That’s right – if you wrote down the list of all 30 Dow components or all 500 S&P companies on a hunk of granite and then compared that with a list of stocks from a fancy-pants money manager with a Wharton MBA … the rock would win.
This has been proven time and time again, by numerous studies of both the long-term and short-term.
The latest data point comes from Standard & Poor’s 10th annual fund performance scorecard. What makes this particular report noteworthy, however, isn’t the fact that most managers picked stinkers but the sheer magnitude of those who made bad calls.
About 84% of U.S. stock funds that are actively managed, rather than passively tracking an index, underperformed versus the Standard & Poor’s indexes that best represent their benchmarks.
That’s right – 17 out of 20 money managers would have performed better if they just read their investments of an index instead of “researching” their own picks.
S&P found that performance was better over the past several years than in 2011, although actively managed funds still consistently fell short. Over three years, from 2009 through 2011, about 56% of stock funds underperformed benchmarks. Over five years, 61% didn’t beat the market.
Going back 10 years, the average percentage of funds underperforming has been about 57%.
It makes you really wonder why the hell ANYONE trusts a human to run their finances. Index funds charge lower fees — as little as 0.06 percent at some funds — because they don’t rely on professionals to pick stocks. There are no fancy New York offices to rent or Brooks Brothers suits to buy for self-important advisors.
True, there are many examples of fund managers whose investment-picking skills make them worth their fees. But the ranks of such winning managers are very small.
And if the 84% of underperforming managers last year is any indication, the group of truly competent stock-pickers on Wall Street is shrinking all the time.