Actively Managed US Mutual Funds Fail to Preform, “it is Embarrassing”

Actively Managed US Mutual Funds Fail to Preform, “it is Embarrassing”

Actively Managed US Mutual Funds Fail to Preform, “it is Embarrassing”


A respected semi-Annual survey has revealed that 90% of actively managed equity funds failed to beat their benchmark indexes.

The data is sure to put more focus on an argument which has divided Wall Street into “active” and “passive” investment-strategy advocates.

The S&P Indices Versus Active (SPIVA) scorecard shows that 90.2% of the actively managed US mutual funds that invest in domestic equities were beaten by their benchmarks.

“There was not a single category of domestic fund, whether investing in large-caps, small-caps or a combination, or favoring growth stocks or value stocks in which more than 25% of managers succeeded in beating their category benchmark,” the FT noted.

“There is nothing redeeming to say about the managers in the equity space,” the global research director at S&P, told the FT. “They said they would provide downside protection and add value in choppy markets. This was their chance to prove themselves and earn their paychecks, but across every category they underperformed. It is embarrassing.”

The results “back the argument that investors are best served by passively managed funds, low-cost funds that track indexes such as the S&P 500 (SPY) or the Russell 2000 (IWM). The other camp staunchly support active funds, funds run by investment managers who try to beat the indexes.

Meanwhile, conventional wisdom holds that active management can offer better returns than passive management by investing in securities that outperform the benchmark.

“Active managers can stand on the sidelines, meaning go to cash, if market conditions warrant it. The question for investors is whether active managers will outperform, or whether benchmark returns will fall enough to justify taking a gamble on actively-managed funds,” Investopedia explains.

To be sure, during the past year, $310-B “has fled actively managed funds run by people who try (and often fail) to pick the best” stocks and bonds. “Meanwhile, $409-B has poured into passive, or index, funds that seek to match the market rather than beat it,” the WS-J reported.

Mutual fund sage and founder of the Vanguard Group Jack Bogle has hit back at “idiotic” critics of indexing, the practice of organizing one’s portfolio to match an index.

Mr. Bogle started the indexing revolution for retail investors in Y 1976 when he launched the Vanguard 500 Index Fund. The fund, which just passed its 40th anni, had $205-B in assets as of 31 August 2016.

Symbol Last Trade Date Change Open High Low Volume
NYSEArca:SPY 213.37 16 September 2016 -1.91 213.48 213.69 212.57 155,224,600
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Neutral (-0.12) Bearish (-0.29) Neutral (-0.21) Neutral (0.14)
Symbol Last Trade Date Change Open High Low Volume
NYSEArca:IWM 121.86 16 September 2016 -0.18 121.47 121.97 121.1 31,940,300
HeffX-LTN Analysis for IWM: Overall Short Intermediate Long
Neutral (0.08) Neutral (-0.11) Neutral (-0.10) Bullish (0.46)

Have a terrific week.

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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