The financial services industry spends millions of marketing dollars every year trying to convince investors that the key to financial success is picking the right stocks (or mutual fund) or correctly timing the market.<\/p>\n
Yet study after study over the past four decades has shown that most actively-managed mutual funds under-perform their benchmarks. For example, only 27% of actively managed large-cap core funds, or 239 funds, out-performed the S&P 500 index in the first half of 2014, according to a new report from S&P Capital IQ. That’s the lowest level of active managers to beat the index since 2011, when only 19% beat the S&P 500 index for the full year. And this under-performance by active managers applies across asset classes (large cap, small cap, value, and growth) and across markets (US, developed international, and emerging markets).<\/p>\n
Yet at least one fund manager has been able to generate consistent long-term out-performance, without resorting to the futility of active management.<\/p>\n
Dimensional Fund Advisors<\/a> – a firm whose mutual funds we use for many of our clients’ portfolios – was featured in a January 2014 write-up in Barron’s<\/a>.<\/p>\n More than 75% of its funds have beaten their category benchmarks over the past 15 years, and 80% over five years, according to Morningstar – impressive for what some investors incorrectly categorize as index investing.<\/p>\n