6 ms·

Mutual funds that consistently beat the market. Not one of 2,132

30 points by elsewhen 4y ago

ggm 4y ago
Would it not be terrible if this wasn't true? The implications of a persisting ahead of market fund are not entirely clear to me, but it feels like it's distorting the casino take on the roulette wheel.
thecleaner 4y ago
But which market index ? Nasdaq, DJI, DAX, Sensex ? Article is paywalled so I can't quite tell.
- maxbond 4y ago
  Non-paywalled: https://web.archive.org/web/20221205200442/https://www.nytimes.com/2022/12/02/business/stock-market-index-funds.html https://web.archive.org/web/20221205200442/https://www.nytim...
- maxbond 4y ago
  Doesn't look like the index really matters. > The team selected the 25 percent of the funds with the best performance over the 12 months through June 2018. Then the analysts asked how many of those funds remained in the top quarter for the four succeeding 12-month periods through June 2022. > The answer was none. So it's more that being a top-performing fund in one year doesn't predict you'll be a top-performing fund in the next. 2k is a pretty significant sample size (though it's functionally less since many are tracking the same benchmarks & so should be highly correlated), large enough that we should anticipate dumb luck.
- nescioquid 4y ago
  Also can't access the story, but it seems safe to assume there are no funds that beat any index, no? The headline mentions the market, so if there were at least one fund that beat at least one of the market indices, it would seem difficult to maintain the claim. Or are you responding to the blurb before the paywall? > No actively managed stock or bond funds outperformed the market convincingly and regularly over the last five years. Index funds have generally been better. So index funds have generally done better than managed funds in a consistent way. It might be more interesting to know which managed funds (if any) did better than an index fund, but I'm guessing the real purpose of the article is to suggest you may as well just buy the index funds.
- awinder 4y ago
  Corresponding index to the fund, usually called the benchmark. US Large cap mutual funds commonly compare against sp500. A small cap index might compare against Russell 2000. MSCI has a number of all-world indexes that a global fund could compare to.
maxbond 4y ago
Interestingly, even when a fund does beat the market, their investors usually don't. When a fund is really hot people jump in, and when that performance turns out not to be reproducible, they jump out. This leads to buying high and selling low. And sometimes all that money coming in makes the fund really lever up, and make a big, big loss. See for example the collapse of hedge fund Amaranth Advisors.
halpmeh 4y ago
Berkshire Hathaway has beaten the market over the last 5 year. They're basically a mutual fund combined with a private equity firm. But it seems like the criteria used is a bit weird: > The team selected the 25 percent of the funds with the best performance over the 12 months through June 2018. Then the analysts asked how many of those funds remained in the top quarter for the four succeeding 12-month periods through June 2022. That's different than not beating the market. > And over a full 20-year period ending last December, fewer than 10 percent of active U.S. stock funds managed to beat their benchmarks. So some firms do beat the market.
- maxbond 4y ago
  If some firms beat their benchmarks, but no firm is consistently in the top bracket, don't you think that suggests it's noise?
  - halpmeh 4y ago
    They say later on that some firms do beat their benchmark over a 20 year period, so I don't think it's just noise.
    - maxbond 4y ago
      You mean this part? > Some actively managed funds did better than the overall market over the last 15 or 20 years. Though they were unable to do so consistently year after year, they had good stretches, and those periods were strong enough to make them outperform over the entire span. Such funds may well be worth owning. > “Those that have managed to do that are impressive,” Mr. Edwards said. “But which funds will be able to do it over the next 20 years?” Unfortunately, we don’t know. If you owned that fund for 20 years you'd beat the benchmark. If you missed a few crucial moments - you wouldn't. It's really easy to get into the fund after a good year and leave after a bad year. The risk required for those big gains also sometimes results in big losses. Other times funds cheat, like Renaissance. They certainly had lots of quantitative innovations, but a huge part of their advantage was not paying their taxes. They settled with the IRS for 7 billion dollars. For the record, I don't think literally all funds doing well is noise, but the evidence seems to consistently bear out that most of the time it is.
metadat 4y ago
Alternatively: https://archive.today/Rm7Uz https://archive.today/Rm7Uz https://web.archive.org/web/20221205200442/https://www.nytimes.com/2022/12/02/business/stock-market-index-funds.html https://web.archive.org/web/20221205200442/https://www.nytim...
adam_arthur 4y ago
There are definitely funds that beat the market over long stretches of time. SCHD beats SPY total returns over the past few years, for example. Its an ETF, but could just as well be a passive mutual fund. Many CEFs do as well. Not sure the conclusion drawn here is accurate
- awinder 4y ago
  SCHD is a Dow Jones U.S. Dividend 100 Index tracker, that example just compares performance of 2 indices. Beating the market would refer to a fund (closed/open doesn’t really matter) that beat its corresponding benchmark.
  - adam_arthur 4y ago
    You can create a rules based index out of anything. Defining a strategy and making an index out of it doesn't invalidate the strategy. When people say "the market", they are referring to the S&P 500. If a rules based strategy beats the S&P500, then it is outperforming the market. If it's offered as a mutual fund, then that fund is beating the market too
    - maxbond 4y ago
      Let's say I manage an ETF offering exposure to Fictionaland, a booming economy that's difficult for investors to access otherwise. My fund returns 15% over a given period and the S&P500 only returns 10%. Am I beating the market? Am I a good ETF manager? Would it change your mind if I told you the Fictional 500, the index my ETF tracks, had returned 30% over that same period? Would you maybe have some questions about how I managed my ETF?
      - adam_arthur 4y ago
        I can open an actively managed ETF tomorrow where I manually trade my portfolio such that it matches a passive index exactly. In fact I don't even have to tell anybody that that's my strategy or approach. If that passive index outperforms the S&P500, then my actively managed ETF also outperformed the market. Looking at the 500 largest(ish) companies in general is an arbitrary rules based strategy anyway. There's nothing inherent in the number 500 that dictates it will outperform vs other rules based strategies.
schemester 4y ago
Of course a mutual fund isn’t going to beat the market in each year. It would have to time the market perfectly through what we’ve gone through. That involves placing bets on other people’s opinions of companies instead the company itself.

