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Finding Mutual Fund Managers Who Beat the Market

Posted By Barry Ritholtz On January 12, 2013 @ 1:00 pm In Investing,Mutual Funds | Comments Disabled

[1]Yesterday, I referenced Merrill Lynch research that showed only 39% of fund managers [2] beat the S&P500 last year.

This morning, the WSJ references Goldman Sachs research — it shows something similar. Their data showed 65% of U.S. large-cap stock funds trailed the benchmark index net of fees. (5 year average = 66%).

When they looked for funds that beat the index two consecutive years, they came up with an astounding number: A mere 10% of nearly 2000 U.S. stock funds beat their benchmark in both 2011 and 2012 (Source: Morningstar research).

This is why most people are better off putting money into inexpensive passive index funds.

If you want to at last have a fighting chance to pick a fund that actually has a shot to beat its benchmark, these 2 steps are a start:

1. Low Fees — look for funds with an¬†expense ratio of 0.86% or below.

2. Avoid Closet Indexers — find funds with a low R-squared ratio.

The full article explains these in great detail.

I still think that for many people, especially those with portfolios under $250k, passive indexing is simpler, less expensive, and more reliable.

 

 

Source:
How to Find a Fund Manager Who Can Beat the Market [3]
JOE LIGHT
WSJ, January 12, 2013  
http://online.wsj.com/article/SB10001424127887324442304578231851362953728.html


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2013/01/mutual-fund-managers-who-beat-the-market/

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[1] Image: http://www.ritholtz.com/blog/wp-content/uploads/2013/01/BF-AE162_UPSIDE_G_20130111131503.jpg

[2] only 39% of fund managers: http://www.ritholtz.com/blog/2013/01/fund-manager-performance-vs-the-sp/

[3] How to Find a Fund Manager Who Can Beat the Market: http://online.wsj.com/article/SB10001424127887324442304578231851362953728.html

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