Approximately 75% of the fund managers do not beat the S & P 500 year after year. How can a basket of 500 hundred stocks hit the majority of actively managed mutual funds? The people who manage these funds are, for the most part, brilliant people. They are highly trained and have access to the most advanced information and decision support systems in the world. Why is it that they are no better than the S & P 500?
A Quick Test:
Here is a very rough test of the performance of management: Let's compare the domestic equity mutual fund performance provided by Morningstar against the S & P 500 index for one, three, five and renewed ten years Looking back from April 30, 1995. The S & P 500 Index is a fair comparison for large domestic companies.
Our results:
- Of the 1097 funds Morningstar covered for a period of one year, 110 hit the S & P 500, while 987 fell short. The results ranged from 46.84% to -32.26%, while the S & P 500 reached a 17:44% yield.
- During the period of three years, the S & P 500 Index 10.54%, while the results in the funds ranged from 29.28% to -15.02% per year compounded. Of the total 609 funds, only 266 beat the S & P 500.
- Shift to the five-year period, of 470 funds, 204 beat the S & P 500. The results ranged from 27.35% to -8.51%, while the index racked to 12.62%.
- In ten years, only 56 of the 262 funds managed to beat the index, and the results ranged from 24.77% to -4.06% per year compounded at 14.78% for the S & P 500.
The fact that most funds do not beat the overall stock market is not surprising. Since the majority of the money invested in the stock market comes from mutual funds, it would be mathematically impossible for most all of these resources to carry out on the market.
The implicit promise kept to investors in actively managed mutual funds is that in exchange for higher fees (relative to index funds), actively managed fund will deliver superior performance. Market There are numerous barriers to the fulfillment of this promise implied.
Some problems are:
- The bigger a fund gets, the harder it is to deliver exceptional performance.
- Although the size of the fund is in conflict with the performance, fund managers have a strong motivation to grow as large as possible because the larger the fund gets, the more money the fund managers make the fund.
- Most skilled investment managers are hired by hedge funds, where their financial rewards are way bigger and there are few restrictions on investment techniques.
- By law mutual funds are supposed conservative, which in theory limits their potential losses. This conservative attitude is generally limited their ability to use. Arbitrage, options, or shorting stocks
Can you do better?
Because of the general inflexibility and limitations of most mutual funds, your investment capital is not well hedged against market fluctuations. In most cases, if you have the beta of the equity position held in actively managed mutual funds to a similar position in stocks compared to the S & P 500 index, your reward / risk ratio would be less rewarding than purchasing an identical position in shares to the S & P 500 index. So, the answer is, you can do better and hit the S & P 500 using an effective market timing system.
Copyright 2006 Equitrend, Inc.
A Quick Test:
Here is a very rough test of the performance of management: Let's compare the domestic equity mutual fund performance provided by Morningstar against the S & P 500 index for one, three, five and renewed ten years Looking back from April 30, 1995. The S & P 500 Index is a fair comparison for large domestic companies.
Our results:
- Of the 1097 funds Morningstar covered for a period of one year, 110 hit the S & P 500, while 987 fell short. The results ranged from 46.84% to -32.26%, while the S & P 500 reached a 17:44% yield.
- During the period of three years, the S & P 500 Index 10.54%, while the results in the funds ranged from 29.28% to -15.02% per year compounded. Of the total 609 funds, only 266 beat the S & P 500.
- Shift to the five-year period, of 470 funds, 204 beat the S & P 500. The results ranged from 27.35% to -8.51%, while the index racked to 12.62%.
- In ten years, only 56 of the 262 funds managed to beat the index, and the results ranged from 24.77% to -4.06% per year compounded at 14.78% for the S & P 500.
The fact that most funds do not beat the overall stock market is not surprising. Since the majority of the money invested in the stock market comes from mutual funds, it would be mathematically impossible for most all of these resources to carry out on the market.
The implicit promise kept to investors in actively managed mutual funds is that in exchange for higher fees (relative to index funds), actively managed fund will deliver superior performance. Market There are numerous barriers to the fulfillment of this promise implied.
Some problems are:
- The bigger a fund gets, the harder it is to deliver exceptional performance.
- Although the size of the fund is in conflict with the performance, fund managers have a strong motivation to grow as large as possible because the larger the fund gets, the more money the fund managers make the fund.
- Most skilled investment managers are hired by hedge funds, where their financial rewards are way bigger and there are few restrictions on investment techniques.
- By law mutual funds are supposed conservative, which in theory limits their potential losses. This conservative attitude is generally limited their ability to use. Arbitrage, options, or shorting stocks
Can you do better?
Because of the general inflexibility and limitations of most mutual funds, your investment capital is not well hedged against market fluctuations. In most cases, if you have the beta of the equity position held in actively managed mutual funds to a similar position in stocks compared to the S & P 500 index, your reward / risk ratio would be less rewarding than purchasing an identical position in shares to the S & P 500 index. So, the answer is, you can do better and hit the S & P 500 using an effective market timing system.
Copyright 2006 Equitrend, Inc.
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