Wikinvest Wire

What good are mutual fund managers?

Wednesday, April 22, 2009

As if the average 401k investor doesn't already have enough on his plate these days, word comes in this WSJ report($) that more than two-thirds of managed funds - the foundation of nearly every company retirement plan - underperform the index they are measured against.

Investors in actively managed mutual funds for the past five years have reason to wonder what they have been paying for: A new study from Standard & Poor's finds that 70% of large-cap fund managers who use the S&P 500-stock index as a benchmark for comparison have failed to match the performance of the index over that time.

That is double-bad news, given that the index was down 19% in the five years that ended Dec. 31. The failure of active management is replicated across almost all categories, not only U.S. stock funds but also bond funds and even emerging-markets funds.

What's more, those numbers are similar to the previous five-year cycle. From the close of Dec. 31, 2003 to Dec. 31, 2008, the S&P 500 fell 18.8%, but still beat 71.9% of U.S. actively managed large-capitalization funds, according to S&P Index Services.
It's been a while since I've looked at any 401k plan offerings - any ETFs in there yet?


Anonymous said...

does this mean that we should diversify amongst the 30 percent that outperform and not focus on the 70%?

if there are a thousand managers or funds that means that 300 outperform, correct?

Tim said...

Unfortunately, I think the list changes every year so one year's star is not guaranteed to outperform the next year.

rich r said...

Most funds just hug the indexes, but have higher fees so end up underperforming over time. Hence the 70% figure. But there are a minority of funds run by real value investors with patience and discipline that have long market-beating track records.

IE, just because MOST mutual fund managers don't add value (a premise I fully agree with) doesn't mean that NONE of them add value.


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