Actively Managed Mutual Funds

March 22, 2012 by staff 

Actively Managed Mutual Funds, Managers of stock mutual funds had an unusually tough time beating the market last year, with fewer than one in five achieving that goal, a study found. That’s the lowest number in the 10 years the study has been conducted.

About 84 percent of U.S. stock funds that are actively managed, rather than passively tracking an index, underperformed versus the Standard & Poor’s indexes representing the market segment the funds invest in. That’s according to S&P Indices, which on Monday released its 10th annual fund performance scorecard.

The market researcher found that fund performance was better over the past several years than in 2011, although a majority of funds still fell short. Over three years, from 2009 through 2011, about 56 percent of stock funds underperformed relative to S&P benchmarks. Over five years, 61 percent underperformed.

Going back 10 years, the average percentage of funds underperforming has been about 57 percent. Before last year, the worst year for manager performance had been 2006, when nearly 68 percent of funds were beaten by benchmark indexes.

Over the last 10 years, S&P says a majority of funds beat the market in just four times. The best year for fund performance was 2009, with 58 percent outperforming.

S&P found that funds specializing in growth stocks were the biggest underperformers last year. Growth stocks are priced high relative to the earnings of the underlying company because investors expect them to grow more rapidly than lower-priced value stocks. S&P found that nearly 96 percent of large-cap growth funds – those investing in stocks with large market values – underperformed their S&P benchmarks last year. In contrast, managers of large-cap value funds fared much better, with just 54 percent underperforming.

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