582 US Large cap funds outperformed S&P 500 over the last 10 years

Published: March 27, 2021 at 10:41 am

Last Updated on January 1, 2024 at 11:59 am

Over the past few years, freefincal has regularly reported how hard it has been for Indian fund managers to beat the Nifty/Sensex and the Nifty Next 50. Did you know that 582 US large cap mutual funds have outperformed the S&P 500 over the last ten years! In this article, we present some results from Morningstar’s premium mutual fund screener.

There are 6471 funds listed under “All US equity”. Out of these, 3474 of them have an equity style box label of “large”. This means they are predominantly large cap funds making the S&P 500 total returns (TR) an appropriate benchmark. The last 10-year trailing returns of the S&P 500 TR is 14.02%. This is the bare index return (no expenses/taxes).

As of March 26th 2021, 582 large cap funds have a 10-year trailing return > 14.02%. That is, only 16.75% of US large cap funds have outperformed the index over the last 10 years after accounting for “management, administrative, and 12b-1 fees and other costs automatically deducted from fund assets”. Please note on top of this, entry and exit loads will have to be factored in!. This could reduce returns by 1.5 %to 2%.

The Morningstar tool has a way to account for this, but at the time of writing, their Load-adjusted return > index return screen” presents more funds than their “trailing returns > index return” screen. This is baffling, to say the least, so we will not use load-adjusted returns for this study.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

Cut to the Indian scenario: out of the 22 active large cap funds with a ten-year history, only 11 have beat Nifty 50 TRI returns of 11.24% over the last 10 years (26th March 2021). Please note, ten years ago, there were no direct plans. And five years ago, the number of active large cap funds with a 10-year history was only 14 (out of which 9 beat the index over 10 years)! Today the number of active large cap funds is 27. The question active large cap fund investors should ask is, how many are then are likely to beat the index over the next 10 years and if the fund they hold would be one of them.

Also, see:

Back to the US scene. Why is the S&P 500 so hard to beat? Is it because of just a few stocks calling the shots in the index? Yes, that, by definition, is how a market-cap weighted index would behave. These are some historical top 10 S&P 500 stock weights.

A Morningstar UK report says, “Just 90 companies out of almost 26,000 companies on the US stock market have delivered half of the returns over 90 years”. So opportunities are few, and most fund manager bets are likely to fail.

From our earlier reports, readers may appreciate the same situation that prevailed in India from later 2017 to March 2020 when only a few stocks propped up the Nifty while the other market segments (mid cap, small cap) were moving south: Return difference of Nifty 50 vs Nifty 50 Equal-weight index at an all-time high!  Also, see: Nifty 50 equal-weight index surges past Nifty 50 due to market rally.

Then there is the survivorship rate to worry about for at least US funds. Only about 40-50% of funds in many categories survive for more than 10 years. This can result in additional taxes and loads for the investor, further reducing their returns.

Let us round out the discussion by considering the medium and small cap segments of US equity. Out of the 6471 funds listed under “All US equity”, 1314 of them have an equity style box label of “medium”. The S&P Midcap 400 TR last 10Y trailing return is 11.43%. Only 429 funds (32.6%) have a 10 -year trailing return > 11.43%.

There are 1664 funds with an equity style box label of “small”. The S&P SmallCap 600 TR last 10Y trailing return is 12.61%. Only  248 funds (14.9%) have a 10-year trailing return > 12.61%. Also, notice that the S&P 500 has outperformed the midcap and smallcap indices.

To state the obvious, a low-cost passive fund tracking the S&P 500 is the simplest option for the US investor. You would still see “gurus” like Dave Ramsey claim it is easy to find an active fund that can beat the market (guess why?!). It is not easy. It is trivial to do so!

Anyone can look at past data and list the outperformers. The questions are, (1) how many of these outperformers will survive for the next ten years? (2) Even if they survive, will they be able to beat the market? No one knows, but when most active funds fail today, the odds for tomorrow should be slim.

That said, a level-headed approach and outlook are necessary for passive investors. We discuss this in the next article.

Note: The results presented above for the US market were taken from the Morningstar premium fund screener using index returns from spglobal.com. The considerations used in this study may be different from those in other studies, active vs passive study. The author is not intimately familiar with said fund screener’s features or the terminology and rules associated with the US mutual fund industry. Any discrepancies may be brought to the author notice via email: freefincal at Gmail.com.

Check out our new debt mutual fund screener for selection, tracking and learning (March 2021)

Do share this article with your friends using the buttons below.

🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.
🔥Now Watch Let's Get Rich With Pattu தமிழில் (in Tamil)! 🔥
  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter using the form below.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!

About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl-version covers of "Chinchu Gets a superpower".
Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)