[hackbinary]

It depends on which index. The Dow Jones is an exceeding poor index and a good actively managed fund will out perform it easily.

The Dow does not take into account market cap or float, and when a security comes off of it at $5 a share and a new one goes in at $105 per share, then the index jumps $100 in value.

The S&P is better, but managed funds are usually better.

[jmeyer2k]

90% of managed funds have underperformed the S&P over the last 10 years and studies have shown the funds previous performance has little to no impact on future performance.

https://www.cnbc.com/2019/03/15/active-fund-managers-trail-t...

[turc1656]

While it's true the Dow doesn't take into account market cap because it is a price weighted index, it is not true that removing a $5 security and adding a $105 one jumps the index $100 in value.

Every index has a divisor, which acts to preserve the return. The general calculation for an index level is Level=MCAP/Divisor. With the Dow, the MCAP is simply the sum of the prices instead of the sum of all MCAPS for the individual securities. When you drop one security and add another, the divisor is calculated such that it offsets the change in MCAP. In this way, when the index opens the next day it opens at the exact same level as the previous close and then the real time feeds kick in and update based on the gap up/down of each security in the Dow. The same basic logic applies to all top level indices. The calc changes for gross/net returns, currency variants, hedge calcs, etc. But the same principal applies that there must be a way to preserve the day over day return so that adding and removing securities doesn't throw off the actual index levels and returns.

Your 401k and other investment accounts that report performance do the same thing behind the scenes - particularly 401k. With a 401k you are consistently adding money to your investment pool and placing small trades to obtain more shares of a pool of securities. This influx of money doesn't artificially inflate your personal return for the year because the way the calculation is done is very similar under the hood to how an index is calculated.

[solarkraft]

Interesting that you claim that, since I usually only hear the contrary (actively managed funds don't perform better and the fees are too high).

Does anyone have specific data on this? Does anyone

[turc1656]

I work in this industry. We have detailed reports on damn near everything, including private hedge funds and how they perform. 80-85% of any active management or financial advisory services have not beat low cost index investing over the long haul. The top 15% or so can and do, but the vast majority of the active investments players (that 80% or so) don't make enough to beat passive investment once their fees are taken into account and an appropriate passive benchmark is used. Meaning, if they are actively investing for their client using only US securities and products, we use a major US benchmark to compare against. If they are global, Asia-Pac, Dev/emg, etc. we use one of those to compare against so we are looking at apples to apples. A lot of times they will simply invest in a high growth emerging market and tell their clients that they are beating the S&P 500. Yeah, of course you are. But you aren't beating the relevant emerging markets growth products.

[tunesmith]

What are those top 15%? Is it the same 15% each year? :) Does it include big players that anyone can sign up for like Fisher or Fidelity?