Active fund managers have been underperforming broad stock market benchmarks for the past decade, supporting the notion that investors may be better off with a passive strategy or index-based exchange traded fund.
According to Bank of America Merrill Lynch data, over the 10-year period ending in 2015, an average of just 37% large-cap mutual funds outperformed the Russell 1000 in any given year, reports Justin Lahart for the Wall Street Journal.
It has been a trying time for market participants this year as well, with only 14% of active managers outpacing the benchmark Russel 1000.
Investors may have been better off tracking the benchmark large-cap index, instead. For instance, the iShares Russell 1000 ETF (NYSEArca: IWB) rose 8.3%, Vanguard Russell 1000 ETF (NasdaqGM: VONE) gained 8.2% and SPDR Russell 1000 ETF (NYSEArca: ONEK) added 8.0% year-to-date.
Contributing to the underperformance of active managers, company stocks are beginning to move in lockstep with one another, diminishing the chances of cherry picking an outperformer from the dregs. Meanwhile, investors have increasingly turned to index funds as a way to diversify portfolios and play broad market segments, which have also made stock selection less effective.