Markets & Economy

Text size: 

A A A
 

Infographic: The bumpy road to outperformance

November 25, 2013

Vanguard analyzed all actively managed U.S. stock mutual funds that existed at the start of 1998 and found that very few beat their benchmarks over the following 15 years.

As shown in the illustration below, our research found that even among successful actively managed funds, the "road to outperformance" was beset by numerous and often long stretches of market-lagging returns.

The bottom line: Identifying winners in advance is a challenge, even for skilled investment managers. Even if you do manage to beat the market, you need patience to collect on that success.

Outperformance

1. The 10 funds had annualized excess returns closely matching the median for all 275 successful funds: 1.1 percentage points above the relevant benchmark.

About the indexes used in our calculations:

To measure the funds' performances against market benchmarks, we chose indexes appropriate to their Morningstar, Inc., style boxes. When determining which index to use, we selected ones we deemed to fairly represent the characteristics of the relevant market, given the available choices during the period from January 1998 through December 2012. The indexes used for each style box are:

Large blend: Standard & Poor's 500 Index through November 2002, MSCI US Prime Market 750 Index thereafter. Large value: S&P 500 Value Index through November 2002, MSCI US Prime Market Value Index thereafter. Large growth: S&P 500 Growth Index through November 2002, MSCI US Prime Market Growth Index thereafter.

Medium blend: S&P MidCap 400 Index through November 2002, MSCI Mid Cap 450 Index thereafter. Medium value: S&P MidCap 400 Value Index through November 2002, MSCI Mid Cap Value Index thereafter. Medium growth: S&P MidCap 400 Growth Index through November 2002, MSCI US Mid Cap Growth Index thereafter.

Small blend: S&P SmallCap 600 Index through November 2002, MSCI US Small Cap 1750 Index thereafter. Small value: S&P SmallCap 600 Value Index through November 2002, MSCI US Small Cap Value Index thereafter. Small growth: S&P SmallCap 600 Growth Index through November 2002, MSCI US Small Cap Growth Index thereafter.

All investing is subject to risk, including possible loss of the money you invest.

Past performance is no guarantee of future returns.

Source: Vanguard calculations using data from Morningstar.

PrintComment | E‑mail | Share