In the first half of 2015, investors pulled $22 billion out of large-cap core U.S. equity mutual funds, but added $19 billion to S&P 500® Index-linked mutual funds. While this confirms that active management is losing share to passive, we think there are still strong active large-cap mutual funds to choose from.
According to S&P Dow Jones Indices, just 23% of all large-cap core active funds outperformed the S&P 500 Index in the three-year period ended 2014. (It is not possible to invest directly in an index, and index returns do not reflect expenses an investor would pay). On an equal-weighted basis, the average large-cap fund’s 18.6% three-year annualized return lagged the S&P 500 index by approximately 180 basis points. These performance challenges are not rare, as just twice in the past ten calendar years more than 50% of actively managed funds have beaten the “500”. A separate S&P Dow Jones study revealed how hard it is for those large-cap funds that outperformed to continue to do so. Indeed, just 4.5% of the outperformers in the 12-month period ended March 2011 maintained their top-half ranking in each of the four subsequent 12-month periods.
The S&P Dow Jones Indices studies highlight that you would be better off with an index-based large-cap offering than choosing an average active fund. In fact there are many below-average performers. For example, Davis New York Venture Fund (NYVTX) is among the biggest large-cap core funds, yet it lagged peers in four of the five last five calendar years. Indeed, NYVTX and its sister share classes had $2.8 billion of outflows in the first half of 2015.
Of course, nobody aims to invest in a below-average mutual fund.
S&P Capital IQ’s mutual fund rankings incorporate holdings-based analysis as well as a review of a fund’s relative track record and cost factors. We find 30 large-cap funds meet our criteria, though some of multiple share classes of the same portfolio.
The list of funds included American Century Equity Growth Fund (BEQGX), Fidelity Fund (FFIDX) and T Rowe Price Growth & Income Fund (PRGIX), Vanguard Growth & Income Fund (VNQPX).
S&P Capital IQ hosted a client webinar on active versus passive strategies on Tuesday, August 4, but you can listen to a replay http://t.co/4KDPwLW9Aj or email wealth@spcapitaliq.com. Reports on the aforementioned mutual funds and ETFs can be found on MarketScope Advisor.
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This article was written by Todd Rosenbluth, Director of ETF and Mutual Fund Research.
© S&P Dow Jones Indices LLC 2013. Indexology® is a trademark of S&P Dow Jones Indices LLC (SPDJI). S&P® is a trademark of Standard & Poor’s Financial Services LLC and Dow Jones® is a trademark of Dow Jones Trademark Holdings LLC, and those marks have been licensed to SPDJI. This material is reproduced with the prior written consent of SPDJI. For more information on SPDJI, visit http://www.spdji.com.