Will your fund beat the index over a long period ?

Insights from 30 Years of U.S. Equity Fund Performance

An insightful infographic from U.S. market data gives a clear picture of how equity funds have performed over the past 30 years. This data shows the journey of equity funds between 1992 and 2022, revealing some surprising trends in fund survival and performance. Out of all the equity funds, the results highlight that not many managed to perform better than the S&P 500 index, the benchmark most funds aim to outperform.

The Survival Rate of Equity Funds

One of the most telling statistics from this data is that only 41% of equity funds survived over the 30-year period. The remaining 59% of funds did not make it, indicating they either closed down, merged with other funds, or returned investors’ money. This high rate of closure shows that sustaining a fund over decades is challenging, especially when returns are low. Funds often close when they struggle to keep up with market expectations, and mergers are common to help offset poor returns.

Most Funds Struggle to Beat the Market

Out of all the funds that survived, only 10% managed to outperform the S&P 500 over this 30-year period. Around 31% of the surviving funds still could not deliver better returns than the S&P 500. The S&P 500 is often the baseline for performance in the U.S. market, and many funds aim to at least match, if not beat, these returns. However, the data shows that beating the index is much harder than it seems. Most funds fell short, with their returns averaging below 9.5%.

The Real Challenge: Outperforming the Market

These results challenge the traditional belief that choosing a good fund manager guarantees higher returns. Even among funds that survived, only a very small fraction consistently outperformed the S&P 500. When we compare these results with the well-known 80/20 rule, or Pareto Principle, which suggests that 20% of performers achieve better results than the rest, this data paints a different story. Here, only 10% of the funds outperformed, making it even tougher for investors to find a fund that will truly stand out over time.

Implications for Investors

For investors, these findings emphasize the importance of carefully choosing their investment strategy, particularly when it comes to equity funds. Many people jump from one fund to another, hoping to capture short-term gains based on recent performance. However, over time, only a handful of funds consistently deliver returns above the market average. Investors should consider this data when selecting funds, as a strong year of performance does not guarantee long-term success against the index.

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