We crunched the numbers to see which US funds outperformed the S&P 500 over various time frames.
Plenty of column inches have been written over the years pointing out that the US market is a tough nut for fund managers to crack in terms of delivering outperformance above and beyond the S&P 500 Index.
The S&P 500 is the world’s most widely researched and followed index, which makes it difficult for fund managers to gain an edge.
There are other factors at play, one of which is costs, which are a drag on performance and compound over time.
The cheapest exchange-traded fund (ETF) tracking the fortunes of the S&P 500 is the Invesco S&P 500 ETF (LSE: SPXP), which is just 0.05% a year. Active funds, however, tend to charge 0.85% a year. The gap between the two needs to be overcome by the active fund manager otherwise investors are better off simply tracking the market.
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But while it is true that the market is notoriously difficult for active fund managers to beat, and that most do tend to underperform over short and long-term time periods, some active funds consistently outperform.
Using data from FE Analytics, interactive investor crunched the numbers to see which US funds had outperformed the S&P 500 index over one, three, five and seven years (all figures to 20 April 2021). We used the Investment Association’s North American sector, which seven years ago contained 123 funds, mostly active strategies. When passive funds are stripped out, the number of active funds in the sector stood at 104.
In total, 24 funds beat the S&P 500 index over each period, on a total return basis, which includes the effect of fees.
It is worth pointing out that this does not take into account survivorship bias. Seven years ago, there would have been more than 104 US active funds in the sector and some will have closed, while others merged.
Nonetheless, the data shows that while the market is tricky for active funds to navigate, some do consistently deliver. Of course, three in four active funds did not pass this test, so for the sector as a whole there are greater odds of investment success by simply selecting an index fund or ETF.
But, in a number of cases, as the tables below show, funds have outperformed notably over the shortest (one year) and longest (seven years) time periods examined. Therefore, gains in excess of the S&P 500 and the passive strategies tracking the index, can be achieved.
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Topping the list over both time periods is Baillie Gifford American, one of the most popular funds on the interactive investor platform. The four fund managers who run the fund back exceptional businesses and aim to hold over the long term.
Baillie Gifford American is hugely growth-oriented, which has been a helpful headwind over all time periods. However, since the start of 2021 the fund’s performance has come off the boil due to the growth style of investing suffering from the reflation trade, resulting in a rotation out of growth shares and into value shares. Year-to-date (up to 20 April 2021) Baillie Gifford American has returned 0.9% versus 8.2% for the S&P 500 index.
A number of fund groups have more than one US fund on the list, including Morgan Stanley, T.Rowe Price, JP Morgan, Janus Henderson and Threadneedle.
Premier Miton US Opportunities is among the 24 funds. The fund is one of interactive investor’s Super 60 choices. Fund managers Nick Ford and Hugh Grieves invest in resilient businesses that have products and services with competitive advantages.
US funds that have consistently beaten the S&P 500 index
|Fund||Seven-year return||One-year return|
|Baillie Gifford American||570%||88.8%|
|Morgan Stanley US Growth||510%||78.3%|
|Morgan Stanley US Advantage||371%||56.5%|
|T. Rowe Price US Large Cap Growth Equity||312%||39.8%|
|T. Rowe Price US Blue Chip Equity||291%||33.3%|
|UBS US Growth||271%||37.7%|
|AB FCP I Sustainable US Thematic Portfolio||264%||41.2%|
|Wells Fargo Worldwide US All Cap Growth||260%||81.9%|
|AXA Framlington American Growth||260%||42.8%|
|Janus Henderson US Forty||257%||37.7%|
|Alger The Alger American Asset Growth||256%||35.8%|
|AB Concentrated US Equity Portfolio||249%||35%|
|Franklin US Opportunities||239%||34.4%|
|GS US Focused Growth Equity Portfolio||234%||43%|
|Threadneedle American Extended Alpha||229%||35.6%|
|Premier Miton US Opportunities||218%||47.6%|
|JPM US Select||213%||37.4%|
|Threadneedle American Select||210%||37%|
|JPM America Equity||208%||43.6%|
|Brown Advisory US Flexible Equity||207%||40.9%|
|JPM US Select Equity Plus||205%||34.1%|
|BlackRock US Dynamic||203%||40.7%|
|Janus Henderson US Growth||200%||33.7%|
|S&P 500 Index return (in sterling)||195%||32.5%|
Source: FE Analytics. Data from 20 April 2014 to 20 April 2021, and 20 April 2020 to 20 April 2021. Ranked in order of seven-year total return performance.
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