Beating the index isn’t as easy as it used to be, but this screen can turn up large-blend funds that are up to the task.
Over the past few years, beating the S&P 500 has been a layup for many actively managed funds. Small-cap stocks, mid-caps, and even smaller large caps had, until recently, outperformed, so managers of active funds had only to underweight the giant caps that dominate the index to edge past it.
The tables turned in 2011, however. Owing to fears of an economic slowdown, smalland mid-cap stocks tumbled, while large caps and mega-caps held up relatively better. All of a sudden, beating the index doesn’t look all that simple. Through Dec. 14, the average actively managed large-blend fund in Morningstar’s database had lost about 4.9% for the year to date, whereas S&P 500 Index funds had lost a little more than 3 percentage points less. Most active funds de-emphasize the index’s biggest constituents, and many hold hard-hit foreign stocks, likely explaining at least part of the shortfall.
To help identify large-cap-blend funds that have managed to outperform the S&P 500, we turned to Morningstar Principia.
We started by screening for nonindex large-cap-blend funds that Morningstar covers.
Special Criteria = Distinct Portfolios Only
And Purchase Constraints ≠ Closed-New Investment
And Analysis ≠ N/A
And Morningstar Category = Large Blend
And Special Criteria ≠ Index Funds
Then, we looked for funds that delivered better numbers than the S&P 500’s 1.69% year-to-date loss through Dec. 14. (Advisors could also choose to use the S&P 500’s trailing one-year return.)
And Total Return YTD ≥ -1.69
To help identify short-term outperformers that appear to be good bets on a forwardlooking basis, too, we layered on screens for below-average costs (for 2011 through Nov. 18, the Morningstar large-blend category average expense ratio was 1.14%) and reasonably long manager tenures (five years or better).