According to recently published research by Merrill Lynch, only 1 in 5 Mutual Funds beat the market in 2010.
Merrill said growth mutual fund managers actually did the best, with only 30% beating the Russell 1000 Growth Index. Core managers (i.e., Growth/Value blend) did the worst, with only 11% beating the Russell 1000 Index. The percentage of value managers able to beat the Russell 1000 Value Index was 13%.
It is interesting to note that these returns relative to the benchmarks are BEFORE the impact of taxes mutual fund investors might owe on capital gains that were distributed to those investors in 2010. If the Merrill Lynch data had included the impact of those taxes, the relative underperformance of mutual funds vs. their benchmarks would have been more astounding.
If your advisor only uses mutual funds in your portfolio, it would make sense for you to analyze how each of your funds has done relative to their benchmarks. Perhaps your advisor is one of the few who is able to “pick the right manager”. Odds are, they’re not.
