17 Managed Funds That Have Beaten The Indexes Over A 17 Year Period

Are you among those who believe that index funds/ETFs have proven themselves to be better performers than managed funds?

Like any in debate in which actual factual data can be examined to either help prove or disprove something, in the following article, extensive comparative performance results will be presented that will be hard for people who believe in the presumed inferiority of managed funds to explain. In fact, the results presented below, upon careful consideration, should be regarded as perhaps game-changing to what many investors have come to believe. So let's jump right into this data.

If index funds are superior performers to managed funds, the average mutual fund which includes all diversified funds should, when examined over a long period, obviously tend to do more poorly performance-wise. So is this true?

While I can't examine all index funds, I selected two of the most popular ones, the Vanguard Total Stock Market Index (VTSMX) which represents the entire US stock market, and the Vanguard Total International Stock Index (VGTSX) which represents the entire rest of the world excluding US stocks. In fact, most other broad stock market index funds as well as ETFs should achieve just about the same performance results, less very minor difference in expense ratios.

On the other hand, there is available published data on the average performance of all diversified US stock funds as well as all International (non-US) stock funds. This data is published monthly in the Wall Street Journal.

By comparing the returns of each of these two index funds with the returns of the average US and International fund, one can determine, over the course of any given year, which did better, the index or the average of all similar types of funds.

To prove the superiority of index funds, one would expect to see a pattern of better performance vs. the average fund of its comparable type.

But, to be convincing, such comparisons, would need to encompass a long stretch of time. This is because while one measure might be superior for a relatively short number of years, the other might be superior over another stretch. With that in mind, examine the following:

Comparing Yearly Broad US Stock Market Index Performance with That of Average US Diversified Fund

  Year   Index (VTSMX)
Performance
Average Fund
Performance
Difference
(+ = index outperforms)
2016 12.5 10.8 +1.7
2015 0.3 -2.1 +2.4
2014 12.4 7.6 +4.8
2013 33.4 32.3 +1.1
2012 16.3 13.9 +2.4
2011 1.0 -2.9 +3.9

Note: All performance figures in this table and those below are total return percentages for the year shown.

Indeed, each year between 2011 and 2016, the US stock index fund did consistently better than the average US stock fund. The average difference was +2.7%. Given this wide degree of outperformance for the index, it starts to become understandable why many investors are now convinced that index funds are clearly superior in performance to the average fund, many of which are managed funds, not passive indexes.

But data from the past six years alone are not sufficient to conclude that an index fund will almost always come out ahead over other time periods. If we examine the same data going further back to 2000, we find a somewhat different pattern, with the average fund actually coming out a little ahead of the index, although on an irregular basis depending on the specific year. In this period from 2000 to 2010, encompassing 11 years, the index fund comes out behind the average fund by an average of -0.8% per year. The following table shows the comparisons:

  Year   Index (VTSMX)
Performance
Average Fund
Performance
Difference
(+ = index outperforms)
(- = average fund outperforms)
(0 = neither measure outperforms)
2010 17.1 17.1 0
2009 28.7 32.0 -3.3
2008 -37.0 -38.7 +1.7
2007 5.5 6.6 -1.1
2006 15.5 12.6 +2.9
2005 6 6.7 -0.7
2004 12.5 12 +0.5
2003 31.4 32.4 -1.0
2002 -21 -22.4 +1.4
2001 -11 -10.9 -0.1
2000 -10.6 -1.7 -8.9
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