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Julie Jason: How many funds topped the S&P 500 index?

December 17, 2017

I’m in research mode, and I’m wondering: Since the stock market returned about 36 percent cumulative over the past three years through November 2017 (10.8 percent annualized), did any fund managers or ETFs (exchange-traded funds) do better?

Using Steele Mutual Fund Expert’s database, I found quite a few. After eliminating duplicate share classes, I found 977 funds that beat the Standard & Poor’s 500 index (I used an SPDR S&P 500 ETF — ticker: SPY — to represent an investment in the market).

To my surprise, only 74 funds were leveraged. I expected more.

Leveraged funds use higher-risk strategies, seeking to maximize movements of the market to amplify returns. The leveraged funds included growth; aggressive growth; growth and income; small company; financial, health, natural resources (inverse); technology; real estate; and utility funds. The 74 leveraged funds’ three-year returns ranged from a high of 65.1 percent (155.2 percent cumulative) to a low of 11 percent (30.3 cumulative).

That left 903 funds that were not leveraged, including the highest performer, which achieved a 193 percent annualized return for the three-year period (2,421 percent cumulative).

By the way, if you can guess the fund, I’ll send you a copy of my book “Managing Retirement Wealth.” Email me at readers@juliejason.com. I’ll announce it in an upcoming column.

Most of the outperformers were growth funds (41 percent), followed by small-company funds (21 percent).

Five percent (51 funds) were growth and income funds, which are generally lower in risk (measured by beta) than S&P 500 index funds. However, this group’s average beta was higher at 1.09. Returns ranged from a high of 16.2 percent (56.8 percent cumulative) to a low of 10.9 percent (36.5 percent cumulative), with yields ranging from a high of 4.7 percent to a low of zero.

Let me give you a few examples, but only for intellectual curiosity and not for investment selection: That would involve quite a bit more research.

The grouping included SPDR S&P Dividend ETF (ticker: SDY), with a dividend yield of 2.3 percent and a three-year average return of 11.1 percent (37.4 percent cumulative) and a beta of 0.84.

It also included PowerShares High Yield Equity Dividend Achiever ETF (ticker: PEY), with a 3.2 percent yield, average annual returns of 14.3 percent (49.5 percent cumulative) and a beta of 0.74, as well as PIMCO Stocks PLUS Long Duration Institutional (ticker: PSLDX), with a yield of 4 percent, an average annual return of 15.1 percent (52.4 percent cumulative) for the three-year period and a beta of 1.02. Then there was WisdomTree U.S. Quality Dividend Growth ETF (ticker: DGRW), with a 12-month yield of 1.7 percent, three-year annual returns of 11.8 percent (39.7 percent cumulative) and a beta of 1.04.

Returning to the broad list (all 977 funds, including leveraged funds), 12 had returns higher than 30 percent annualized for the three years. Forty-nine had returns between 20 and 30 percent. One hundred fifty-three had returns between 15 and 20 percent.

And the remainder, the majority (763 of 977), were between 15 percent and 10.9 percent, beating the S&P 500 index return of 10.8 percent.

You also have to wonder how these outperformers achieved higher returns. Did they take on greater risk than the S&P 500? The majority did, but a large percentage (411 of the 977 funds) did not. These funds outperformed the S&P 500 ETF on an absolute return basis as well as a risk-adjusted basis.

There are a lot of ways to make money in the stock market — and a lot of research tools available to provide insights. Researching returns is not a way to select investments. After all, return history is someone else’s experience. If you would like to talk about the methodology of choosing mutual funds, let me know — that can be the subject of a future column.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant of Stamford, Conn.) and award-winning author, welcomes your questions/comments (readers@juliejason.com). To hear Julie speak, visit www.juliejason.com/events.