The Last 52 Weeks in Review

As we are nearly one year from the peak of the S&P 500 this October, I want to take a look at how Exchange Traded Funds (ETFs) did compared to their mutual fund counterparts.  To be clear I want to show how, in all market conditions, indexing will provide better long term results with less risk.  As I will show, investing in the average mutual fund has not, as a strategy, beaten investing in low cost index funds of the same category.  Most investors, investing their capital in diversified funds do not believe in dancing in and out of the stock market, trying to sell at market highs and buy in a market lows, so the question really is, what kind and which funds are best for me. Take a look at this report which compares category averages of Open End US mutual funds (small, medium, and large) to an ETF in the same category (fees are not included for Mutual fund category and are included for the ETFs).  Click Here to see our chart open-end-funds-v-etfs

Taking a snapshot approach at the last 52 weeks,

39% of large-cap mutual funds beat the S&P 500 Index over the last 12 months.  47% of these funds beat the S&P 500 over a time period a lttile less than the last 10 years.

10% of mid-cap mutual funds beat the S&P 400 Index over the last year.  The Index returned -16.7% compared to -23.2% of the average mutual fund.

Less than 20% of small cap managers beat the Russell 2000 Index.  The small cap area is usually a place where managers are more likely to beat the index.  However, the Russell 2000 tracks some very small stocks that typical managers and investors stay away from because they are very lightly traded and there tends not to be as much information about them.  Money flowing into ETFs that track the Russell 2000 are forced to buy these extremely small stocks and in doing so drive up the price.

These are facts to consider especially when taking fees into account.

data source:  Wall Street Journal

By Published On: October 2, 2008

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