How many mutual funds beat their benchmark?
Although it is very difficult, the market can be beaten. Every year, some managers boast better numbers than the market indices. A small fraction even manages to do so over a longer period. Over the horizon of the last 20 years, less than 10% of U.S. actively managed funds have beaten the market.
Less than 10% of active large-cap fund managers have outperformed the S&P 500 over the last 15 years. The biggest drag on investment returns is unavoidable, but you can minimize it if you're smart.
Index schemes are supposed to offer returns similar to the index they are investing in. What should investors do when they fail to do their job? A recent ETMutualFunds study of active large cap funds revealed that 80% schemes managed to beat their benchmarks.
It found that over the course of one year, 51.08% of actively-managed mutual funds underperformed the S&P 500, and 48.92% of actively-managed funds outperformed the S&P 500.
Focused funds | 5-year-return (%) | Benchmark index (%) |
---|---|---|
360 ONE Focused Equity Fund | 22.21 | 17.61 |
Franklin India Focused Equity Fund | 18.03 | 17.45 |
HDFC Focused 30 Fund | 18.96 | 17.45 |
ICICI Prudential Focused Equity Fund | 19.04 | 17.61 |
A mutual fund benchmark is a critical point of reference that helps investors evaluate how well a fund is performing. It serves as a performance standard, enabling comparisons between the fund's returns and those of a particular market or sector.
Between 2010 and 2011, between 55% and 87% of actively managed funds could not beat the S&P 500. However, in 2022 only 51% of the large-cap stocks funds failed to beat the index, which was a significant improvement.
FSA highlights the 10 US equity funds that outperformed the S&P 500 index by over 20% last year. A standout year of strong returns for US equities would have been a surprise to many market participants at the start of 2023, since a recession was widely anticipated by economists at the time.
Commonly called the S&P 500, it's one of the most popular benchmarks of the overall U.S. stock market performance. Everybody tries to beat it, but few succeed.
Do mutual funds outperform the stock market? The study found that most actively managed mutual funds do worse than their benchmark index during most calendar years and over the long run. Notably, low-cost stock and bond index funds generally offer more predictable returns and lower costs than actively-managed funds.
What percentage of funds outperform the market?
However, when considering a 10-year scope, only 44% of active funds kept above the index and the active average return for 10 years only hit 56.5% while passive reached 60.5%. “While all active fund investors expect outperformance, it's not statistically possible for all managers to outperform,” Khalaf said.
Index funds seek to match the risk and return of the market based on the theory that in the long term, the market will outperform any single investment.
Whether or not you believe in efficient markets, the costs that come with investing in most mutual funds make it very difficult to outperform an index fund over the long term.
Now, here the ETF returns may make for 80% of your total portfolio returns. In other words, the idea behind the 80/20 rule is that if you focus on the best performing 20% of your investments, chances are they will outperform the remaining 80%.
Name | AUM (Cr) | 1Y Return |
---|---|---|
ICICI Pru Nifty Next 50 Index Fund | 3,669.11 | 58.00% |
Bandhan Nifty 50 Index Fund | 1,128.37 | 28.11% |
UTI Nifty 50 Index Fund | 15,301.17 | 28.02% |
ICICI Pru Nifty 50 Index Fund | 6,758.80 | 27.99% |
- Analyse Fund Performance vs Benchmark Performance.
- Check the Expense Ratio of Funds.
- Study Fund History.
- Check the Strength of the Portfolio.
- Check Portfolio Turnover Ratio (PTR)
- Compare The Maturity Period of Funds.
- Compare Risk-Adjusted Returns.
Investors often use the S&P 500 index as an equity performance benchmark because the S&P contains 500 of the largest U.S. publicly traded companies. However, there are many types of benchmarks that investors can use depending on their investments, risk tolerance, and time horizon.
Do mutual funds outperform the stock market? The study found that most actively managed mutual funds do worse than their benchmark index during most calendar years and over the long run. Notably, low-cost stock and bond index funds generally offer more predictable returns and lower costs than actively-managed funds.
Fund | 2023 performance (%) | 5yr performance (%) |
---|---|---|
T. Rowe Price US Blue Chip Equity | 49.54 | 81.57 |
MS INVF US Growth | 49.29 | 62.08 |
New Capital US Growth | 48.68 | N/A |
T. Rowe Price US Large Cap Growth Equity Fund | 48.64 | 98.92 |
It's true that over the short term, some mutual funds will outperform the market by significant margins - but over the long term, active investment tends to underperform passive indexing, especially after taking account of fees and taxes.
How many small cap mutual funds beat index?
Depending on conditions, they can restrict exposure to liquid stocks or opt for a longer tail portfolio,” he says. As on 30 November, 10 out of the 16 small cap funds with a five-year track record had outperformed the quality index. However, Azeez reckons the quality index has its merits.
The figures tell a remarkable story. Over the full period, just 2% of actively managed Large-Cap Core funds beat the S&P 500.
Research: 89% of fund managers fail to beat the market
According to this report, 88.99% of large-cap US funds have underperformed the S&P500 index over ten years. As a whole, 78–97% of actively managed stock funds failed to beat the indexes they were benchmarked against over ten years.
Since equity mutual funds are market-linked2, they can be volatile. This means if the market goes up, they will generate higher returns, and if the market goes down, it can create chances of loss in mutual funds.
What were the top-performing funds? Top of the list by some margin was the JP Morgan Emerging Europe, Middle East & Africa investment trust, with a one-year return of almost 50%. The Amundi Semiconductor ETF comfortably took second place with a one-year return of 43%, well ahead of the iShares Poland ETF at 35%.
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