"And The Beat Goes On" - Passive ETFs v Top 100 Mutual Funds

To see what happened in 2023, the year of hyperbolic predictions, lets start with 2020 (arbitrary, yes, but cherry picking? NO-it includes the disasterous covid market collapse). Below is the classic stock, bond and commodity performance normalized where 1000 = 12/31/2019:

SPY = SPDR S&P 500 ETF

DJP = BARCLAYS PLC Bloomberg Commodity ETF

AGG = iShares:Core US Aggregate Bond ETF

Source: Microsoft StockHistory

The exemplary performance of commodities, up 80% in mid-2022, fades and is then eclipsed by today's stock market close. Bonds, as usual, fail to disappoint, with their usual dismal performance-FED or no FED.

Looking at the numbers, with major stock index ETFs added for good measure:

Continuously Compounded returns.

QQQ = Invesco Nasdaq 100 ETF

IWM = iShares Russell 2000 ETF

Source: Microsoft StockHistory

Notice, how convenient of SPY and QQQ to mirror image the 2022 loss into a 2023 gain. It's like 2022 never happened, except for small caps, bonds and commodities. So much for "passive" returns. 

Active Manager Returns

So, how did "active" managers do in 2023? Its hard to tell. Who publishes or computes reliable, unbiased DAILY active manager returns? We have to rely upon reasonable proxies. Even that's hard to do. But let's try. 

Millions of people go to Yahoo Finance for investment information and Yahoo publishes THEIR listing of "Top Mutual Funds Today". 

Only FOUR funds out of the "TOP 100" beat the SPY in 2023! Here they are with the rest of the leaderboard added:

Source: Yahoo Finance

Actually, only two managers exceeded the 21.7% return of the SPY ETF, Artisan and Blair. Is one year fair? Look at the 4 year total return - this will show the superior ability of active managers/humans/algos to avoid losses that passive managers cannot:

Source: Microsoft StockHistory

The top managers DID avoid much of 2022's losses well, except for WESJX. But they also avoided lot's of gains. If you think you can do better than the largest most well funded fund managers in the world-more power to you. But relying on reported numbers we are left with the unavoidable conclusion:

For the major passive stock ETFs versus active management, it goes like Sonny and Cher say: "And The Beat Goes On". 

Why use  the Microsoft StockHistory function for historical prices? It's free and easier than Yahoo-but beware a few missing days. You might notice the difference between the funds returns computed from Microsoft Stockhistory and the return reported by Yahoo. I can't account for that but will give Yahoo, the higher numbers, the benefit of the doubt. Contact me at infor@VistaMktResearch.com. Copyright 2024.

"It's the BEST TIME of the Year" to Buy Stock Index ETFs!

Next week, Friday December 29th 2023 at 4 PM the NYSE will close and every listed security will be marked at it's closing price for the year! Maybe 3:59 PM, or close to it, will be THE BEST TIME OF THE YEAR to buy your selected stock index exchange traded fund (ETF) or better yet, if your broker allows it, a TAS order (Trade at Settlement). 

We don't know the future but we do know the past. So here are the normalized continuously compounded returns for the largest, most liquid index ETFs for the past 20 years (12/31/2003 = 1000):

SPY = SPDR S&P 500 ETF

QQQ = INVESCO QQQ NASD 100 TRUST

IWN = ISHARES RUSSELL 2000 ETF

Source: Yahoo Finance

The SPY averaged 7% per annum for the last 20 years. The QQQs, 12%, and IWM 5%. Of course, you can take your chances picking stocks or you can just stay long the index. The S&P beats over 70% of all active managers! The Nasdaq? Even more!

Why buy on the closing price of the year? For better or for worse, Wall Street is measured by annual calendar returns and this aligns YOUR investments with Wall Street. And, why ETFs? You can BUY ETFs! You can't buy indexes. But you don't need to, these major index ETFs have almost no tracking error, that is, they are virtually equivalent to buying the index itself with almost no costs of ownership. 

Happy Holidays and Good Luck in 2024!