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Did Mutual Funds Perform as Expected During the Mini-Crash

Did Mutual Funds Perform as Expected During the Mini-Crash?
For the most part, yes.

John Rekenthaler
Mar 6, 2020
Open Questions
It’s no secret that the S&P 500 dropped 11% last week. Less discussed has been how that downturn affected funds. Did any stock fund categories escape the damage? Did bond funds and alternative funds protect against the carnage? Should 401(k) investors be pleased with their target-date funds? Finally, how did active equity funds fare?


  • I read that article this morning. It should come as no surprise that M* John comes down in favor of indexes:

    Because averages.

    Thus, active funds from the three large-company stock categories finished between 24 and 37 basis points ahead of their index-fund rivals, meaning that they effectively matched them. (Their slight advantage owed primarily to their cash positions.) The prevailing narrative therefore remains unchanged. Index blue-chip stocks--because the cost advantage will ultimately prevail and because active management hasn’t delivered on its vow to beat index funds when the going gets tough.
    You can't beat the averages. Don't buy sector funds because they're all in the index. Don't worry about dividends, because -- total return! Fill your buckets. Don't fill your portfolio with too many funds.

    Well. It is extremely difficult to beat the market. And I do not claim otherwise. I certainly haven't.

    OTOH. If all you do is buy a mimic of the market, all you've got is one ticket to ride. All the way to the top. And all the way to the bottom.

  • "You can't beat the averages."

    That's not quite what Rekenthaler wrote. Rather, echoing Sharpe, he wrote that "active funds in aggregate were destined to track their relevant indexes." Emphasis added.

    It would have been more interesting had he looked at the spread of fund returns, to see whether "good" management (whatever that means) beat "average" or "poor" management. Or whether, in a meltdown, correlation between funds increases as does correlation between sectors.
  • edited March 2020
    Question - where is the author getting an 11% decline in the S&P 500 for the week? All the info I've been looking at shows that the S&P 500 was actually up 0.4% for the week and down YTD -7.6% ? Hard to gain mental traction with the rest of the article after that.

    Edit - FWIW I'm using SPY as my measure/data source. Also, from the Fun with Numbers department: Up 1,293, down 785, up 1,173, down 969, down 256. The Dow point moves this week.
  • For me it's not necessarily about "beating" the index returns. It's more about can you get the returns you need with LESS volatility, better SD and other metrics vs a particular index.

  • Hi @Mark
    Yup, from my at home data, he's doing week ending Feb. 28 for equity; although I don't know about his bond fund numbers; as we have no idea where his undisclosed reference point arrives.
  • @mcmarasco - precisely!

    @catch22 - thanks for the reality check. I'm losing it but I'd hoped I wasn't that far gone yet.
  • msf said:

    "You can't beat the averages."

    That's not quite what Rekenthaler wrote.

    You are right of course.

    I was just getting snarky about the general skein of advice they offer on buying mutual funds, and investing in general. When they aren't touting individual stocks as well managed at attractive prices, cheap defensive, or high quality for contrarians; that is.
  • Yes, his column was somewhat vapid.
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