2017 Mutual Fund: Performance Report

Sep 04, 2018 | Kyle Sarai


Within the investment industry we are seeing massive flows from actively managed mutual funds to exchange traded funds (ETF’s). Morningstar research conducts a report each year with the success of fund managers versus passively managed products. Below are highlights from the report.


The Morningstar Active/Passive Barometer is a semiannual report that measures the performance of mutual funds vs. passively managed funds (ETF’s) within their respective Morningstar Categories. The barometer is unique in the way it measures active managers’ success relative to the actual, net-of-fee performance of passive funds rather than an index, which isn’t investable.


Three takeaways about Mutual Funds vs ETF’s from our midyear report


1.The one-year success rate among active U.S. stock-pickers declined relative to year-end 2017. Just 36% of active managers categorized in one of the nine segments of the Morningstar Style Box both survived and outperformed their average passive peer over the 12 months through June 2018. In 2017, 43% of active managers achieved this feat.


2. When compared with midyear 2017 figures, active funds’ success rates dropped in 15 of the 19 categories we examined.


3.Stylistic headwinds and tailwinds explain some of the fluctuations in mutual funds success. Also, mutual fund managers tend to have difficulty keeping up with index funds in strong markets, as many will keep cash on hand to make opportunistic investments or meet redemptions. The resulting cash drag can weigh on their performance. The ebb and flow of mutual fund managers’ beat rates tends to be very noisy over short time horizons.


Most mutual fund managers long-term track records leave much to be desired. In general, mutual funds have failed to survive and beat their benchmarks, especially over longer time horizons. If you would like a copy of the report from Morningstar please reach out to me directly.




Kyle G. Sarai, MBA