According to Goldman Sachs 65% of funds had worse results in the Standard & Poor’s 500 Index, and the ETFs would get better results by paying lower costs. Annual fees paid equity funds are on average equal to 1.6%, compared to 0.10% of the ETF. Fund performance in 2012 is not surprising given that 66% of failures are the result of the last five years. We have gone from 49% in 2009 to 79 and 76% the next two years. Those who had success are not always the same: only 10% of U.S. equity funds do better than the market for two years in a row.
The only information we have at our disposal is not worth the old saying “the cheaper is expensive”. Choosing between the funds that have a Ter less than 0.75%, the probability of finding a fund that had the worst results of the Standard & Poor’s was 50%. The percentage of funds found profitable decreases with the rise of commissions paid.
The reality is that often, if not usually, fund managers do not try to find the titles that should outperform the market. They are afraid that if their calculations are wrong will eventually pay dearly for their choices and end up replicating the indices with which their active management should be overcome.