The answers to your question are well-documente: statistics, benchmarks, survivor bias, and fund bloat.
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Originally Posted by utrecht
All I used to hear was that actively managed funds would never beat an SP500 index fund like VFINX long term. People were flabbergasted by one fund that beat the SP500 year after year (7 years in a row I think it was). I forget the name but I think Bill Miller was the portfolio manager.
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Bill Miller hung on just long enough to vanquish a coin-flipping monkey and then got his record stuffed down his throat. I think he's at least as good as Peter Lynch and maybe in Buffett territory but his downfall was not closing the fund soon enough. The guys with the best world-beating records are the ones who don't have to accept new contributions.
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Originally Posted by utrecht
The biggest portion of my retirement funds are in Fidelity Contrafund and Fidelity Low Price stock which have handily trounced VFINX the past decade.
My 457k account has beaten SP500 (VFINX) each and every year for the past 8 years that Ive been following it this closely and it wouldve done better without the percentage VFINX that I have.
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I don't follow mutual funds anymore so I don't know the answer to this question-- how closely do Contrafund & Low-Price Stock and your 457 resemble VFINX or the S&P500? My funds have beaten the snot out of double-inverse leveraged beever-cheeze future credit swaps, but nobody cares because they have nothing in common. Most fund's comparisons to the S&P500 are about as meaninful as apples vs oranges. Before you decide on a fund you'd want to check how well it matches the "benchmark" that the fund company is shouting about.
Two other things to think about
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- Funds that don't outperform are usually quietly merged or shut down. The funds you're reading about have survived this "survivor bias" and so the number of funds "beating" the S&P500 is artifically inflated by not counting the carcasses strewn along the trail.
- As soon as an active manager meets with success, they're flooded with performance-chasing dumb money. At that point it doesn't matter how smart or how well-staffed they are-- it's a race to get the money invested before the fund's returns sink to the rates of the money-market accounts that the new contributions are piling up in. It's hard to believe that a manager would continue to thoughtfully research a stock and patiently wait months for an entry point when billions are piling up in the corner and the manager's bosses are tapping their feet with impatience. See my earlier comments on Bill Miller.
How many funds have you heard of that completely close, not just to new investors but to all new contributions? Even rarer, how many have liquidated some holdings and returned the profits to investors in order to return to a more reasonable size?
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Originally Posted by utrecht
Ive been wanting to sell something and diversify further recently and all of the sudden I'd rather sell VFINX than FCNTX or FLPSX.
Thoughts?
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Yeah, why do you want to sell anything and diversify further?
If your asset allocation was good enough last month, should it be good enough next month?
I'm asking the devil's advocate questions because you're seeming to be sucked in by the active-passive debate (and other classic marketing tricks) while not saying much about where your current AA is, what your new AA needs to be, and why it needs to be that way. Maybe it's better to pick the AA and
then see what funds are appropriate.