Vanguard S&P 500 Mutual Fund (black) versus 18 Largest Actively Managed Mutual Funds Year to date 4/8/2020.
Source: Yahoo Finance
The above chart shows how well the top active managers (in colors) have done in this year's roller coaster market along with the Vanguard S&P 500 index fund (in black) A glance shows the passive index fund in the middle of the pack. Long-term indexers just have to take it and suffer losses as they happen. But we get to take ALL the gains as they happen too!
Funds managed by expert professionals claim to have the ability to avoid losses-they can get out-while not missing market recoveries-they can get back in. This is called active management or market timing.
Methodology
The methodology here bears mentioning. I prefer to use ETFs, but ETFs are mostly passive index tracking funds. While ETF indexes vary, the point here is not to compare indexes to indexes but rather manager returns to the S&P 500 index. For that we needed a good sample and below are the Vanguard index fund plus the 18 largest actively managed mutual funds, in size order of assets under management.
VERY IMPORTANT NOTE: The top ranked fund, Fidelity Growth, is CLOSED to new investors. You can't buy it. Hmmm, makes you wonder if it really should be in this list at all!
VERY IMPORTANT NOTE: The top ranked fund, Fidelity Growth, is CLOSED to new investors. You can't buy it. Hmmm, makes you wonder if it really should be in this list at all!
Below is a table showing how the numbers add up:
Source: Yahoo Finance
Another point to bear is the "ActiveShare" ranking looking for indexers in "disguise". Activeshare ranks funds by the percent that the fund is actively managed. 100 = no index stocks, 0 = all index stocks. Note: Vanguard has a 7 ranking, appropriate for an index fund. The average ranking of manager funds is 57, that is, they are 57% active and the rest is index.
Returns
Here's where the pedal hits the metal:
For 10 year returns, there were 8 winners that beat the index out of a total of 18 actively managed funds. Top name: Fidelity Growth.
For the 5 year period, there were 7 of 18 winners. Top name: Fidelity Growth
Year to date 4/8/2020 there were 8 of18 winners, too. Top name: Fidelity Growth
Note I also looked at 2020's highs and lows, 6 funds beat the index at the high and 10 funds beat the index at the low. Top name at market high and low was Harbor Capital, but Fidelity was right on its heels.
Conclusion
In this limited study, the largest actively managed funds were 50-50 or so better than the passive fund. As for persistence or the ability to outperform over varied time periods, 5 funds, less than one third, (all in blue on the table) were able to beat the index during all the periods tested. Only 4 can be bought.
Funds that outperformed had middling activeshares. High activeshares did not perform. Note the largest actively managed fund, American Washington Mutual did not beat. Kudos to Harbor Capital. I'll stick with the index.
Sorry to mention this but there is another very important asterisk to these mutual fund returns, in some cases NO INVESTOR could possibly earn these long-term gains. That's because some funds are COMBINATIONS of one or more prior funds that were rolled up into this. A more complete study of this issue is warranted- it invalidates ANY long term return claims. This is not true for the Vanguard S&P 500 Index Fund -VFINX. It has no survivor issues.
Disclaimer: Posts are for education only and not investment advice, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors.
Sorry to mention this but there is another very important asterisk to these mutual fund returns, in some cases NO INVESTOR could possibly earn these long-term gains. That's because some funds are COMBINATIONS of one or more prior funds that were rolled up into this. A more complete study of this issue is warranted- it invalidates ANY long term return claims. This is not true for the Vanguard S&P 500 Index Fund -VFINX. It has no survivor issues.
Feel free to post comments.
Disclaimer: Posts are for education only and not investment advice, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors.