As part of your overall financial plan, picking funds that beat their benchmarks is difficult. Recent good performance tends not to persist making it even harder.
Each year, Dimensional analyzes returns from a large sample of US-domiciled mutual funds. Their objective is to assess the performance of mutual fund managers relative to their benchmarks. The most recent study updates results to the end of 2019.
The evidence shows that a majority of fund managers in the sample failed to deliver benchmark-beating returns after costs. The research provides a strong case for just following markets when making investment decisions.
• Outperforming funds were in the minority of those tested.
• Strong track records failed to persist over time.
• High costs and excessive turnover may have contributed to underperformance.
• Managers attempting to outguess market prices may incur high costs that raise the barrier to outperforming an index.
• Successful fund investing involves more than picking a top-performing fund from the past.
• Consider a fund’s investment philosophy, robustness in portfolio design, and attention to costs, among other factors.