With just one in four fund managers beating their benchmarks this year, CNBC.com says it might be time for investors to ditch actively-managed mutual funds and just buy index funds. While CNBC didn’t say buy ETFs, anyone worth their salt knows the cheapest, most tax-efficient, most flexible index funds come in the form of ETFs.
CNBC.com reports that “only 23% of large-cap managers beat the S&P 500 and 27% outdid the Russell 1000, according to Bank of America Merrill Lynch.” While the fund managers interviewed for the piece make it seem like this was an unusual year, the actual numbers aren’t that shocking. Scads of research show that the indexes annually beat 70% to 80% of all active funds.
Since 2008, many investors have been wondering what they are getting for the high fees they pay to active mutual fund managers, especially in a down market. While it may be difficult to beat the index on the upside, if active managers can’t protect your assets on the downside, what’s the point of going active?
And it doesn’t look like things are getting better anytime soon. Philippe Gijsels, the head of research at BNP Paribas Fortis, thinks that not only won’t we see a Santa Claus rally, but in fact, the September/October rally was just a respite from an end-of-year decline and long-term move to the downside. Gijsels says the longer the European Central Bank fails to find a solution the worse it will get for the equity markets here and abroad. If this French banker doesn’t believe a solution is near, it’s time to worry.
In another corner of Bank of America Merrill Lynch, technical research analyst Mary Ann Bartels says the sell-off will continue and may not hit a bottom until the first quarter of 2012. She predicts the S&P 500 could test the October low of 1074, a 14% drop from today’s close of 1244.