S&P Reveals The Brutal Truth About 18 Categories Of Mutual Funds

Sam Ro

Odds are you're likely to be make more in the stock market by tracking an index than by trying to beat that index.

S&P Dow Jones Indices just published its mid-year scorecard of S&P indices versus active funds (SPIVA). Active funds are the funds that attempt to offer some sort of superior return relative to some benchmark.

"According to the data, 59.78% of large-cap managers, 57.84% of mid-cap managers and 72.79% of small-cap managers underperformed their benchmarks," said Aye Soe, director of index research and design. This is for the 12-month period ending June 30, 2014.

Fund managers have a knack for getting lucky over short-term periods. When you extend the performance period from 12-months to 5 years, the results are much uglier.

"The past five years have been marked by the rare combination of a remarkable rebound in domestic equity markets and a low-volatility equity environment," Soe added. "This combination has proven to be difficult for domestic equity managers, as over 70% of them across all capitalization and style categories failed to deliver returns higher than their respective benchmarks."

Below is a table from S&P showing 18 categories of funds. For some categories, more than half of the funds seem to be able to pull-off better returns over short periods.

But as you can see in the red box, there's no category in which more than 30% of the funds have beaten the index over a five year period.

"There is nothing novel about the index versus active debate," said Soe. "It has been a contentious subject for decades, and there are a few strong believers on both sides, with the vast majority of investors falling somewhere in between."

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