Fund Screener: Active Managers Worth The Fees
We’re all agreed that the vast majority of active stock fund managers don’t outperform their index benchmarks. Thus at first blush it makes plenty of sense that inflows to passive mutual funds and ETFs last year outpaced active portfolio inflows nearly 10:1.
But the efficacy of indexing obscures two salient issues. It’s not necessarily indexing that is all that, but rather the fact that indexing often comes with very low carrying costs: an index fund charging an 0.20% expense ratio obviously has a lot lower bar to step over than a fund charging 1.20%.
Yet that presumes all active managers have too-high expenses to overcome (or they have to take undue risk in pursuit of high returns that can counteract the stiff fee, making them a lousy proposition for sentient investors.) And that’s just wrong.
As Morningstar’s John Rekenthaler clearly laid out, active v. passive is not the right construct to focus on. What matters is cost.
Using YCharts Fund Screener, you can generate a list of actively managed stock funds that when ranked by assets under management shows plenty of the biggest active portfolios have fees of 0.80% or lower.
Before you start sniffing about 0.80% or 0.60% still being a lot more than the 0.10% charged by broad low cost index portfolios, let’s jump to the next important point: if you’re getting something valuable in return, might it be worth considering?
Just looking at funds with at least $5 billion in assets -- a purely arbitrary cutoff -- turns up plenty that have managed to beat the Schwab S&P 500 Index mutual fund (M:SWPPX) and its razor thin 0.09% expense ratio over the past five years.
Yes, that is a cherry picked list. But isn’t that part of your value add, as an investment advisor: finding pockets where active management might be a worthy complement to a core passive portfolio? Are you really sure hedge funds and their 2/20 fee model, or a slice of illiquid private equity, are consistently as good as what some old-school active mutual fund with low costs can deliver? (To say nothing of their liquidity advantage.)
And if you happen to believe that 2015 is going to a breakout year for volatility -- the early going surely points that way -- that just might give a tailwind to active management. Or at least the good ones. Active managers can take advantage of dislocations between prices and valuations; passive portfolios can’t. S&P Dow Jones Indices recently noted that dispersion among S&P 500, S&P Midcap 400 and S&P 600 small cap stocks are near their historic lows. If that moderates, it may just become more of a stock picker’s market. And as you can find in YCharts Fund Screener there are plenty of active managers who’ve been able to earn their keep for an impressively long time.
Carla Fried, a senior contributing editor at ycharts.com, has covered investing for more than 25 years. Her work appears in The New York Times, Bloomberg.com and Money Magazine. She can be reached at email@example.com. Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.