A recent paper in the FPA Journal studies “The difficulty of selecting superior mutual fund performance“. The study attempts to quantify the relative performance of actively managed large- and mid-cap funds during a 20 years period (11 10-year rolling perfiods). The conclusions are similar to what studies have already shown:
- During the study period, most actively managed large- and mid-cap mutual funds underperformed their respective passive strategies. While every period under review had mutual funds that outperformed the passive strategy, few funds did so consistently.
- Furthermore, predicting in advance which mutual funds would outperform was difficult, if not impossible, and the cost of selecting the “wrong” manager was high. These factors combined demonstrate the difficulty for financial planners to select superior performance.
The two tables below show the under-performance of the actively managed large- and mid-cap funds in the study.