30 points by elsewhen 4y ago

ggm 4y ago

Would it not be terrible if this wasn't true? The implications of a persisting ahead of market fund are not entirely clear to me, but it feels like it's distorting the casino take on the roulette wheel.

thecleaner 4y ago

But which market index ? Nasdaq, DJI, DAX, Sensex ? Article is paywalled so I can't quite tell.

maxbond 4y ago
Non-paywalled: https://web.archive.org/web/20221205200442/https://www.nytimes.com/2022/12/02/business/stock-market-index-funds.html https://web.archive.org/web/20221205200442/https://www.nytim...
maxbond 4y ago
Doesn't look like the index really matters. > The team selected the 25 percent of the funds with the best performance over the 12 months through June 2018. Then the analysts asked how many of those funds remained in the top quarter for the four succeeding 12-month periods through June 2022. > The answer was none. So it's more that being a top-performing fund in one year doesn't predict you'll be a top-performing fund in the next. 2k is a pretty significant sample size (though it's functionally less since many are tracking the same benchmarks & so should be highly correlated), large enough that we should anticipate dumb luck.
nescioquid 4y ago
Also can't access the story, but it seems safe to assume there are no funds that beat any index, no? The headline mentions the market, so if there were at least one fund that beat at least one of the market indices, it would seem difficult to maintain the claim. Or are you responding to the blurb before the paywall? > No actively managed stock or bond funds outperformed the market convincingly and regularly over the last five years. Index funds have generally been better. So index funds have generally done better than managed funds in a consistent way. It might be more interesting to know which managed funds (if any) did better than an index fund, but I'm guessing the real purpose of the article is to suggest you may as well just buy the index funds.
awinder 4y ago
Corresponding index to the fund, usually called the benchmark. US Large cap mutual funds commonly compare against sp500. A small cap index might compare against Russell 2000. MSCI has a number of all-world indexes that a global fund could compare to.

