Over the past several years there has been an on-going debate over whether investors benefit more from using index mutual funds or actively managed mutual funds. Most of the published news on this subject has supported the case for index funds. Heck, even Warren Buffet is on record supporting index funds, even though he uses an active investment approach at his investment/holding company, Berkshire Hathaway. But according to recent data, there appears to be a trend supporting the case for active funds, as they have significantly outpaced index funds during the time periods we analyzed.
In analyzing recent return data, we reviewed the performance of top actively managed mutual funds and also that of poorly performing funds, and compared them to the performance of the S&P 500 index. One of the stronger active funds, the Dodge & Cox Stock fund (ticker: DODGX), has significantly outpaced the S&P 500 index to the tune of +6.39% over the past year. While critics may suggest that the Dodge & Cox Stock fund is an outlier to have outperformed the index by such a large amount, the research suggests that Dodge & Cox is hardly alone. Even many of the poorly performing active mutual funds are also outpacing S&P 500 index funds. For example, the Fidelity Stock Select All Cap fund (ticker: FDSSX), is an active fund ranked only in the 69th percentile of fund performance within its large cap growth peer group, yet they are still beating the S&P 500 by over 3% on a year to date basis. In other words, 962 of the 1,395 funds in the “Large Cap Growth” category are outpacing the S&P 500 index by at least 3 percentage points, year to date. This is quite significant, and contrary to much of what has been published on this subject by various news outlets.
While these are brief time frames to assess which strategy may be better, there certainly appears to be a recent trend supporting actively managed mutual funds. Perhaps the flight of assets from active to index funds in recent years has motivated active managers to step up their game. Whatever the case may be, there still appears to be strong value in utilizing actively managed funds.
Disclosure: This is not a recommendation to buy and/or sell a particular investment strategy. The above information is for illustrative purposes to showcase the difference in recent performance of active and index/passive investment strategies. If you are considering a change to your investment strategy we recommend you contact an investment professional.