New report finds almost 80% of active fund managers are falling behind the major indexes (2024)

FAQs

What percentage of fund managers beat the index? ›

Active managers who outperform the index one year tend to fall behind the next. After three years, only 20% of them outperformed the index.

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.”

Active managers' underperformance in 2023 is still better than the 64% average annual rate reported over the 23-year history of the SPIVA scorecards, said the report, which was released Wednesday. Over the past 15 years, 88% of large-cap stock funds underperformed the S&P 500, while 93% of funds did so over 20 years.

After one year, nearly 73% of active fund managers underperformed their indexes (across 22 equity categories). At the five-year horizon, 95.5% of active stock fund managers lagged their indexes.

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.

Commonly called the S&P 500, it's one of the most popular benchmarks of the overall U.S. stock market performance. Everybody tries to beat it, but few succeed.

The challenge is that as investors recognize a manager's skill, they place more assets under his management. Those additional assets make it harder for the manager to achieve the same level of performance—among other reasons, because the bigger a fund is, the more likely it is to move prices.

The SPIVA scorecard found that just 40% of large-cap fund managers outperformed the S&P 500 in 2023 once you factor in fees. So if the odds of outperforming fall to 40-60 for a single year, you can see how the odds of beating the index consistently over the long run could go way down.

If your market outlook is bullish, you will need a specific reason to expect a hedge fund to beat the index. Conversely, if your outlook is bearish, hedge funds should be an attractive asset class compared to buy-and-hold or long-only mutual funds.

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Which funds have consistently beat the S&P 500? ›

The deepest drawdown period lasted for 13 years and 4 months and was between August 2000 and December 2013 . It reached a trough of -60.4%.

Over the past 10 years, 91% of our actively managed funds performed better than their peer-group averages. * And when our funds outperform, you have the opportunity to earn more. Surprised at our success with actively managed funds? See how they can help you diversify your portfolio.

Actively Managed Funds Come to Life

But active funds fared well even in the hottest corners of the market. See the full analysis in Morningstar's latest Active/Passive Barometer. Nearly 57% of active U.S. equity funds survived and beat their average index peer over the 12 months through June 2023.

To be sure, if you have the time, knowledge, and desire to create a portfolio of individual stocks, by all means, go for it. But even if you do own individual stocks, index funds can form a solid base for your portfolio. Index funds offer investors of all skill levels a simple, successful way to invest.

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.

For the first half of this year, about one-quarter of all domestic U.S. equity funds managed to beat the performance of a broad stock index. Not great. The results get much worse on a longer timeline. On a 15-year basis, the proportion of U.S. stock funds that outperformed their benchmarks was just 6.5 per cent.

The SPIVA scorecard found that just 40% of large-cap fund managers outperformed the S&P 500 in 2023 once you factor in fees.

Around 25 equity mutual funds have outperformed their respective benchmarks in three, five, seven, and 10-year horizons, data crunching by ETMutualFunds showed. For the study, ETMutualFunds considered the performance of around 141 schemes that have been in the market for the last 10 years.