The answer was none.
Not a single one of the initial 2,132 funds managed to achieve top-quartile performance for those five successive years. That hasn’t happened for stock funds since 2011. This time, S&P Dow Jones Indices did the same measurements for fixed-income funds and came up with the same result: zero. Not a single bond fund remained in the top quarter for every 12-month period.
While scoring in the top 25 percent year after year is a fairly high hurdle, it strikes me as a reasonable one. But S&P Dow Jones Indices also used an easier test. How many funds ended up in the top 50 percent year after year over five years? For those 2,132 stock funds, the answer was only 1 percent. That’s still a dismal result.
Consider a very big public school with more than 2,100 students in a class. Not all the high performers will always score in the top 25 percent of their class, but I’d expect that at least some of them would, every year, over five years. If not a single person managed to do that, I’d wonder why. If only 1 percent — 21 of 2,100 — had better-than-average performance every year over five years, I’d think that something was wrong with the school or with the scores.
Why did all the actively managed funds perform so badly in the S&P Dow Jones tests? In an interview, Mr. Edwards said two things were going on.
“First, it’s always hard to consistently beat the market,” he said. “We’ve got two decades that show that. Very few people can do that in the best of times.
“The more subtle thing is the fact that no one has been able to do it lately,” he continued. “And what that shows is that whatever worked well for investors from, say, 2017 to 2021 just didn’t work in 2022, when the markets turned.” In other words, the markets are efficient enough that it’s hard to be better than average for long, and when trends change sharply as they did this year, nearly everyone is wrong-footed.
This is a classic reason for relying mainly on index funds — essentially, accepting overall market returns, no better and no worse. Note that for the 20 years through June, the S&P 500 annually returned more than 9 percent, on average — which means your investment doubled in value every eight years. That’s roughly what an index fund would have done for you — and it’s better than the vast majority of actively managed funds were able to do.