When Active Funds Outperform Index Funds: Part Two

Posted by

By Peter Mastrantuono

Last week, part one of When Active Funds Outperform Index Funds explored the active versus passive fund debate, accepting the conclusion that passively managed funds generally outperform their actively managed peers.

The article also raised the idea that actively managed funds with sustained, superior performance do exist, and above-market returns could potentially be achieved by identifying such funds and investing in them.

This week, we look at three outperforming actively managed funds in three separate asset classes.

T. Rowe Price Blue Chip Growth Fund

The T. Rowe Price Blue Chip Growth Fund is a large cap growth fund that seeks to generate long-term capital growth by investing primarily in common stocks of large and medium-sized companies that exhibit the potential for above-average earnings growth.

The fund has delivered exceptional performance results. As of June 30, 2019, its average annual return over three, five, 10 years and since its inception has exceeded the Standard & Poor’s 500 Index over the same time periods.

For example, the fund’s average annual return was higher than the S&P 500’s return by an astounding 753 basis points over the last three years (+21.72% vs. 14.19%). Since its inception, the fund has generated, on average, 153 basis points higher return every year relative to the S&P 500 (11.19% vs. 9.63%).

The fund manager, Larry Puglia, has been at the helm since 1993.

Wasatch Ultra Growth Fund

The Wasatch Ultra Growth Fund is a small cap fund that seeks long-term capital growth by investing in U.S. companies with market capitalizations of under $5 billion.

Its performance over one, three, five, 10 years and since inception has substantially outpaced its comparative index, the Russell 2000 Growth Index.

In the year ended June 30, 2019, the fund posted a 13.01% return, while its benchmark index lost value (-0.49%). Since its inception the fund’s average annual return of 11.26% has outdistanced the 8.27% return of the Russell 2000 Growth Index.

John Malooly, the lead portfolio manager, has directed the fund for the last seven years and has been with Wasatch for 21 years.

Morgan Stanley Global Opportunities Fund

The Morgan Stanley Global Opportunities Fund looks to deliver long-term capital appreciation through investment in established and emerging companies worldwide.

On the basis of one, three, five, 10 years and since inception, the fund, as of August-end 2019, has generated significantly greater returns than its relevant market benchmark–the MSCI AC World Index.

The fund more than doubled the return of its benchmark index over three years (19.11% vs. 9.17%) and generated an average annual return since inception (12.79%) that was nearly four times that of its relevant index (4.66%).

The fund’s manager, Kristian Heugh, has been directing the portfolio since 2008.

Index funds provide market-average returns. On this, investors can be reasonably confident. For investors seeking above-market returns, it will require some faith—a trust in a financial advisor to find the funds that have outperformed, the belief that the identified funds will continue to excel (yes, past performance is not necessarily indicative of future results), and the self-conviction to remain patient with the fund through the inevitable, short-term periods of underperformance that may occur.

Peter Mastrantuono is a contributing writer to www.myperfectfinancialadvisor.com, the premier matchmaker between investors and advisors. Peter worked for over 30 years in the wealth management industry, focusing on retirement planning, investing, asset allocation and financial planning.

Leave a Reply