How many actively managed funds beat the market?
Less than 10% of active large-cap fund managers have outperformed the S&P 500 over the last 15 years. The biggest drag on investment returns is unavoidable, but you can minimize it if you're smart. Here's what to look for when choosing a simple investment that can beat the Wall Street pros.
Nearly 57% of active U.S. equity funds survived and beat their average index peer over the 12 months through June 2023. Active U.S. small-cap funds succeeded at a better clip (65%) than large caps (53%), but it was a balanced effort: Eight of the nine U.S. stock categories posted active success rates higher than 50%.
Some active managers have outperformed benchmarks over specific time periods, especially in specialized sectors (like technology for example) or regions, but also less-efficient markets, such as small cap stocks, emerging markets, or fixed-income securities.
Fund | 2023 performance (%) | 5yr performance (%) |
---|---|---|
MS INVF US Insight | 52.26 | 34.65 |
Sands Capital US Select Growth Fund | 51.3 | 76.97 |
Natixis Loomis Sayles US Growth Equity | 49.56 | 111.67 |
T. Rowe Price US Blue Chip Equity | 49.54 | 81.57 |
(NASDAQ:DXCM) and Medpace Holdings, Inc. (NASDAQ:MEDP) are the only two healthcare sector companies that have made it onto our list of 13 stocks that outperform the S&P 500 every year for the last 5 years. The shares of DexCom, Inc.
The average fund underperformed its benchmark by 1.75% per year before taxes and by 2.58% on an after-tax basis. Just 22% of funds managed to beat their benchmarks on a pretax basis. The average outperformance was 1.4%; the average underperformance was 2.6%. But on an after-tax basis, only 14% of funds outperformed.
When things go well, actively managed funds can deliver performance that beats the market over time, even after their fees are paid. But investors should keep in mind that there's no guarantee an active fund will be able to deliver index-beating performance, and many don't.
And over a full 20-year period ending last December, fewer than 10 percent of active U.S. stock funds managed to beat their benchmarks. Still, every year, some actively managed funds do outperform the indexes. If you own one that does, you may not care about all the others that fail to do so.
On average, only 46% of funds outperformed the total market over monthly horizons; 39% beat the market over 12-month periods; 34% over decadelong horizons; and a mere 24% for their full history. Fees are part of the problem, of course.
In general, actively managed funds have failed to survive and beat their benchmarks, especially over longer time horizons. Only one out of every four active funds topped the average of their passive rivals over the 10-year period ended December 2022. But success rates vary across categories.
What funds does Dave Ramsey invest in?
I put my personal 401(k) and a lot of my mutual fund investing in four types of mutual funds: growth, growth and income, aggressive growth, and international.
Key Points. Less than 10% of active large-cap fund managers have outperformed the S&P 500 over the last 15 years. The biggest drag on investment returns is unavoidable, but you can minimize it if you're smart. Here's what to look for when choosing a simple investment that can beat the Wall Street pros.
Barchart on X: "Fun Fact 🚨: A $10,000 investment in the S&P 500 back in 1970 would be worth $2.3 million today" / X.
According to our calculations, a $1000 investment made in February 2014 would be worth $5,971.20, or a gain of 497.12%, as of February 5, 2024, and this return excludes dividends but includes price increases. Compare this to the S&P 500's rally of 178.17% and gold's return of 55.50% over the same time frame.
In 1980, had you invested a mere $1,000 in what went on to become the top-performing stock of S&P 500, then you would be sitting on a cool $1.2 million today.
Yes, you may be able to beat the market, but with investment fees, taxes, and human emotion working against you, you're more likely to do so through luck than skill. If you can merely match the S&P 500, minus a small fee, you'll be doing better than most investors.
The largest Active Management ETF is the JPMorgan Equity Premium Income ETF JEPI with $32.55B in assets. In the last trailing year, the best-performing Active Management ETF was NVDL at 427.37%.
Disadvantages of Active Management
Actively managed funds generally have higher fees and are less tax-efficient than passively managed funds. The investor is paying for the sustained efforts of investment advisers who specialize in active investment, and for the potential for higher returns than the markets as a whole.
Although it is very difficult, the market can be beaten. Every year, some managers boast better numbers than the market indices. A small fraction even manages to do so over a longer period. Over the horizon of the last 20 years, less than 10% of U.S. actively managed funds have beaten the market.
International developed stock fund managers were able to beat their respective indexes in four of the past 23 years, or 17.4% of the time. Meanwhile, emerging markets active fund managers fared even worse. They only managed to outperform in two years, or 8.7% of the time, during these 20-plus years.
How many managed funds should I have?
So, what's the ideal number of funds? Well, there is no right or wrong answer. It can depend on a number of factors including the number of funds you're comfortable monitoring in your portfolio, your investment objectives and risk appetite.
S&P Dow Jones Indices' scorecard compares the performance of actively-managed mutual funds to major indices. It found that over the course of one year, 51.08% of actively-managed mutual funds underperformed the S&P 500, and 48.92% of actively-managed funds outperformed the S&P 500.
Here's a preview of what you'll learn:
Staggering data reveals 90% of retail investors underperform the broader market. Lack of patience and undisciplined trading behaviors cause most losses. Insufficient market knowledge and overconfidence lead to costly mistakes.
Another driver of the underperformance of active funds, according to McDermott, is fees: “All funds have years where they underperform, however, the longer-term evidence is undeniable that active managers have continued to struggle. The main reason for this underperformance is because active funds charge higher fees.”
- Bill Ackman. Bill Ackman manages hedge fund Pershing Square Capital Management. ...
- Benjamin Graham. Benjamin Graham was an investing pioneer. ...
- Warren Buffett. Buffett might be the most famous investor of all. ...
- John (Jack) Bogle. ...
- Cathie Wood. ...
- Peter Lynch. ...
- David and Tom Gardner. ...
- Other famous investors.
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