In the continuing debate over passive versus active mutual funds, there is growing evidence that passive beats active over the long-term, especially among large-cap equity funds, but that doesn’t mean that selective actively managed funds can’t outperform in the short term or long term.
A recent Morningstar report highlighted 10 actively managed large-cap equity funds that beat the S&P 500 over a 15-year period, from January 2002 through December 2016.
Karen Wallace, a senior editor at Morningstar, noted that inclusion in the list doesn’t necessarily mean these funds will continue to outperform the S&P 500 but each of the 15 has been named a Morningstar medalist — gold, silver or bronze — which indicates that the fund rating agency expects they will outperform over a full market cycle of five years or longer.
All 15 funds are relatively low-cost, based on their current expense ratios. Half charge fees in the lowest quartile of U.S. large-cap funds and half place in the second lowest quartile. Only one fund – Amana Income Investor (AMANX) — had an expense ratio that topped 1%, at 1.14%. The cheapest fund was Vanguard Primecap (VPMCX), with an expense ratio of 0.39%. Referring to research by Morningstar analysts, Wallace notes that “success for active funds is much improved when their cost hurdles are reasonable.”