US Mutual Fund Performance, 1991-2023

Abstract

We analyze US-based active equity mutual fund returns from 1991 to 2023.

On average, US large-, mid- and small-cap funds’ gross annual returns are quite close to or slightly below gross benchmark returns. Funds do not exhibit better returns than benchmarks during market downturns. Measured net of fees and compared to net returns of extant index funds (“investable benchmarks”), fund returns trail benchmark returns by an average of 1-1.5% annually, and in the typical year only about 39-44 percent of fund returns exceed their investable benchmark return.

International large-cap funds fare much better, especially during the 1990’s when their gross returns exceed benchmark returns by 3-4% annually. Their results drop sharply after 2000, however: their gross returns exceed benchmark returns by only 1-1.5% annually, and their net returns are equal to or slightly worse than investable benchmark net returns.

International funds’ exceptional 1991-2000 results seem largely due to their avoidance of Japanese stocks, which underperform non-Japanese stocks by 10% annually in this period, along with their overexposure in 1999 to Information Technology stocks, which experience a 159% return that year. Such events’ rarity limits the general applicability of international funds’ 1990’s results.

Performance persistence over 3-, 4-, and 5-year periods is largely absent. In the US equity categories, past relative returns bear little relation to future relative returns, other than that attrition rates are much higher for past low-performers. International large-cap funds are an exception, but when their future returns are measured net of fees and compared to investable benchmark net returns instead of to other active funds, past top-quartile funds become mediocre: their future returns exceed benchmark returns by under 1% averaged across all years, and from 2001-2023 only match their benchmarks.

Our results reflect a stock market that is very efficient in most periods and fund categories, and in which active management’s benefits, which are generally modest even when measured gross of fees, are entirely or more than entirely negated by active management costs.

Keywords: Active Equity Management

JEL Classification: G10, G11