -6.06%    0.80   0.94
-2.45%    AVUV   15.35%        26.29%        1.27     -1.94%    0.69    0.9
-2.44%   FCNTX   19.00%        17.78%        0.98     3.84%     0.89    0.9
-2.40%     IJR   10.00%        22.50%        1.14     -5.72%    0.76   0.89
-2.26%     IWN   10.25%        23.52%        1.16     -5.57%    0.72   0.87
-2.23%     VTI   15.09%        17.14%        1.00     0.00%     1.00   0.85
-2.21%     SPY   15.62%        16.62%        0.97     0.91%     0.99   0.83
-0.95%   BRK.B   14.83%        19.83%        0.73     4.52%     0.39   0.63
 
  0.28   correl   1.00         -0.55         -0.50     0.90     0.16  -0.38

average bad-day is 30 days in period 20231220 to 20260120.

The avg bad-day does not correlate with CAGR. Maybe it will align better with 2026 returns.

am fairly sure the post was regards to funds with high active share.
(i.e., making prudent trades during those windows of broad mkt moves)

low correlation to mkt cap index would be an indirect approach to find high active share.
but there may be some screeners with directly reported active share (?)

The OP article found "that managers who outperform on bad days do not outperform on other days, while those who outperform on other days tend to underperform on bad days... For past bad-day outperformers, monthly alpha is driven entirely by outperformance on the single worst day of the month. In contrast, past other-day outperformers generate alpha only on normal days and strictly underperform on bad days."

There are two non-overlapping groups: bad-day outperformers and other-day outperformers.

The article rejects some theories: "We reject explanations for persistence related to flow-induced selling pressure or stale pricing and conclude that outperforming on bad days requires skill. What is the nature of this skill? One possibility is that managers who outperform on bad days are simply more skilled overall. The stronger response of flows to performance on bad days could even suggest that such performance provides a better signal of general skill than performance on other days. Both interpretations are unlikely."

Just as an example, using Zacks backtester, the most recent 1 year ROE top 10% of zacks ranked stocks has a monthly traded CAGR since the end of 2008 to 3/20/2026 of 12% (16% if all zacks rank 1 stocks with 1 year ROE higher than their industry). The last 5 years ROE average instead is 15% (17.1% for zacks rank 1 stocks with 5 year ave ROE higher than their industry), and the top 10% by change in ROE of the two is 18%. If you buy those with zacks rank 1 with a ROE change higher than their industry it is 17.3%

lizgdal,
to clarify, the article accepts bad-day fund skill is real, (and equally important, actionable, and thus initiated this thread).
but it rejects that they understand why.

klement wrote:
"shifting from underperforming funds to outperforming funds on a bad day is performance-enhancing. Funds that outperform significantly on bad days in the market are significantly more likely to outperform in the long run. The authors find “that managers with the skill to outperform on the 5% of days with the worst market returns generate about as much unconditional future outperformance as managers with the skill to outperform on the remaining 95% of days”. That is a strong finding because it essentially says that true skill reveals itself in tough markets"

Hi musselmant,

I think you were answering my question from a different thread so I only saw this now:

Just as an example, using Zacks backtester, the most recent 1 year ROE top 10% of zacks ranked stocks has a monthly traded CAGR since the end of 2008 to 3/20/2026 of 12% (16% if all zacks rank 1 stocks with 1 year ROE higher than their industry). The last 5 years ROE average instead is 15% (17.1% for zacks rank 1 stocks with 5 year ave ROE higher than their industry), and the top 10% by change in ROE of the two is 18%. If you buy those with zacks rank 1 with a ROE change higher than their industry it is 17.3%

Thanks. Just to confirm, when you refer to the change in ROE, I assume you are ranking the 10% by (Most recent 1 year ROE - The last 5 years Average ROE).

If so, do Zacks report negative ROE values or are they excluded by default? Just that in theory both could be negative and still be included in the greatest change top ranks.

Anyway, your test would support (1) the idea that a multi-year average is probably better than a single year and (2) an improving ROE is better again.

Yes the comparison was 1 to the 5 year average.
And yes Zacks rank 1 includes stocks with negative ROE.

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