Stock market mutual funds are failing, and their survival is at stake

Fewer
active funds are successfully beating their
benchmarks.
Scott
Olson/Getty

• Fewer equity mutual funds are succeeding at beating
  their benchmarks, according to Morningstar.
• They continue to be trounced by passive mutual funds
  and cheaper products designed to track an index.
• JPMorgan and Vanguard Group this week announced
  products that could put the active-management industry under
  even more strain.

Stock pickers have one overarching mandate: Deliver more returns
than your benchmark index.

But fewer of them are achieving that, according to Morningstar’s
latest
semiannual report on mutual funds, which dives into how
active funds stack up against their passive peers.

The success rate — defined as beating a benchmark — among
actively managed funds this year through June was 36%, down from
43% in 2017. A smaller share of funds found success year-on-year
in 15 out of 19 categories compiled by Morningstar, with
real-estate funds seeing the most success.

“Selecting winning active managers is very difficult,” said Ben
Johnson, the author of the report and Morningstar’s director of
global ETF and passive strategies research.

“Very few of them survive. Very few of them that wind up
surviving also outperform their average passive peers over longer
time horizons.” One exception has been active foreign-stock
funds. …

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