You can't go long without reading an article about the death of active management. Somewhere in a discussion like that you will also hear that the larger a fund gets the more likely it is to under-perform. My purpose of this post is not to get into either of those issues but I thought it would be interesting to take a glimpse back in time to the largest funds of 1999 (15 years ago).
For this exercise I decided to screen for the largest actively managed funds 15 years ago (8/1999) which had the S&P 500 as their prospectus benchmark. The top 10 results looked like this
So how did they do? Were they too big to outperform?
Indeed, the largest fund did manage to under-perform. However, as a whole, these large funds did quite well. Over the last 15 years the largest 10 funds which were benchmarked to the S&P 500 managed to return an average of 5.47% compared to 4.47% for the S&P 500.
What's also interesting is that despite the fact that I compared them all to their prospectus benchmark of the S&P 500, a few of them tend to have a known growth tilt (Vanguard Primecap, Growth Fund of America, Fidelty Contrafund) but they all managed to significantly beat the S&P 500 despite the fact that growth significantly underperformed the S&P during this time (Russell 1000 Growth returned only 3.18% compared to 4.47% on the S&P 500).
Do these numbers include fees?
ReplyDeleteYes, these are all excess returns net after fees and they are all actually being compared to the fee-free benchmark not the index fund (so they would all be slightly better then that actually, as the largest index fund at the time Vanguard 500 Index VFINX had an expense ratio of 0.17%). One of the few benefits of being a larger actively managed fund is actually that you tend to be on the low side for fees (in relation to the active world). The average fee on these funds came to 0.67%. MFS actually would have beat if it would have had a fee in the range of the others (it's was .88%). Oppenheimer also would have been right around the index (but it's fee was .91%).
DeleteHow do these numbers compare with inflation?
ReplyDeleteI am measuring the funds "relative" to the S&P. All those numbers in the graph are excess return. However, as I mentioned, the S&P total return was 4.47%/yr. Inflation over the last 15yrs I believe has averaged 2.5% or so based on CPI.
DeleteI would think a weighted average would be a more apt measurement rather than a straight average
ReplyDeleteThe purpose of this was to see how the largest funds performed going forward, not to see what the weighted average investor dollar would have been if all stayed as is. However, in case your curious it was +0.38% obviously with high weighting on Magellan. However, all these comparisons are also against the index and not an index fund (which has expenses). They all would have outperformed the largest index fund Vanguard 500 (VFINX) by 1.1% on average or 0.48% on an asset weighted basis (which isn't what I was trying to measure).
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