Is Your Active Mutual Fund Beating the U.S. Stock Market This Year?

By Christine Idzelis

Historically, actively managed funds have struggled to beat their benchmarks.

Professional stock pickers who run mutual funds focused on U.S. stocks struggled in June, with only a small majority beating their benchmarks in the first half of this year, according to BofA Global Research.

Actively managed mutual funds that invest in U.S. large-cap stocks underperformed their benchmarks in June for a second straight month, with just 40% of managers beating their Russell 1000 benchmark ROI, BofA strategists said in a July 2 note. This year through June, 55% of these funds are ahead of their benchmark, “well above the annual average of 37%,” they wrote.

The U.S. stock market has soared this year on the back of a massive rise in shares of big tech companies like Nvidia Corp. (NVDA), Facebook parent Meta Platforms Inc. (META) and Google parent Alphabet Inc. (GOOGL) (GOOG). The S&P 500 index closed at a new record high on Wednesday, up 16.1% in 2024, with BofA citing its “low breadth.”

Actively managed mutual funds had a “bleak end to a strong first half” for the U.S. large-cap stock market, according to the Bank of America report. Investors are turning to actively managed mutual funds and exchange-traded funds in the hope that they will generate above-market returns, which justifies paying higher fees.

Yet professional stock pickers typically have a hard time beating low-cost passive funds that track the S&P 500.

See: For the 14th consecutive year, the S&P 500 has outperformed the majority of actively managed large-cap U.S. equity funds

Active ETFs attract investors

Passive index funds in the ETF industry manage trillions of dollars in assets, with the popular SPDR S&P 500 ETF Trust SPY alone managing $548 billion, according to FactSet data. While active ETFs are a growing sector of the market, they represent only a small portion of the overall industry.

Active U.S.-listed ETFs have attracted $130 billion this year, or 32% of all exchange-traded fund inflows this year through June, according to a report from State Street Global Advisors. “They are now just $3 billion away from breaking their annual record set in 2023,” Matthew Bartolini, head of SPDR Americas research at State Street, said in the note.

Read: BlackRock launches new active ETFs, expands range amid 'huge' demand

Yet active ETFs represent only about 7% of the $9 trillion in assets in the U.S. exchange-fund industry, according to a research note from JPMorgan Chase & Co. released late last month. “We expect ETFs to increasingly take market share in the active management space at the expense of mutual funds,” JPMorgan analysts said in the note.

Meanwhile, investors concerned about Big Tech's concentration in the S&P 500 have been evaluating equal-weight funds in the ETF market as well as other strategies.

See: Big tech companies' gains are 'incredibly' rewarding, but their dominance has some ETF investors on edge

The U.S. stock market ended mostly higher in a morning close Wednesday, with the S&P 500 SPX up 0.5%, the tech-heavy Nasdaq Composite COMP gaining 0.9% and the Dow Jones Industrial Average DJIA down 0.1%, according to FactSet data.

U.S. stock markets ended trading at 1 p.m. ET on Wednesday ahead of the July 4 holiday. The U.S. market will be closed Thursday to honor the national celebration of Independence Day.

-Christine Idzelis

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

07-06-24 0809ET

Copyright (c) 2024 Dow Jones & Company, Inc.