50% equity mutual funds fail to beat their benchmarks in 2023 (2024)

FAQs

What percent of mutual funds beat the market in 2023? ›

To illustrate, consider the newsletters my firm tracked in 1982. More than 70% of that cohort beat the Wilshire 5,000 in that year, much higher even than the 47% success rate in 2023 among mutual funds and ETFs.

There were around 248 equity mutual funds in the market. Out of 248 equity mutual funds,149 equity mutual funds have failed to outperform their respective benchmarks. In other words, only 99 equity mutual funds managed to beat their respective benchmarks.

Active managers' underperformance in 2023 is still better than the 64% average annual rate reported over the 23-year history of the SPIVA scorecards, said the report, which was released Wednesday. Over the past 15 years, 88% of large-cap stock funds underperformed the S&P 500, while 93% of funds did so over 20 years.

Around 60 equity mutual fund schemes have failed to beat their respective benchmarks in three, five, seven, and 10 year horizons, an analysis of performance showed. For the study, we considered the trailing returns of 146 equity schemes that have completed three years in the market.

Although it is very difficult, the market can be beaten. Every year, some managers boast better numbers than the market indices. A small fraction even manages to do so over a longer period. Over the horizon of the last 20 years, less than 10% of U.S. actively managed funds have beaten the market.

Index funds seek market-average returns, while active mutual funds try to outperform the market. Active mutual funds typically have higher fees than index funds. Index fund performance is relatively predictable; active mutual fund performance tends to be less so.

There are seven mutual funds in the large cap category which have managed to beat the benchmark in the past one, three and five years. These include Nippon India Large Cap Fund, Tata Large Cap Fund and ICICI Prudential Bluechip Fund.

International developed stock fund managers were able to beat their respective indexes in four of the past 23 years, or 17.4% of the time. Meanwhile, emerging markets active fund managers fared even worse. They only managed to outperform in two years, or 8.7% of the time, during these 20-plus years.

Since Buffett took control of Berkshire Hathaway in 1965, the stock has trounced the S&P 500. Its compound annual gain through 2023 was 19.8% versus 10.2% for the broader index. But Buffett says those days of market-trouncing returns are behind it.

What percentage of mutual funds outperform the S&P 500? ›

It found that over the course of one year, 51.08% of actively-managed mutual funds underperformed the S&P 500, and 48.92% of actively-managed funds outperformed the S&P 500.

In fact, at the end of the five years, if you invest $1,000 per month you would have $83,156.62 in your investment account, according to the SIP calculator (assuming a yearly rate of return of 11.97% and quarterly compounding).

Since equity mutual funds are market-linked², they can be volatile. This means if the market goes up, they will generate higher returns, and if the market goes down, it can create chances of loss in mutual funds.

However, mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high expense ratios charged by the fund, various hidden front-end, and back-end load charges, lack of control over investment decisions, and diluted returns.

Because of the year-end many investors started booking profits and cutting back on fresh purchases to balance their book of accounts. So, demand reduced. Secondly, the Reserve Bank of India (RBI) started coming down hard on non-banking finance companies (NBFCs), which were a major source of stock market funds.

Last year, 47% of actively managed open-end mutual funds and exchange-traded funds beat their benchmarks — a marked increase over the 43% hurdle rate in 2022.

For U.S. Equities, the 2022 return was -18.1% and the 2023 YTD return is 24.5%. For World Equities, the 2022 return was -17.7% and the 2023 YTD return is 21.6%. For 60/40 Portfolio, the 2022 return was -17.0% and the 2023 YTD return is 14.0%.

MMFs' aggregate net assets reached a new record of $6.4 trillion on December 31, 2023, according to the OFR's monthly U.S. Money Market Fund Monitor. MMFs experienced cumulative inflows of $1.2 trillion in 2023, the largest on record.

Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7 percent in 2022 to 1.3 percent in 2023. In a plausible alternative scenario with further financial sector stress, global growth declines to about 2.5 percent in 2023 with advanced economy growth falling below 1 percent.