Mutual funds that beat the market

Discussion in 'Economics' started by AshanD, Oct 1, 2007.

  1. AshanD


    ...consistently. I keep hearing that the market beats around 90% of the funds so I am wondering if that last 10% is a bunch of one year wonders or not.

    Do long term performers exist? I'm talking about 10-20 year track records where the fund outperformed the market consistently (doesn't have to be every year though)
  2. The problem with your request is that mutual funds have extremely large and crafty marketing departments that are very good at manipulating the numbers. While I was a broker/advisor, I was amazed at what passed NASD approval.

    Some 'tricks of the trade':
    > Have a bad fund? Just get rid of it. Have it gobbled up by another fund and make that bad history just disappear.

    > Have a great fund? Highlight the years where the fund did well and make sure those numbers are everywhere.

    > Have a fund that had ONE great year? No problem either - show the 'cumulative' return assuming you owned the entire year that the fund did well. And if need be, you can always merge this fund with another, but still keep the returns when the fund was good.

    > Always make sure the numbers you are looking at are net/net - net of ALL possible fees, including the 'hidden' fees such as trading fees, 12b-1 fees, add'l compensation arrangements with brokerage firms to sell your stuff, etc.

    In the end, I realized by the time I left the brokerage firm that the overwhelming majority of people would do much better in ETF's.

    I know that doesn't directly answer your question, but I think it does. While there are some gems out there, many are closed and/or have high minimums. And many are in fact one hit wonders.
  3. Mutual funds "are" the market. So they can't beat themselves. Now factor in transaction costs like commissions, management fees, and operating costs, and instantly most funds perform less than the market.
  4. A financial adviser at a financial advisor's convention in San Diego told me that American Funds is one such fund, but isn't available to the general public, not sure how BS it is or not.
  5. MGJ


    I enjoyed the attached .pdf presentation by Cohen of the Harvard Business School. Slide 5 (reproduced below) is apropos of this discussion.

  6. American Funds is just a fund company, like Fidelity and Vanguard. The only stipulation is that American Funds are ONLY sold through brokers, which means you will pay a commission to buy them. American Funds are one of the better groups out there, but not sure how many of their funds consistently beat the markets as the OP asked.

    There's the site for more info. Just keep in mind you will pay some sort of broker commission IN ADDITION to the other fees and expenses.
  7. MGJ - that's a really interesting post there, thanks for sharing. That's what I was going after but didn't have the file in front of me.
  8. For long term investing you can't beat index funds; low mgmt costs and portfolio turnover also help keep taxes low, another hidden cost of mutual funds. Vanguard pioneered low cost index funds, equivalents are also offered by fidelity.

    To follow is a moderate risk well diversified Vanguard index fund/etf portfolio.

    (40%) vtsax - emulates wilshire 5000 broad domestic
    (05%) vtmsx - emulates russell 2000 small cap
    (10%) veusx - western europe, not true index but close
    (05%) vpacx - pacific, again not true index but close
    (25%) vbtlx - broad bond fund - 5% return, good for bond allocation
    (05%) vwehx - corporate bond exposure
    (05%) vnq - reit fund, not doing well lately
    (05%) vwo - good etf emerging markets
  9. hw - good mix there and when I was a broker, I would have allocated to the same type of combo.

    Since becoming much more active in the day-to-day moves however, I'm not so sure that a 'properly' balanced mix of funds is best in the long run. Like you said, the reit fund is not doing well and there's a few others that are just ok. I would suggest monitoring the corresponding ETF and incorporate some TA to find the best funds. And if that's the case, I would just stick with the ETF over the fund.
  10. This is why, for over 10 years, we have been preaching ETF's at our college investment-type classes. No sense in paying a mutual fund manager to underperform the market, when you can buy any aspect of the market these days. Market goes up, you make money...if it goes down, you lose money...but you don't make less or lose more as with the funds.

    Brownsfan has it right in the beginning of his first post.


    #10     Oct 2, 2007