It’s rare these days when you come across information that feels fresh and alive. And concerning mutual fund management, we’ve heard it all before — passive beats active a majority of the time. So, it was with trepidation that I read NerdWallet’s latest study on the topic.
Specifically, NerdWallet says, active mutual fund managers over the past 10 years outperformed index funds just 24% of the time. That comes as no surprise when you factor in fees.
However, I found three of its findings particularly interesting:
- Active managers (before fees) outperformed index funds by 0.12%. It’s not that money managers are bad at what they do; it’s that they charge too doggone much.
- Using a database of 7,000-plus funds, NerdWallet found that active managers did a much better job than index funds in controlling risk. Isn’t it Warren Buffett who believes the No. 1 rule of investing is to never lose money?
- The largest funds (those over $10 billion) had the best risk-adjusted returns and the lowest expense ratios. This final finding came as a big shock — the old adage it’s easier to manage $10 million than $10 billion appears to be untrue.
With these findings in mind, let’s look at some of the actively managed funds that did manage to outperform the indices over the past decade. It shouldn’t come as a surprise that many of the winners in terms of absolute returns were invested in emerging markets.