The Truth About Mutual Funds: Fees vs. Returns
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Re: The Truth About Mutual Funds: Fees vs. Returns
#2It is surprising that mutual fund returns, after fees, were better than the S&P.
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Re: The Truth About Mutual Funds: Fees vs. Returns
#6Hedge funds are in the same situation, and their fees are even higher - fees of 2% of total Assets Under Management PLUS 20% of any gains are common. For all of that, they have experienced challenges beating indexes as well (down 6.4% for 2011, as measured by the Dow Jones Credit Suisse All Hedge Index - according to the article linked below).
http://www.forbes.com/sites/greggfisher/2012/01/23/chasing-t...
Re: The Truth About Mutual Funds: Fees vs. Returns
#7If you're interested in a very good exploration of this topic(in the broader context of managing a large endowment), David Swensen's book Pioneering Portfolio Management is worth a read. Swensen manages Yale's very successful endowment and has been a thought leader in investment management. He is also an outspoken critic of actively managed mutual funds and supports his argument with solid data.
Re: The Truth About Mutual Funds: Fees vs. Returns
#8It is surprising that mutual fund returns, after fees, were better than the S&P.
It is hard to tell unless all the funds in question only picked S&P tracked instruments. It could be for example, that some funds invested heavily internationally so international market in general delivered better returns than S&P tracked market?
Re: The Truth About Mutual Funds: Fees vs. Returns
#9Comparing the returns of a basket of all mutual funds to the returns of one large-cap stock index over a highly volatile period isn't very meaningful. The mutual funds weren't even 100% equities, so you're partially comparing the returns of entirely different asset classes.
As the article mentions, it's impossible to invest in the total mutual fund market. There is no index fund of mutual funds, nor is there any need when you can diversify across the entire market through existing index funds.
See also The Arithmetic of Active Management: http://www.stanford.edu/~wfsharpe/art/active/active.htm
Re: The Truth About Mutual Funds: Fees vs. Returns
#10"We chose to look at this figure instead of the compounded return because individual investors often move from one fund to another."
Comparing returns over 10 years without re-investing dividends is just not right.