Here’s how “professional” investors have done against their relevant indices over the past 1, 5 and 10 year periods:

So, what is the chart telling us…let’s take Large Cap Funds first. These are funds managed by investment professionals investing in larger companies (think Coca-Cola, Google, Apple) who usually charge about 1% of assets (each year) for that privilege. So, how have they done? Well, 66% were outperformed (i.e. that is, fell short) of the S&P500 over a one year period while 84% fell short of the index based on their five year performance and 82% didn’t match the index over a 10 year period. Unfortunately, this isn’t an anomaly for Large Cap funds either.

Questions for students:

1. Which actively managed funds did best over a one year period vs. the index? Answer: International Funds, in which, 27% were outperformed by the benchmark (so 73% outperformed the S&P700 index).
2. What is the pattern that you see as you compare performance from one year to five and ten year periods? What might explain this?
3. Many people believe that smaller companies (small cap stocks) often provide greater investing opportunities for professionals since less people on Wall Street pay attention to them. Does the data confirm this when you look at how Small Cap funds perform vs. the S&P600 index?
4. Is 10 years an adequate period to measure performance? Why or why not?
5. What is the major takeaway from these various graphs? How difficult is it to find an actively managed fund that will beat an index in the future?

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Want additional charts/graphs/data for your students to analyze? Check out NGPF’s latest Data Crunch!

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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