It's every investor's goal to beat the S&P 500. It's even better if they can do it consistently. However, beating the S&P 500 on a regular basis is becoming an increasingly unattainable feat. An S&P Dow Jones Indices scorecard released last year showed that 86% of active large cap fund managers beat the S&P 500 in 2014. Even worse, 89% came up short in the last five year period while 82% fell behind in the last ten-year period. It's no wonder why index investing has become so popular. If you can't beat 'em, join 'em!
There are a few investments that have managed to beat the S&P 500 and do it consistently. While it's a challenge to find an active fund that's beaten the index in just one year, believe it or not, there are, in fact, four mutual funds that have managed to beat the S&P 500 in each of the last NINE consecutive years! Yes, nine straight years of beating the S&P 500!
It might not be as big a surprise to learn that each of the four are focused on the health care sector, an area that has vastly outperformed the broader market (the SPDR S&P 500 ETF (NYSEARCA:SPY) returned a total of 74% during the nine-year period vs. the Health Care Select Sector SPDR ETF's (NYSEARCA:XLV) return of 153%).
The fearsome foursome of market beaters are: Fidelity Select Health Care (MUTF:FSPHX), Fidelity Advisor Health Care A (MUTF:FACDX), T. Rowe Price Health Sciences (MUTF:PRHSX) and VALIC Company I Health Sciences (MUTF:VCHSX).
While too many investors would take a look at these results and pile every dime they have into one of these funds, it's important to look forward instead of back. Healthcare has had quite a decade long run but this type of outperformance simply can't be expected to continue. The healthcare sector is starting to see its valuation get stretched with an overall P/E of 19 right now (although select names like Gilead (NASDAQ:GILD) and Merck (NYSE:MRK) still seem to be reasonably valued). Hillary Clinton has already talked about lowering drug prices if she's elected in light of the whole Martin Shkreli incident. Nobody knows how that will affect drug companies' bottom line if that gets pushed through.
All of this is to say that it's been a nice run and the run of outperformance could continue but don't count on it.