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Most active funds focused on U.S. large-cap stocks failed to outperform the S&P 500 index last year, extending a track record of underperformance, according to S&P Dow Jones Indices.
In 2023, 60% of all active large-cap U.S. funds lagged behind the S&P 500, according to the S&P Dow Jones Indices Scorecard report. The S&P 500 rose 24.2% last year for a total return of 26.3%, according to FactSet data.
The cost of investing in active funds is typically higher than in passive funds that simply track a widely followed U.S. stock index, such as the S&P 500. Investors may pay money for an active fund in the hope that the manager running the active fund will be willing to invest in them. Deliver profits that exceed the market.
However, the majority of U.S. large-cap funds have underperformed the S&P 500 SPX in each of the past 14 years, according to a report from S&P Dow Jones Indices.
“It’s very difficult to beat the benchmark, and it gets especially difficult over time,” Anu Ghanty, head of U.S. index investment strategy at S&P Dow Jones Indices, said in a phone interview.
Ganti said the latest scorecard covers both active and exchange-traded funds and shows a “very similar picture across the board” in terms of underperformance against benchmarks.
Actively managed large-cap U.S. funds had little trouble beating the S&P 500 last year due to a surge in big tech stocks, including giant Apple.
AAPL
,
Microsoft Corporation
MSFT
,
Google’s parent company Alphabet Inc.
Google
,
Amazon.com Inc.
AMZN
,
Nvidia Inc.
NVDA
,
tesla company
TSLA
and Facebook’s parent company, Meta Platforms Inc.
meta
— propelled the index to significant returns.
The percentage of these funds that underperformed in 2023 was slightly lower than the average annual rate of 64% over the 23-year history of the scorecard tracked by S&P Dow Jones Indices.
Last year’s stock market rally followed a turbulent 2022 in which actively managed U.S. large-cap funds performed well against the S&P 500 but still underperformed by 51%, according to the report. It is something.
read: ‘Small majority’ of actively managed large-cap US mutual funds will fail to outperform S&P 500 in 2022
The S&P 500 plunged in 2022 as the Federal Reserve’s aggressive interest rate hikes aimed at stemming a spike in inflation rattled stock and bond markets.
According to S&P Dow Jones Indices, 2022 was the best year for active large-cap U.S. stock funds since 2009, when just 48% of funds underperformed the S&P 500 index.
The S&P 500’s decline of more than 19% in 2022 marked the index’s worst year since 2008, when markets were shocked by the global financial crisis. After the Federal Reserve cut interest rates to near zero in late 2008 to support the economic recovery, the S&P 500 rebounded in 2009, soaring more than 23%, according to FactSet data.
struggling for a long time
Looking more broadly at 22 stock categories, S&P Dow Jones Indices found that fund managers tend to have a harder time beating their benchmarks over longer time horizons.
Ganti said there is no category where a majority of active managers outperformed over 15 years.
But some categories of equity funds have had greater success in the short term, he said. A bright spot in 2023 is small-cap value, a category in which the majority of active equity fund managers outperformed the S&P Small-Cap 600 Value Index, according to the report.
Only 37% of funds in this category underperformed their benchmark last year, and 48% of all small-cap managers lagged behind the S&P SmallCap 600 Index’s SML, according to the report.
Meanwhile, in the more closely watched U.S. large-cap category, the iShares Core S&P 500 ETF IVV and Vanguard S&P 500 ETF VOO each rose 6.7% this year through Tuesday, according to FactSet data. Both passive funds have an expense ratio of just 0.03%.
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