Do most fund managers beat the market? (2024)

Do most fund managers beat the market?

The odds of picking winning stocks are often stacked against amateur investors. Even professionals, including many active fund managers, who have access to lots of data and teams of analysts, struggle to beat their indexes.

That means the fund manager has to outperform the market by the fee they charge clients just to break even. And that's a lot harder than simply beating the market by a few basis points. As a result, the percentage of actively-managed mutual funds that outperform the S&P 500 in any given year is only around 40%.

But even the best financial advisors are at the whim of the market. Most professional investors who try to beat the market actually underperform it over a given time period. And those who do manage to outperform the market over one time period can rarely outperform it again over the subsequent time period.

Nearly 60% of active bond funds lag the benchmark. Morningstar found that from 2014 to 2023, just one in every four active funds beat its average indexed peer. And index funds dominated active funds in the largest categories. The U.S. large-blend category represents about 27% of the U.S. mutual fund and ETF market.

Market-beating investment advice from experts - stock tips and smart money moves for those who want to invest better. 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.

Eight ETFs with at least $33 billion in assets under management, including SPDR Gold Shares (GLD), iShares S&P 500 Growth ETF (IVW) and Vanguard Growth ETF (VUG), are outpacing the S&P 500 this year, according to an Investor's Business Daily analysis of data from Morningstar Direct and MarketSurge.

Key Points. 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. Here's what to look for when choosing a simple investment that can beat the Wall Street pros.

A report by mutual-fund company Vanguard found that advisors can potentially add 3% or more to a client's net investment returns by picking cost-effective investments, behavioral coaching and more.

Most Active Managers Failed to Capitalize in 2023

That group notched a success rate of 46% in 2023, versus success rates above 50% for foreign and fixed-income managers in aggregate.

What are two reasons it is difficult for fund managers to beat the market?

“When most of the assets in a market are professionally managed, the average professional won't beat the market because the average professional is the market.” It is extremely difficult to have any kind of advantage when everyone has access to the same information, the same skills and the same ability to trade.

It is relatively common to beat the market for 1–3 years at a time. That can largely be explained by luck. But the data clearly shows that even professional fund managers are unable to beat the market consistently over a longer period of time, like 10–15 years.

We saw from the data above that an investor has about a 75% chance of underperforming the market in any given year which means you have a 25% chance of beating the market in any given year.

It found that 88% of active large-cap funds failed to beat the S&P 500 over the last 15 years as of the end of 2023. Even when you look at a shorter three-year period, about 80% failed to beat the benchmark.

S&P 500 Index Versus Nasdaq 100 Performance

Nasdaq 100 has significantly outperformed S&P 500 in terms of performance. Over the past 15 years, Nasdaq 100 has delivered a CAGR of around 16%, while S&P 500 has returned about 8%.

Warren Buffett Recommendation

Berkshire stock has struggled to outperform the S&P 500 index in recent years despite its outperformance in 2022.

Those companies are Microsoft, Apple, Nvidia, Amazon, Alphabet, Meta Platforms, Berkshire Hathaway, Tesla, Broadcom, and Eli Lilly.

On average, the Fidelity Contrafund has beaten the S&P 500 Index by 2.78% per year. Growth of $10,000 invested in Contrafund versus S&P 500 Index, September 17, 1990 to March 31, 2024. Total value March 31, 2024 for Contrafund was $751,828 compared to $327,447 for the S&P 500 Index.

That makes outperforming the S&P 500 on a consistent basis no small task. The one fund that has beaten the index in nine of the past 10 years is the Technology Select Sector SPDR Fund (NYSEMKT: XLK).

The S&P 500 is all US-domiciled companies that over the last ~40 years have accounted for ~50% of all global stocks. By just owning the S&P 500 you miss out on almost half of the global opportunity set which is another ~10,000 public companies.

Is there a better investment than the S&P 500?

Key Points. The S&P 500's track record is impressive, but the Vanguard Growth ETF has outperformed it. The Vanguard Growth ETF leans heavily toward tech businesses that exhibit faster revenue and earnings gains. No matter what investments you choose, it's always smart to keep a long-term mindset.

To examine the stock-picking record of active managers, I looked at the portfolio histories for all funds in the nine Morningstar Style Box categories dating to 2013 through the end of 2023. Over those 10 years, only 10% of mutual funds saw more than half of their stock picks beat the index.

Very generally, having between $50,000 and $500,000 of liquid assets to invest can be a good point to start looking at hiring a financial advisor. Some advisors have minimum asset thresholds. This could be a relatively low figure, like $25,000, but it could also be higher, such as $500,000, $1 million or even more.

The Role of Financial Advisors and Benefits of Financial Advisor Marketing. When seeking guidance, the wealthy turn to financial advisors at a much higher rate. The study reveals that 70% of millionaires work with a financial advisor, compared to just 37% of the general population.

According to J.D. Power, Edward Jones did particularly well in the investment adviser and investment performance factors while Fidelity did well with account information and account offerings.