New research from Fidelity Investments suggests that investors looking for actively managed equity funds may want to think carefully before accepting industry-average results as representative.
Fidelity found that by applying two filters — mutual funds with lower fees from the five biggest fund families by assets — the average selected actively managed fund outperformed its benchmark.
Even last year, when the average active fund took a beating, the average filtered fund outperformed its benchmark, after fees, by 70 basis points. It also performed better than benchmarks by 18 basis points from 1992 through 2015 (the new report updates an earlier study).
The average subset of passive index fund lagged its benchmark over that period by 0.04%.
“Industrywide averages can be misleading, and may be doing investors a disservice by giving them the perception that all active funds cannot outperform passive funds, which is simply not true,” Fidelity’s chief investment officer, Timothy Cohen, said in a statement.
“We believe the results of applying certain straightforward and objective filters can be a helpful starting point for investors seeking to identify above-average actively managed equity funds that beat their benchmarks.”
By way of illustrations, Fidelity posited a hypothetical retirement investor saving $5,000 a year in two different accounts.