Robert Nabloid

Yes, Fund Managers Really Do Underperform

Of course mutual fund managers under-perform. Due to diversification rules, most mutual funds are so diversified they are statistically linked to the market average - so most will be fairly close to the market average (a little better or a little worse). Then you must factor in fees. Presto, most are doing worse than the S&P.

I'd be willing to bet that if mutual funds didn't have to follow the diversification rules and many of them held less than 10 stocks, a lot more would outperform the S&P and a lot more would under-perform it, but by greater amounts in either direction. So the diversification rules might protect people a bit from losing a lot - but it also ties the hands of most mutual fund managers from being able to greatly outperform by a lot.