The Capital Advantage
When you compare mutual funds, it’s not surprising that funds from investment managers who “eat their own cooking” — investing more of their own money in the funds they oversee — have tended to outpace the market index more frequently than their peers. It’s also logical that funds with lower expense ratios have tended to outpace the index more frequently. Combining these two traits — high manager ownership and low expense ratios — can help you identify a select group of funds with a track record of outpacing indexes over long periods.1
The sheer number of available funds can be overwhelming. We examined the large universe of equity funds in Morningstar’s U.S. and foreign large-cap categories over a 20-year period and looked for funds with two traits: those within the lowest 25% of expenses, and those within the highest 25% in manager ownership. We found that the funds with both characteristics (highest manager ownership and lowest expense ratios) meaningfully improved average outcomes for investors.
Look for Funds That Meet Two Key Criteria Large-Cap Equity Funds With Low Expense Ratios and High Manager Ownership
As shown in the chart below, not all funds are equal. Most, in fact, rarely outpace the index. However, funds with the lowest expenses have tended to do better than their peers. And funds with high manager ownership have done even better than that. Significantly, the group of funds that share both those characteristics have done better over five- and 10-year periods.
A portfolio of large-cap funds with lower expense ratios and higher manager ownership, on average, outpaced indexes more frequently than other funds. Since large-cap funds account for a big part of most portfolios, those higher success rates can result in substantial gains.
Two Steps Raised the Success Rate Success Rates in Large-Cap Equities (Net of Fees)
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice.