Indexing looks particularly good this year

[Htown Harry]

Our many fans of index funds will like this bit of news:
Funds Trailing Stock Market by Most Since 1998, JPMorgan Says - Bloomberg

"Stock mutual funds are having their worst year since 1998 relative to their benchmarks, as higher volatility makes it harder to pick stocks, according to JP Morgan.

Among 2,806 funds tracked by the brokerage, 47 percent underperformed their benchmarks by more than 2.5 percentage points this year, the most since the 55 percent recorded in 1998. Only 13 percent of the funds beat the market by the same margin. The underperformance accelerated last month, with the proportion of trailing funds almost doubling from July, according to JPMorgan data..."
​

The article goes on to say this trend could be a positive for the market over the next few months:

"Since 1995, there had been nine years when more funds trailed than those that beat from Jan. 1 through Aug. 31. The market rallied in the last four months of a year in all but 2008, with the S&P 500 rising 8.5 percent on average, JPMorgan data showed."​

What they don't say is whether all of those trailing fund managers did anything to close the gap as the market rose. I'm guessing they didn't.

 

[easysurfer]

Thanks. As one who primarily just follows the indexes while investing, at least there some comfort in the ups and downs

 

[utrecht]

I wonder how the stats would look if they only looked at funds with low expense ratios and compared them to their index. We all know that indexing will always beat the avg actively managed fund, but there are funds with low expenses that beat their index most years. I'm specifically talking about Vanguard and Fidelity funds but there are others. Ive owned Fidelity ContraFund and Fidelity Low Priced Stock forever and they outperform their index by a good chunk short term and long term.

 

[LOL!]

The Vanguard Target Retirement funds (all index funds) are doing better than the IFA portfolios of DFA funds (small-cap and value-tilted) for the same stock:bond ratios this year as well.

For example, Vanguard Target 2020 with 35% bonds has YTD return of -2.1%
while the IFA55 with 35% bonds has YTD of -5.3%. It seems too much foreign, small-cap, or value have lowered returns in 2011.

 

[steelyman]

We all know that indexing will always beat the avg actively managed fund, but there are funds with low expenses that beat their index most years.

Although I really don't want to spark any debates, I am also less sure about the notion that indexing always wins out. If one can believe the Morningstar tools that report total return over various time periods, it tells me that of the funds I have in my retirement accounts, the ones that land at the bottom of the heap (by a pretty substantial amount) over a 10-year time frame are broad indexes: total stock market and international index (both Fidelity/Vanguard).

Maybe that trend will change over time, I will still keep a good amount in them regardless.

 

[Nords]

What they don't say is whether all of those trailing fund managers did anything to close the gap as the market rose. I'm guessing they didn't.

The managers might not have done anything, but their bosses probably implemented their own version of "survivor bias"...

 

[Gone4Good]

Pretty funny, actually. High volatility with a sideways or declining trend is often described as 'a stock picker's market.' Guess not.

 

[utrecht]

Although I really don't want to spark any debates, I am also less sure about the notion that indexing always wins out. If one can believe the Morningstar tools that report total return over various time periods, it tells me that of the funds I have in my retirement accounts, the ones that land at the bottom of the heap (by a pretty substantial amount) over a 10-year time frame are broad indexes: total stock market and international index (both Fidelity/Vanguard).

Maybe that trend will change over time, I will still keep a good amount in them regardless.

VTSMX which is Vanguard Total Stock Market index ranks top 18% of all funds in that category over the past 10 yrs.

VWIGX which is Vanguard International Index ranks top 16%.

These are not at the bottom of any heap that I know of. If they are at the bottom of whatever heap of funds you have available in your 401k, then congrats to you.

 

[steelyman]

VTSMX which is Vanguard Total Stock Market index ranks top 18% of all funds in that category over the past 10 yrs.

VWIGX which is Vanguard International Index ranks top 16%.

These are not at the bottom of any heap that I know of. If they are at the bottom of whatever heap of funds you have available in your 401k, then congrats to you.

As I said, my wish is not to ignite debates. From what I read, there is plenty of that over at a whole 'nother site

But I think I might need to cough up the annualized 10-yr total return numbers to which I referred, as my earlier post was admittedly vague. So here are the top and bottom five funds in my case:

Emerging Markets	14.36%
New Markets Income	11.93%
Permanent Portfolio	11.84%
Capital & Income	9.79%
Real Estate Investment	9.79%
Fid US Total Bond Index	5.47%
Fid Intl Index	4.87%
Fid Brokerage & Investment	3.93%
Vanguard Total Stock Mkt	3.72%
Fid Total Stock Mkt	3.65%

I am of course as the mercy of trusting the numbers that MS Portfolio X-Ray reports, and who knows if a longer time period might yield different results (they do offer 15 years, but most of these funds do not appear in that case).

NB: I am not saying that anyone should buy or bail in any of these!
​

 

[GregLee]

VTSMX which is Vanguard Total Stock Market index ranks top 18% of all funds in that category over the past 10 yrs.

VWIGX which is Vanguard International Index ranks top 16%.

These are not at the bottom of any heap that I know of.

They're not?? How about the top 18%/16% of funds in "that category" (whatever exactly this is)? Those two funds are presumably at the bottom of those heaps. So you do, after all, know of such heaps.

 

[GregLee]

I am of course as the mercy of trusting the numbers that MS Portfolio X-Ray reports, and who knows if a longer time period might yield different results ...
​

But, as indexing enthusiasts will doubtless soon point out, in your comparison, you don't appear to be controlling for risk. Naturally, you expect more risky funds to give higher returns.

 

[steelyman]

But, as indexing enthusiasts will doubtless soon point out, in your comparison, you don't appear to be controlling for risk. Naturally, you expect more risky funds to give higher returns.

Good point, Greg. I also didn't indicate how much I have in each of those funds. Turns out most of it is in the indexes.

 

[utrecht]

Wow. The emerging markets fund beat the Vanguard Total Stock Market index fund. You're right, indexing is obsolete!

My chocolate cake tastes better than your Nyquil. I guess I should eat cake next time I get sick.

 

[Gone4Good]

Wow. The emerging markets fund beat the Vanguard Total Stock Market index fund. You're right, indexing is obsolete!

My chocolate cake tastes better than your Nyquil. I guess I should eat cake next time I get sick.

 

[DblDoc]

But you all are overlooking the most significant finding in that whole table. The Vanguard TSM is beating the Fidelity one by 7 whole basis points! Whoohoo! Go Vanguard!

DD

 

[photoguy]

But you all are overlooking the most significant finding in that whole table. The Vanguard TSM is beating the Fidelity one by 7 whole basis points! Whoohoo! Go Vanguard!

DD

7bp doesn't sound like much but compared to a 4% w.r. that's almost 2% for free!

 

[donheff]

Just read that Bill Gross acknowledged calling the demise of Treasuries wrong. He actively pulled out a while back and underperformed his index by 1.26%.