We crunched the numbers to see which US funds outperformed the S&P 500 over various time frames. Plenty of column inches have been written over the years pointing out that the US market is a tough nut for fund managers to crack in terms of delivering outperformance above and beyond the S&P 500 Index. The S&P 500 is the world’s most widely researched and followed index, which makes it difficult for fund managers to gain an edge. There are other factors at play, one of which is costs, which are a drag on performance and compound over time. The cheapest exchange-traded fund (ETF) tracking thefortunes of the S&P 500 isthe, which isjust 0.05% a year.Active funds, however, tend to charge 0.85% a year. The gap between the two needs to be overcome by the active fund managerotherwise investors are better off simply tracking the market. But while it is true that the market is notoriously difficult for active fund managers to beat, and that most do tend to underperform over short and long-term time periods, some active funds consistently outperform.
Using data from FE Analytics, interactive investor crunched the numbers to see which US funds had outperformed the S&P 500 index over one, three, five and seven years (all figures to 20 April 2021). We used the Investment Association’s North American sector, which seven years ago contained 123funds,mostly active strategies. When passive funds are stripped out, the number of active funds in the sector stood at104.
In total, 24 funds beat the S&P 500 index over each period, on a total return basis, which includes the effect of fees.
It is worth pointing out that this does not take into account survivorship bias. Seven years ago, there would have been more than 104US active funds in the sector and some will haveclosed, whileothers merged.
Nonetheless, the data shows that while the market is tricky for active funds to navigate,some do consistently deliver. Of course, three in four active funds did not pass this test, so for the sector as a whole there are greater odds of investment success by simply selecting an index fund or ETF.
But, in a number of cases, as the tables below show, funds have outperformed notably over the shortest (one year) and longest (seven years) time periodsexamined. Therefore, gains in excess of the S&P 500 and the passive strategies tracking the index, can be achieved.
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Topping the list over both time periods is Baillie Gifford American, one of the most popular funds on the interactive investor platform. The four fund managers who run the fund back exceptional businesses and aim to hold over the long term.
Baillie Gifford American is hugely growth-oriented, which has been a helpful headwind over all time periods. However, since the start of 2021 the fund’s performance has come off the boil due to the growth style of investing suffering from the reflation trade, resulting in a rotation out of growth shares and into value shares. Year-to-date (up to 20 April 2021) Baillie Gifford American has returned 0.9% versus 8.2% for the S&P 500 index.
A number of fund groups have more than one US fund on the list, including Morgan Stanley, T.Rowe Price, JP Morgan, Janus Henderson and Threadneedle.
Premier Miton US Opportunities is among the 24 funds. The fund is one of interactive investor’s Super 60 choices. Fund managersNick Ford and Hugh Grievesinvest in resilient businesses that have products and services with competitive advantages.
US funds that have consistently beaten the S&P 500 index
| Fund | Seven-year return | One-year return |
|---|---|---|
| Baillie Gifford American | 570% | 88.8% |
| Morgan Stanley US Growth | 510% | 78.3% |
| Morgan Stanley US Advantage | 371% | 56.5% |
| T. Rowe Price US Large Cap Growth Equity | 312% | 39.8% |
| T. Rowe Price US Blue Chip Equity | 291% | 33.3% |
| UBS US Growth | 271% | 37.7% |
| AB FCP I Sustainable US Thematic Portfolio | 264% | 41.2% |
| Wells Fargo Worldwide US All Cap Growth | 260% | 81.9% |
| AXA Framlington American Growth | 260% | 42.8% |
| Janus Henderson US Forty | 257% | 37.7% |
| Alger The Alger American Asset Growth | 256% | 35.8% |
| AB Concentrated US Equity Portfolio | 249% | 35% |
| Franklin US Opportunities | 239% | 34.4% |
| GS US Focused Growth Equity Portfolio | 234% | 43% |
| Threadneedle American Extended Alpha | 229% | 35.6% |
| Premier Miton US Opportunities | 218% | 47.6% |
| Threadneedle American | 217% | 38.1% |
| JPM US Select | 213% | 37.4% |
| Threadneedle American Select | 210% | 37% |
| JPM America Equity | 208% | 43.6% |
| Brown Advisory US Flexible Equity | 207% | 40.9% |
| JPM US Select Equity Plus | 205% | 34.1% |
| BlackRock US Dynamic | 203% | 40.7% |
| Janus Henderson US Growth | 200% | 33.7% |
| S&P 500 Index return (sterling return) | 195% | 32.5% |
Source: FE Analytics. Data from 20 April 2014 to 20 April 2021, and 20 April 2020 to 20 April 2021. Ranked in order of seven-year total return performance.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.
As someone deeply entrenched in the world of investment analysis, I appreciate the meticulous approach taken in this article to assess the performance of various US funds against the S&P 500. It's evident that the analysis extends beyond mere surface-level observations, delving into the complexities of fund management.
The article rightly points out the challenges active fund managers face in surpassing the S&P 500, acknowledging the index's status as the most extensively researched and tracked in the world. The emphasis on costs as a significant factor affecting fund performance resonates with my own understanding. The stark contrast in expense ratios between the ETF tracking the S&P 500 and active funds reinforces the importance of cost management for investors.
The data-driven approach, utilizing FE Analytics and focusing on the Investment Association's North American sector, adds a layer of credibility to the findings. I concur with the acknowledgment of survivorship bias, a critical consideration in such analyses. The recognition that the number of active funds in the sector has changed over time due to closures and mergers demonstrates a nuanced understanding of the investment landscape.
The list of funds that consistently outperformed the S&P 500 over varying time frames is a valuable resource. The inclusion of Baillie Gifford American, Morgan Stanley, T. Rowe Price, and others showcases a diverse set of successful funds, each with its unique approach. The performance figures, ranging from one to seven years, provide investors with a comprehensive view of the funds' track records.
In conclusion, while the article acknowledges the overall difficulty for active funds to outperform, it effectively highlights exceptions and offers a nuanced perspective on the dynamic nature of the market. Investors can use this information judiciously, understanding that while index funds or ETFs may present lower risks, certain active funds have demonstrated the ability to outshine the S&P 500.
