Is your active mutual fund beating the U.S. stock market this year?

By Christine Idzelis

Historically, actively managed funds have struggled to beat their benchmarks

Professional stock pickers who run mutual funds focused on U.S. stocks struggled in June, with only a small majority beating their benchmarks in the first half of this year, according to BofA Global Research.

Actively managed mutual funds that invest in large-cap stocks in the U.S. underperformed their benchmarks in June for a second straight month, with only 40% of managers beating their Russell 1000 benchmark RUI, BofA strategists said in a July 2 note. This year through June, 55% of such funds are ahead of their benchmark, "well above the annual average of 37%," they wrote.

The U.S. stock market has climbed this year on the back of a massive runup in shares of so-called Big Tech companies such as Nvidia Corp. (NVDA) Facebook parent Meta Platforms Inc. (META) and Google parent Alphabet Inc. (GOOGL) (GOOG). The S&P 500 index closed at a fresh record high on Wednesday, up 16.1% in 2024, with BofA citing its "narrow breadth."

Active mutual funds saw a "lackluster end to a strong first half" for the U.S. large-cap stock market, the BofA report says. Investors turn to actively managed mutual funds and exchange-traded funds in hopes they will deliver market-beating returns that make their higher fees worth paying.

Yet professional stock pickers typically struggle to beat low-cost passive funds tracking the S&P 500.

See: For the 14th year in a row, the S&P 500 did better than the majority of actively managed U.S. large-cap stock funds

Active ETFs attract investors

Passive index funds in the ETF industry have trillions of dollars in assets under management, with the popular SPDR S&P 500 ETF Trust SPY alone overseeing $548 billion, according to FactSet data. While active ETFs have been a fast-growing area of the market, they remain a small part of the overall industry.

U.S.-listed active ETFs have attracted $130 billion this year, or 32% of all exchange-traded fund inflows this year through June, according to a report from State Street Global Advisors. "They are now just $3 billion away from breaking their calendar year record set in 2023," said Matthew Bartolini, head of SPDR Americas research at State Street, in the note.

Read: BlackRock launches more active ETFs, ramps up lineup amid 'tremendous' demand

Still, active ETFs only account for around 7% of the total $9 trillion of assets in the U.S. exchange-trade-fund industry, according to a research note late last month from JPMorgan Chase & Co. "We expect ETFs to increasingly take market share of the actively managed universe from mutual funds," JPMorgan analysts said in the note.

Meanwhile, investors worried about the concentration of Big Tech in the S&P 500 index have been weighing equal-weighted funds in the ETF market as well as other strategies.

See: Big Tech gains are 'incredibly' rewarding - but its dominance has some ETF investors on edge

The U.S. stock market ended mostly higher in an early close Wednesday, with the S&P 500 SPX up 0.5%, the technology-heavy Nasdaq Composite COMP gaining 0.9% and the Dow Jones Industrial Average DJIA slipping 0.1%, according to FactSet data.

U.S. stocks finished trading at 1 p.m. Eastern time on Wednesday ahead of the July 4th holiday. The U.S. market will be closed Thursday to honor the national celebration of Independence Day.

-Christine Idzelis

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07-06-24 0809ET

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