maxbond 4y ago

Interestingly, even when a fund does beat the market, their investors usually don't. When a fund is really hot people jump in, and when that performance turns out not to be reproducible, they jump out. This leads to buying high and selling low. And sometimes all that money coming in makes the fund really lever up, and make a big, big loss. See for example the collapse of hedge fund Amaranth Advisors.

halpmeh 4y ago

Berkshire Hathaway has beaten the market over the last 5 year. They're basically a mutual fund combined with a private equity firm. But it seems like the criteria used is a bit weird: > The team selected the 25 percent of the funds with the best performance over the 12 months through June 2018. Then the analysts asked how many of those funds remained in the top quarter for the four succeeding 12-month periods through June 2022. That's different than not beating the market. > And over a full 20-year period ending last December, fewer than 10 percent of active U.S. stock funds managed to beat their benchmarks. So some firms do beat the market.

maxbond 4y ago
If some firms beat their benchmarks, but no firm is consistently in the top bracket, don't you think that suggests it's noise?
- halpmeh 4y ago
  They say later on that some firms do beat their benchmark over a 20 year period, so I don't think it's just noise.
  - maxbond 4y ago
    You mean this part? > Some actively managed funds did better than the overall market over the last 15 or 20 years. Though they were unable to do so consistently year after year, they had good stretches, and those periods were strong enough to make them outperform over the entire span. Such funds may well be worth owning. > “Those that have managed to do that are impressive,” Mr. Edwards said. “But which funds will be able to do it over the next 20 years?” Unfortunately, we don’t know. If you owned that fund for 20 years you'd beat the benchmark. If you missed a few crucial moments - you wouldn't. It's really easy to get into the fund after a good year and leave after a bad year. The risk required for those big gains also sometimes results in big losses. Other times funds cheat, like Renaissance. They certainly had lots of quantitative innovations, but a huge part of their advantage was not paying their taxes. They settled with the IRS for 7 billion dollars. For the record, I don't think literally all funds doing well is noise, but the evidence seems to consistently bear out that most of the time it is.

metadat 4y ago

Alternatively: https://archive.today/Rm7Uz https://archive.today/Rm7Uz https://web.archive.org/web/20221205200442/https://www.nytimes.com/2022/12/02/business/stock-market-index-funds.html https://web.archive.org/web/20221205200442/https://www.nytim...

adam_arthur 4y ago

There are definitely funds that beat the market over long stretches of time. SCHD beats SPY total returns over the past few years, for example. Its an ETF, but could just as well be a passive mutual fund. Many CEFs do as well. Not sure the conclusion drawn here is accurate

awinder 4y ago
SCHD is a Dow Jones U.S. Dividend 100 Index tracker, that example just compares performance of 2 indices. Beating the market would refer to a fund (closed/open doesn’t really matter) that beat its corresponding benchmark.
- adam_arthur 4y ago
  You can create a rules based index out of anything. Defining a strategy and making an index out of it doesn't invalidate the strategy. When people say "the market", they are referring to the S&P 500. If a rules based strategy beats the S&P500, then it is outperforming the market. If it's offered as a mutual fund, then that fund is beating the market too
  - maxbond 4y ago
    Let's say I manage an ETF offering exposure to Fictionaland, a booming economy that's difficult for investors to access otherwise. My fund returns 15% over a given period and the S&P500 only returns 10%. Am I beating the market? Am I a good ETF manager? Would it change your mind if I told you the Fictional 500, the index my ETF tracks, had returned 30% over that same period? Would you maybe have some questions about how I managed my ETF?
    - adam_arthur 4y ago
      I can open an actively managed ETF tomorrow where I manually trade my portfolio such that it matches a passive index exactly. In fact I don't even have to tell anybody that that's my strategy or approach. If that passive index outperforms the S&P500, then my actively managed ETF also outperformed the market. Looking at the 500 largest(ish) companies in general is an arbitrary rules based strategy anyway. There's nothing inherent in the number 500 that dictates it will outperform vs other rules based strategies.

schemester 4y ago

Of course a mutual fund isn’t going to beat the market in each year. It would have to time the market perfectly through what we’ve gone through. That involves placing bets on other people’s opinions of companies instead the company itself.