Actively managed mutual funds have earned their place among the most unloved of paper assets, and rightly so. The high fees combined with persistent under-performance are a serious drag on growing one’s capital. Peter Lynch, famed manager of Fidelity’s Magellan Fund briefly touched on the failure of active managers in his book Beating the Street and even went so far as to suggest allocations to index funds as part of one’s portfolio. This was somewhat prescient as the book was written in the early 1990s, well before the passive investment fad was in high gear. But remember, Lynch himself was an active fund manager. Based on return alone he’s considered among the greatest ever. From May of 1977 through May of 1990 Lynch captained Magellan to an annualized return of 29.06% compared to just 15.52% for the S&P 500.
Funds
Mutual Fund Mea Culpa
I firmly believe that revisiting your mistakes is one of the best ways to learn. Two of the most important lessons I learned early on in my investing experience were: 1) high fees negatively impact returns and 2) actively managed funds typically under-perform passive indexes over longer periods of time. [1] Prior to using low cost index funds in an asset allocation strategy I owned a number of high fee actively managed mutual funds. Below I’ve compiled a list of the active funds that I used to own against a comparable offering from Vanguard. Ten year annualized returns and volatility of the funds are included for comparison. A more detailed description of my ownership with my insights is included for each fund below.
The Personal Finance Engineer 