Active mutual funds can’t measure up to indexes — again

Yet this report, now with 20 years of data, tells us something that every investor should know.assiduously examines the proportion of actively managed mutual funds that have managed to beat the index by which they are measured.

As a result, our tendency to put a high value on recent figures can lead us to believe that management has a shot at earning its keep. It’s a very bad bet. Only 38.46% of large-cap value funds, for instance, underperformed their index in 2021. But over the past 10 years, 89% failed. Similarly, while only 9.4% of investment-grade long-term bond funds failed to beat their index in 2021, a whopping 98% failed over the past 10 years.

The report notes, for instance, that about 5% of funds in all categories “were merged or liquidated” in 2021. The fatality rate is much higher over longer periods. Nearly 70% of all domestic equity funds and 66% of all international funds disappeared over the past 20 years. And, yes, it’s pretty much the same for fixed-income funds. It’s also important to note that the past 20 years wasn’t exactly smooth sailing. Yet “buy and hold” beat the fancy folks.

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