One of the curses of my chosen profession is my internal obligation to read financial industry magazines each and every month. For years I have continued to read article about the same subjects. The similar content reminds me of the old joke about Minnesota committee meetings. That is “everything has been said; but not everyone has said it.”
I did find one recent article in Investment News interesting. It talked about how the CalPERS retirement plan has recently begun a review of much of their money is invested in actively managed mutual funds.
CalPERS, the California Public Employees Retirement System, has about $255 billion in assets. It is one of the largest investment institutions in the United States, and more than half of its assets are currently invested in mutual funds.
The article on CalPERS quoted a recent study by Morningstar which stated that over the last three years only 18% of U.S. large cap mutual fund managers have out-performed the benchmark S&P 500 index.
That means that 82% of all U.S. large cap mutual fund money managers have not even kept up with the investment performance of the most widely-followed U.S. stock market benchmark over the last three years.
Large cap U.S. mutual funds are by far the most popular investment menu option found on any company 401(k) retirement plan menu. I run into Large Cap U.S. mutual funds all the time on the company retirement plan menus that I watch for my individual company retirement plan advice clients.
This being the biggest week of the annual NCAA men’s and women’s basketball tournaments, I immediately thought about the tournament brackets that I filled out earlier in March.
I don’t follow NCAA basketball during the season. But when I looked at my bracket picks, I still had more than 18% of tournament basketball games picked correctly through last weekend’s games.
How in the world can professional money managers only have an 18% success rate at picking the stocks that make up their mutual funds over a three-year period?
More importantly, how are individual company retirement plan participants expected to pick the best mutual funds to own on their company retirement plan menus when investment professionals have such dismal investment results?
Even when the NCAA basketball tournaments are over, it makes you wonder.
Ric Lager
Lager & Company, Inc.
