Active Fund Managers Trailed Benchmarks Badly in 2011
March 19th, 2012 at 6:00am by Tom Lydon
While passive stock exchange traded funds mimicked the performance of the broad stock markets last year, the majority of active stock mutual fund managers did more harm than good as they tried to beat the market.
According the S&P Indices’ 10th annual fund performance scorecard, around 84% of U.S. stock funds under active management underperformed Standard & Poor’s indexes in 2011, reports Mark Jewell for the Associated Press. [Active Manager Flameouts Drive Investors to ETFs]
To put this in perspective, over the past 10 years, the average percentage of funds that underperformed has been around 57%.
The S&P revealed that growth stock funds were the biggest losers last year, with about 96% of large-cap growth funds underperforming their respective S&P benchmarks last year. In comparison, about 54% of Large-cap value funds underperformed.
Since mutual funds require fees to pay for managers and the supporting analysts, a majority of funds may see their returns diminished by large expense ratios, even if the manager is a proficient stock picker. Actively managed funds may have expense ratios ranging from 0.5% to 2%. [How ETFs and Mutual Funds are Different]
In contrast, passively ETFs indexed to major U.S. stock benchmarks may come with expense ratios as low as 0.05%. [ETFs Taking Market Share from Index Funds]
For more information mutual funds, visit our mutual funds category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.