Studies show that it is very difficult for investors to outperform the market.
This is something that has been argued at the theoretical level by believers of the efficient market hypothesis (EMH), an idea advanced by University of Chicago professor Eugene Fama.
On Monday, Fama was awarded the Nobel Prize in Economics for his work in this area.
Beating the benchmark becomes even more difficult net of fees, which is what comes with buying a mutual fund that aims to outperform. Vanguard’s Jack Bogle has been saying this for 50 years.
Today, Amanda Schneider and the Goldman Sachs equity strategy team published an analysis of mutual fund performance.
Among other things, Schneider found that most large-cap mutual funds were once again underperforming the S&P 500. Her sample consisted of 232 large-cap core funds with $US580 billion of assets under management. Here’s more info about the sample:
Mutual funds invest an average of 89% of their common stock in S&P 500 stocks and 6% other US stocks. International stocks, including ADRs, represent 5% of common stock holdings: 3% Western Europe, 1% Canada, and 1% other. The average fund holds 4.0% of assets in non-stock holdings.
“46% of funds have outperformed the S&P 500 year-to-date,” she said.
For what it’s worth, this is above the 10-year average of 36%. And almost 60% of funds outperformed in the third quarter.
Will this be on of the rare years where most mutual funds beat the benchmark?