In the running debate between actively managed funds versus simply investing in a fund that tracks the S&P 500, the scorecard continues to tilt toward the broad stock market index.
According to data from Morningstar Direct, just 18.2% of actively managed funds whose primary prospectus benchmark is the S&P 500 managed to outperform the index in the first half of this year.
That's on track to be worse than last year, when only 19.8% of actively managed funds beat the S&P 500.
Of course, some years are better for fund managers than others. In 2022, when the Federal Reserve launched its most aggressive rate-hiking cycle in decades and sent the S&P 500 tumbling, 63.3% of active funds outperformed. In 2014, only 14.2% did.
Over the past 10 years, the average share of active funds that beat the S&P 500 was 27%, setting up 2024 to be an especially weak year.
Data from Morningstar Direct also shows that 13.4% of passively managed funds are outperforming so far this year. And over the past decade, passive funds consistently trailed active funds in the share that beat the S&P 500.
But that's not surprising given that many passive funds are only looking to keep pace with the index and maintain lower expenses rather than charge higher fees and hope that they get bigger returns.
To be sure, the vast majority of the S&P 500's recent gains have come from just a handful of tech giants. That leaves index investors vulnerable to a selloff in one stock like Nvidia. Still, even as Nvidia has come well off its highs over the past few weeks, the index has continued to hit fresh records as other stocks climbed.
Meanwhile, separate data showed that the S&P 500 beat three out of every four exchange-traded funds in the past year, the worst showing for ETFs since at least 2010.
In addition, funds that are diversified across asset classes and geographies also fared worse than the S&P 500. Such portfolios have lagged the index in 13 of the last 15 years, according to data from Cambria Funds cited by Bloomberg. Other data showed that out of 370 asset-allocation funds tracked by Morningstar, just one has beaten the index since 2009.
“In a low-volatility, high-return environment like 2024, investors should stick to the basics — buying uncomplicated index funds, and active mutual funds with a proven track record of delivering alpha,” Evercore strategist Julian Emanuel told Bloomberg last month. “No need to complicate strategy. In simplicity there is beauty.”
