American Funds says that some actively managed funds are better than passive (index) funds. Specifically, the company argues that actively managed funds with low expense ratios and high levels of manager ownership (a group that Amercian Funds calls “Select Active”) outperform their index peers. The outperformance is evident over one-, three-, five-, and 10-year rolling periods. I’ll discuss the returns first, followed by the criteria and the caveats to the analysis.
Select Active funds topped the S&P 500 index by an average of 0.30% over rolling one-year periods. Over longer periods, the annualized average advantage for the Select Active funds was 0.70% for rolling three-year periods, 1.04% for rolling five-year periods and 1.07% for rolling 10-year periods. Those funds topped the large-cap index 55%, 64%, 77% and 95% of the time during the respective periods. The analysis was run from January 1996 through December 2015. (A summary of the findings is available on the American Funds website.)
More on AAII.com
- Qualitative Guidelines for Mutual Fund Selection – Beyond the numbers, the frequency of communication, the portfolio holdings and the tenure of the manager can help you assess the attractiveness of a fund.
- The Truth About Top-Performing Mutual Funds – Even the best mutual fund managers will incur periods when they underperform, but there is a reward for sticking with them.
- How Likely Is a Market Downturn? – AAII president John Bajkowski explains why you shouldn’t worry about whether the answer to this question is “very likely” or “not in the foreseeable future.”
- What Traits Do You Look for in a Mutual Fund? – See how members responded on the AAII.com Discussion Boards.
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The Week Ahead
As a reminder, the U.S. financial markets will be closed tomorrow in observance of Good Friday. On behalf of everyone at AAII, I wish those who are observing the holiday a Happy Easter.
A small number of S&P 500 member companies will report earnings next week: Lennar Corp. (LEN) and McCormick & Co. (MKC) on Tuesday and Carnival Corp. (CCL), Micron Technology (MU) and Paychex (PAYX) on Wednesday.
The first economic reports of note will be January international trade data, February personal spending and income and the National Association of Realtors’ February pending home sales index. These will be released on Monday. Tuesday will feature the January Case-Shiller home price index and the Conference Board’s March Consumer Confidence index. The March ADP Employment Report will be released on Wednesday. Thursday will feature the March Chicago PMI. March employment data (including the change in nonfarm payrolls and the unemployment rate), the ISM’s March manufacturing survey, the University of Michigan’s final March consumer sentiment survey and February construction spending will be released on Friday.
Fed Chair Janet Yellen will speak on Tuesday. Also speaking will be San Francisco president John Williams and Dallas president Rob Kaplan on Tuesday; Chicago president Charles Evans on Wednesday and Thursday; New York president William Dudley on Thursday; and Cleveland president Loretta Mester on Friday.
The Treasury Department will auction $26 billion of two-year notes on Monday, $34 billion of five-year notes on Tuesday and $28 billion of seven-year notes on Wednesday.
The AAII Journal’s annual tax guide helps investors stay up to date with the ever-changing tax regulations, includes last-minute reminders for 2015 and provides tax strategies for 2016. It will help you understand your current tax liability and what you can do to potentially lower your tax bill this year and next year. Start your AAII membership today to get The Individual Investor’s Guide to Personal Tax Planning 2015, and to benefit from everything AAII has to offer.