Michael,
Fixed income portfolios may appear to have different objectives and hence different return goals, but at heart they are simply another portfolio that generate cash at a lesser risk. Hence, if you adjust for risk, they are very well comparable to the market. To re-iterate the point, if a portfolio lags the market in a risk adjusted manner, it is not doing so well. The adjustment is crucial.
Mutual funds, indeed, are huge today. But compared to the total size of the market which has also increased over the years and noting the total number of mutual funds which also has grown over the years, the average NAV of the mutual funds as compared to the overall market has not changed significantly over the years. So, they were always big in a relative sense. In fact, even the largest mutual funds are less than 1% of the entire market, and the smaller ones have little more influence that some individual investors in the DELL thread (I am serious here). Further while size has been shown to be negatively correlated with returns, even adjusted for size majority of mutual funds have consistently lagged the market. Of course, the 80%+ number is a real eye opener and completely novel!
BTW, the average of the average definitely can never beat the market, but nobody is comparing the average of the mutual funds to the market return! If majority of mutual funds lag the market, that is a seriously lop-sided distribution. Also, I do not think that the 80%+ number that I quoted included index funds. The number was for actively managed mutual funds. Now, as for shadow index funds, I am sure than many active fund managers do that. It is best for the investors to drop those funds and go for an index fund IMHO.
-BGR. |
